As we’ve previously reported, new-car leasing for two or three years at a time is at an all-time high as low interest rates and high resale values continue to keep monthly payments affordable, and a growing number of consumers embrace the idea of trading in their rides as frequently as they do their cell phones.
But are there enough shoppers out there with AADD (Automotive Attention Deficit Disorder) to warrant leasing programs as brief as just 12 months at a time?
We'll soon find out, as Dodge is rolling out an innovative one-year leasing program as a novel way to both clear dealer inventories of 2014 model-year Chargers and Challengers and help jump-start interest on the coming redesigned versions of its racy full-size sedan and "pony car" coupe for 2015.
Under the so-called “Double Up” program, which will run through the end of August, eligible customers will be able to enter into a 12-month lease on a 2014 Charger or Challenger with the option of being able to then trade it in for a spiffy new version at the end of the term with a three-year lease at the same monthly payment – and without having to dig deep for an additional down payment. If a lessee instead opts to purchase the 2015 model outright, they’ll receive a $1,000 cash rebate.
Unfortunately for thrill seekers, the top 470-horsepower SRT Charger and Challenger models are excluded (as is the base SE Charger for bargain hunters and rental car companies), though few motorists looking for a sporty large car would be disappointed with either Chrysler Group’s omnipresent 3.6-liter Pentastar V6 or the only slightly less ubiquitous 5.7-liter Hemi V8.
Specific lease terms were not yet announced as of this writing – click here for full details – but the current models are available for a two-year term at $269/month (for V6-powered SXT models) with $2,999 due at signing. We’d expect similar – perhaps even more affordable – terms to help lure shoppers into what amounts to more of an extended rental period than a traditional car lease.
Unfortunately, given the way car leasing works, Dodge will have to dig into its sales incentives fund to keep both the monthly payment and cash due at signing affordable enough to validate this program in the eyes – and pocketbooks – of consumers.
Car leases are generally based on the difference a given model’s transaction price and its projected residual value at the end of the term, less any down payment, financed at the going rate. Automakers often subvent – that is subsidize – the cost of the lease to help keep it affordable, through cut-rate financing and/or cash assistance. Also, an automaker can help minimize lease payments tweaking various contract terms, such as requiring a larger down payment or a lower annual mileage limit.
Typically a car depreciates the most during its first year of ownership, and far less so during its second and third years on the road; all else being equal this would make the payment on a one-year lease more expensive than that on one with a longer term.
Let’s compare hypothetical guesstimated costs of leasing a Dodge Charger for one- and two-year periods, based on original pricing and accumulated depreciation of 2012 and 2013 models.
A 2013 Dodge Charger SXT that carried a sticker price of $30,390 when new (sans options, title fees or taxes, but including the mandatory $995 destination charge) would now be worth about $25,380 at retail with 12,000 miles on the odometer, according to Kelley Blue Book. That’s a difference of $5,010 that would be financed over the course of a one year lease; assuming a $1,000 down payment (cap reduction, in the parlance of leasing) and an arbitrary interest rate of 3%, that would peg the monthly payment at $339.62 according to the car-loan calculator at bankrate.com. By comparison, a 2012 model that originally went for $29,590 and is worth about $23,839 after two years/24,000 miles would require a hypothetical payment of just $204.20 with $1,000 down based on an only slightly higher $5,751 depreciation.
While admittedly our math is rudimentary, it’s clear that at least on paper, the monthly payment on a one-year lease would be considerably higher than with a two-year term, based solely on the difference in residual values. This would mean Dodge would need to absorb around $3,300 by our count to make the monthly payments equivalent without bumping up the down payment or making other adjustments. (The difference between a one-year and two-year-old R/T version with the Hemi V8 would actually be less because of that model’s higher resale value.)
That may sound pricey, but it’s already in the ballpark, as Dodge is currently giving buyers up to $3,000 cash back (or zero percent financing) on the Charger, and it’s not uncommon for automakers to slap rebates as large as $4,000 on the hood of models in the $20-$30,000 price range – particularly slower selling ones – that are headed for or have recently undergone a major redesign.
The verdict: If the numbers are massaged correctly, this program should be a home run – at the least a triple – for Dodge. It should indeed help clear out the “lame duck” inventory before the new models roll onto showroom floors without cheapening them by slapping hefty cash rebates on their long hoods, while ensuring a quick turnaround of low-mileage used cars back to dealerships. It will also likely appeal to curious consumers who may have always wanted a Charger or Challenger but didn’t want to commit to owning one for a longer term.
It will be interesting to see if Chrysler extends one-year leasing to other models moving forward, or if other automakers – particularly purveyors of high-end luxury and sports cars that already enjoy a high concentration of leasing – will eventually follow suit.
