05.31.06
Buying a Car or Leasing a Car - Should You Wait?
Ok the ramifications of the GST reduction in Canada. There are concerns of new-car dealers and consumers about the impact in delaying the GST reduction until July 1, 2006. Consumers are anxious for the GST to be lowered to ease the burden of buying things like houses and cars and possibly even car leases.
The minister said that they realized the impact on lost sales of such big-ticket items (like possibly car leasing), but stressed that it’s not feasible for the government to alter its timeline in cutting the GST.
The government is working on a communication campaign to educate consumers on the GST reduction.Hmmmm, now what about new car purchases and leasing a car? New-car dealers need to educate consumers on what the lowering of the GST means from a financial perspective. Do consumers really save money by delaying their purchases until July? Are there advantages in buying today?
If you have delayed buying a new car or leasing a vehicle, decided to postpone even looking for one, let’s clarify some issues.
Anyone in the market for a new vehicle, there are compelling reasons not to delay their purchase until the GST comes into effect in July.
On a leased vehicle, the GST is applied to your monthly payments. Say you lease a vehicle today and your monthly payment is $350. The GST at 7 per cent is $24.50, and GST at 6 per cent is $21. See, immediate and rolling over impact of leasing a car now with the current state of GST. Then again, you may decide to get into a new car lease and later exit the lease - giving the remaining lease payments over to the individual taking over the lease - this may turn them off. If you opt to give them a cash incentive to take over a lease, well - this may suffice for the lease takeover.
Anyhow, that represents a savings of $3.50 a month. Apply that savings over two months, and you’re left with a $7 saving. Remember, on July 1, 2006, your lease payment will only reflect the 6 per cent GST.
Any new-car dealer in the GTA (Greater Toronto Area) would cover the extra $7, if it meant getting a customer into a new auto today, as opposed to waiting for a couple of months.
Keep in mind that as a vehicle ages, the buyback, or lease-end residual, drops approximately every three months. The lease special that you are offered today may not be available 60 days from now. Waiting until July could, in fact, make your leasing payment more expensive than today.
Here’s another reason not to delay your new-car purchase. Most consumers who buy or lease vehicles usually have a trade-in. If a trade-in that is appraised at $15,000 is applied to a $30,000 vehicle, the customer would realize a difference of $150 in tax.
Admittedly, $150 is $150, and most consumers would say that it’s better off in their pockets than in the government coffers. No argument here.
But if you need a vehicle today, and $150 is holding you back from making a deal, then try negotiating with your sales rep. You might be able to negotiate a higher value for your trade-in. Also, consider your options when buying and leasing if you were to sell your vehicle, or get out of the vehicle lease.
The bottom line: a car lease or purchase has to make financial sense, just as leasing a car. Don’t rush out and buy before you’re ready. But if you do the math, you realize that any savings in delaying your purchase are insignificant. Try the lease calculators available to figuire out your lease payments.
Don’t deny yourself that new-car experience if you’re ready to buy today. There are lots of great deals and excellent choices in all vehicle segments.
Res: Robert McMillan, president of the Toronto Automobile Dealers Association, is a new-car dealer in Toronto.