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Help! Doug: Why Are Auto Lease Details Kept Secret From Consumers?


2010 Nissan Titan

Q. My accountant says that I should lease a new truck. However I don't understand auto leasing and when I try to negotiate with the dealer, the things I consider important to know seem irrelevant to the dealer. First of all, I want to know what kind of profit the dealer is going to make on the lease. They're going to sell the truck I pick out to Nissan Motor Credit, who in turn will lease that truck back to me. Yet the leasing manager said that "if I understood leasing, I'd know that the only thing that really matters is whether I'm ok with the lease payment." This doesn't seem right. Shouldn't I know what kind of mark-up the dealer is making on my lease deal?  

DOUG: In a perfect world, the answer to your question would be "Yes, you should know all that and more". In addition to revealing the sale price Nissan Motor Credit will pay for the truck you lease, the dealer would disclose the APR rate that the lease's "money factor" corresponds to. On top of this, you would also be shown how the lease calculation arrived at the lease payment.

It does seem unfair that the disclosures required of a dealer when they finance you (the amount of money financed, the interest rate, etc) are not required of dealers when it is a lease. However, when you lease, you are not the owner. You are the renter, much the same as a tenant renting a home from a landlord. From many dealers' perspectives, the fact that you are in the same position as a tenant means you don't have the right to know the sale price someone else pays for the truck they will own.

Think of it this way: If you buy a rental property and rent it out on a year lease, how would you feel if a potential tenant demanded that you tell him how much you paid for the property, no less what kind of net profit you stand to gain if he signs your lease agreement. This analogy helps you understand why many dealers insist that that only party that should be privy to the sale price and interest rate is the buyer of the vehicle, not the lessee, who is merely paying rent to use the vehicle for a set time.

I personally agree with your position, and find the argument above to be unacceptable. An auto lease is fundamentally different than signing a lease to rent a townhouse. One of the most significant differences is that the company, in this case Nissan, that is going to buy the truck to lease it to you doesn't care about the profit that the dealer makes off of the sale of the truck. All that matters is whether or not you are an excellent risk, and willing and able to afford the monthly lease payment presented to you. If Nissan's underwriters view you as an excellent candidate for living up to the terms of the lease, the financial institution offering the lease is going to make a reasonable profit. It really doesn't matter if they pay a price that gives the dealer a marginal profit, or if the dealer sells the truck to them for the maximum possible profit; the finance/leasing entity that will buy the vehicle and lease it out is guaranteed to make a satisfactory profit.   

Full disclosure in auto leasing would hurt the profitability of leasing for many dealerships, who really depend on consumers negotiating payment, and not knowing the various ways that a dealer can build extra profit into the lease deal. 

I also know that the industry does not want full disclosure mandated. Back in the 1990s, I helped write a bill for the Colorado legislature that, if it had been ratified, would have required full disclosure of the sale price and every other cost involved in a consumer auto lease. It would have revealed to the consumer the relative interest rate being charged, which is built into something that is called "the money factor". Finally, the dealer would have been required to provide the consumer with the entire lease calculation in a format that would have "required no explanation". In other words, it would be in a format that any consumer with elementary school math skills could follow, and even check for accuracy.


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