Leased - or fleeced?

  Here's a consumer car puzzle. More Canadians are driving new cars these days. But fewer Canadians are buying new cars. What gives? The answer lies in the explosive popularity of auto leasing. In 1992, leases accounted for only about 10 percent of new-vehicle transactions. By 1997, the figure had ballooned to 40 percent.

Stagnant wages and skyrocketing sticker prices have helped fuel this trend. A recent study for the Royal Bank showed that owning a new vehicle was more difficult in 1998 than at any time in the previous 20 years. Despite low interest rates, the average Canadian had to shell out nearly 42 weeks of pay to buy a typical new vehicle this year, compared with 26 weeks in 1991.

It's easy to understand the allure of leasing: low monthly payments, little or no down payment and the chance to drive a brand-new vehicle every few years. What could be simpler or more convenient?

The appeal of leasing is so powerful that auto analyst Dennis DesRosiers, president of DesRosiers Automotive Consultants in Toronto, calls it "the crack cocaine of the auto industry." He believes that consumers and dealers can get hooked on leasing without considering the long-term effects. "There's an element of voodoo economics in leasing," says DesRosiers. "It's one low payment a month-for life."

Because leasing is essentially a long-term rental agreement where the consumer may have the option of buying, it's a more complex transaction than buying. In short, it's harder to know if you actually save money over the long haul. Few provinces have disclosure laws governing leases, so basic information such as vehicle cost and the interest rate may be missing. This makes it easier for dealers and leasing companies to pad costs, particularly since people tend to focus on the monthly payment.

Leasing consultant Rob LoPresti found it so frustrating trying to compare leasing with buying that in 1993 he developed the CarCalculator software package to help do the job. LoPresti says an ideal candidate for leasing is someone who changes vehicles every two or three years, needs to maintain a certain business image, or needs a more expensive vehicle than he or she can afford. "An example would be a family that needs a minivan but can only afford loan payments on a compact vehicle," says LoPresti, president of OrangeSoft Corp. in Pickering, Ont. "Or a self-employed person who needs a full-size truck."

While it's easy to sign a lease, it can be difficult to break one. Find out what happens if you lose your job or your driver's licence, move to the U.S. or need to switch vehicles. Get assurances in writing. Earlier this year, I heard from the granddaughter of a 77-year-old widow whose husband died after making the first lease payment on a 1997 car worth $27,500. Although her late husband had put $7,200 down, when the widow tried to return the two-month-old vehicle (since she didn't drive), she was told she'd have to pay $1,200 to return it, or find someone to assume the lease. Luckily, a relative agreed to do the latter.

Maryanna Lewyckyj is consumer advocate for the Toronto Sun. She conducts car care seminars for women through her company, Autophobics Anonymous.