LeaseTrader.com connects vehicle-contract sellers, buyers
By TERRY BOX / The Dallas Morning News
The following story was also posted online at www.leasetrader.com.
Tom Houk needed a real car deal.
David Morgan wanted an affordable BMW 335.
Both men say they found what they were after at LeaseTrader.com, a Miami-based company that matches people who want out of a car lease with those looking for a short-term, unusual or lower-cost lease.
How It Works
•Sellers pay $79 to list a vehicle on LeaseTrader.com and a $150 broker's fee when the lease sells.
•Buyers pay $39 for a 60-day membership and a $150 broker's fee if they assume a lease.
•Most manufacturers and finance companies also charge transfer fees, which range from $50 to $500. A few companies, such as Nissan, don't permit lease transfers.
"We're kind of a cupid for cars," said Sergio Stiberman, president and chief executive of the 10-year-old company.
Leasing has never been especially popular in Texas. Dealers say it accounts for about 20 percent of mainstream-vehicle sales, whereas in some states it accounts for half. But the business is growing as new car and truck prices continue to climb.
With leasing, customers pay for the length of time they plan to use the vehicle, which usually results in lower monthly payments than if they bought a car or truck of similar value. Most leases are for 36 or 48 months.
But lease contracts can be difficult and costly to break. And as the economy worsens, Mr. Stiberman is seeing a dramatic increase in the number of people trying to get out of leases they signed a year or two ago and into cheaper ones.
"About 20 percent of the people on our site who exited their leases last year were downsizing," Mr. Stiberman said. "It was 6 percent in '06. That's a huge increase and one we think will continue."
LeaseTrader's biggest battle initially was in persuading finance companies that held the leases to consider allowing them to be transferred.
"At first, they would not open up to transferring leases like we had expected," Mr. Stiberman said. "Some of the leasing companies were set in their ways – and a few still are. But most have come around."
Fitting a need
Mr. Houk, who lives in Arlington, had been scanning the Internet for an answer to his special leasing needs. He recently took a seven-month consulting job in North Dallas and needed a car for his long commute during that period. In his previous job, he had a company car.
PROS AND CONS OF LEASING
UPSIDES
•You avoid paying for all of the depreciation on a vehicle.
•Payments are usually lower than if you bought the vehicle and financed the entire price.
•You pay only for the length of time you plan to use the vehicle.
•You can never find yourself "upside down" (owing more on the vehicle than it is worth) in a leased vehicle as long as you pay on the full term of the lease.
DOWNSIDES
•Most of the time, you never have any equity, which forces many people to keep leasing once they start.
•You are limited in how much you can drive. The limit on most leases is 12,000 miles a year.
•You can't get out of a lease easily.
•There are other costs associated with leases that can push the payments up. Most require tax, title, licensing and the first month's payment in advance, which can add $2,000 to $3,000 to the cost of a lease. Some require security deposits, and some lease finance companies charge upfront fees.
•Dealers generally use a new vehicle's sticker price to figure the cost of a lease. If you were buying the vehicle, you probably wouldn't pay full retail for it.
•Some cities, including a few in this area, continue to impose property taxes on leased vehicles – a vestige from the days when leased vehicles were considered business vehicles.
SOURCE: Dallas Morning News research
"Primarily, I was looking for a deal," said Mr. Houk, 47, who is working as the chief financial officer of a small home health care company. "I needed a lease with a lot of miles [left] on it and because I was going to be in the car for up to 3 hours a day, I wanted something fairly nice."
Through LeaseTrader.com, he found Russell Wilson, an Allstate Insurance agent in Mansfield. When Mr. Wilson's son decided to join the Air Force last fall, "I ended up with more cars than drivers," he said. He decided to get rid of his wife's 2005 Mercedes-Benz CLK 320.
"It was pretty seamless," said Mr. Wilson, 44. "If I had not found this, I would have ended up making payments on a car I didn't want or need."
In many ways, the Mercedes could have been a tough sell. The Wilsons had a three-year lease with only seven months remaining on it. More problematic was the $890 monthly payment, which was high because Mr. Wilson had bought an extended mileage allowance so the car could be driven more than the typical 12,000 miles a year permitted in most leases.
According to Mr. Houk's estimates, he should be able to drive the car 3,500 miles a month for the remainder of the lease and still get money back for unused miles.
"I've seen Mercedes like this lease for $600, so this is high," he said. "But by the time I get done with the car, I expect to get back $2,500 for unused miles, I will have driven it 24,000 miles and it will have cost me $3,500 or so."
Likewise, Mr. Morgan found a black 2007 BMW 335 for considerably less than it would have cost to lease one new.
In most leases, the buyer pays tax, title, the first month's lease and often a deposit up front. Sometimes, there are additional dealership or finance-company fees, pushing the total down payment to $3,000 or more.
The sedan he found in Boston was a year old and had more than 12,000 miles left on the remaining year of the lease.
"It worked very well for me," said Mr. Morgan, 34, of Dallas, an insurance consultant. "The guy who had the car said his wife was having a baby and the 335 wasn't big enough for them anymore. It cost $800 to transport the car down here, and we split that cost. But that's a whole lot cheaper than $4,000 or $5,000 up front."
Better off
With a lease, the seller – usually a new-car dealer – takes the price of the car, subtracts its estimated value at the end of the lease and charges the customer the difference.
So, if a customer buys a $30,000 car on a 24-month lease, and that car will be worth roughly $20,000 in two years, the customer will pay approximately $417 a month before interest on the $10,000 difference.
"It used to be that only businesses leased cars," said Mr. Stiberman, LeaseTrader.com's CEO. "If you are going to keep a car for more than five years or you drive more than 15,000 miles a year, you should buy. But everyone else is probably better off leasing."
LeaseTrader.com, which claims to have pioneered the trade concept and is the largest of several lease exchange companies, usually has 20,000 vehicles listed on its site and expects to facilitate 45,000 transactions this year – up 28.5 percent from 2007, Mr. Stiberman said.
"Most vehicles transfer in two or three weeks," he said.
Although the privately held company does not disclose its revenue, LeaseTrader.com probably earned about $10 million last year based on the fees it charges and the exchanges it facilitated.
Company officials did not dispute that estimate.
"I get questions on this issue every week, and I have had thousands of people over the years as a dealer that I could not trade out of a lease," said Jerry Reynolds, the former managing partner of Prestige Ford in Garland who hosts an auto advice show on WBAP-AM (820). "It's a big deal."
In a quick review of the LeaseTrader site, Mr. Reynolds said many of the leases being offered looked high to him.
"I figure a lot of these sellers are desperate people," he said. "It looks as if most likely, the car they are trying to get rid of is not worth the payoff."
David Thomas, managing partner of Subaru of Dallas and Subaru of Plano and owner of Park Cities Leasing, basically agreed.
"I imagine you've got people who two years ago could afford a $600-a-month payment on a luxury car," said Mr. Thomas, a veteran of the retail car business. "They still want that luxury car, but today they might be more comfortable with a $450 payment and need to downsize."
But both said the site probably has some bargains as well.
As a first-time customer, Mr. Houk says he is satisfied enough that he may use the service again when the lease on his Mercedes-Benz expires.
"I'm actually scouring the site now, looking for another deal, because I turn the car in in June," he said.
This story posted by LeaseTrader.com, the automotive service company that lets people transfer out of their Car Leases early. If you're looking to swap a lease or transfer out of your car lease, please visit www.leasetrader.com