The upside of leasing a new car is that you typically get a better car with a lower monthly payment than if you chose to purchase the car. On the downside, you're not building equity in the car you could face fines if you bring it back with too many miles or excessive damage. But some deals are just too good to pass up. Toyota has several low payment leases right now, but could that hurt the company in the long run?
Log on to Toyota's web site and you can find plenty of great lease deals like the 2010 Toyota Corolla for just $189 per month, the Prius for $199 per month or a 2010 Toyota RAV4 for just $219 per month when you put $1,600 down. But these low lease rates could hurt Toyota over time.
Leases are typically set a prediction of what the car will be worth when the lease term is over, this is called the car's residual value. If Toyota's finance company projects the car's worth to be a high percentage of the new price, the lease price can be low because the money will be made up when the company resells the returned leased vehicles. But if the residual price is wrong, the company could lose money with each returned leased vehicle it subsequently re-sells.
With the Corolla, Toyota is betting it will be worth roughly 60 percent of its value in three years. That's why they can lease a nicely equipped Corolla for $189 per month. The payment goes down to $149 per month if the customer can make a down payment of $1,999. These special lease deals may work well for some consumers but they also work well for the automaker since it means they get to preserve their sticker price and don't have to offer cash back on every new car they sell. Brands like Toyota typically don't offer cash rebates because once those cash rebates start kicking in; people just begin to expect them.
It's also possible Toyota is outsmarting everyone. In the past two years or so, new car sales have been at record lows. According to the Los Angeles Times, "the number of vehicles headed to the junkyard has outpaced the number of new autos sold" and that means fewer good used cars to pick from. Fewer good used cars means higher prices for used cars. Toyota is betting that prices for good, clean, low mileage Corollas will be up thanks in part to that limited supply. Either way, it's a benefit to new car buyers since most are simply looking for the best car for the lowest monthly payment.