Based on the request of a regular reader of Money and Such, this post will be dedicated to the age old question: Should you buy a new vehicle or lease one? If you have topics you would like me to cover in future posts, please let me know and I will do my best to oblige.
Let's start with the premise. I think that buying (or leasing) a new car is a bad use of money. Simply put, a car is a depreciating asset, it is NOT an investment. As such, I don't like spending money on my car and I have been driving my 1997 Geo Prism since 1999. Unfortunately, it is pretty much at the end of its useful life, and I too will have to buy a new chariot in the near future. So my first piece of advice is: don't buy (or lease) a new car.
Of course, other people treat their cars differently. Some consider their car a hobby. Others treat it as a status symbol. Some spend so much time commuting that driving in a decrepit old vehicle like mine is simply unacceptable. Whatever the reason, if you have your mind set on a new car, should you buy it or lease it?
The answer to that question is grounded in pure economics: consider all the costs of owning, consider all the costs of leasing, and choose the lowest cost option. This Excel template will help you to consolidate all the different factors and perform the calculation for you.
Exact calculations aside, I would expect leasing to be the more expensive alternative as a rule of thumb. First, leasing is a less transparent deal than an outright sale, and more complicated deals have more places to hide nasty little surprises and fees. Second, for the dealer leasing is probably a much more complex undertaking, and as such I would expect the dealer to demand higher margins to cover his costs. Third, and most important, when leasing you "own" the vehicle at the most expensive point in the cost curve. During the first couple of years in a vehicle's life it depreciates at the fastest pace. By leasing a new vehicle every two years you are dooming yourself to repeatedly owning the most expensive part of the depreciation curve, and let someone else enjoy the milder portion of the curve. That doesn't sound like a very good deal to me.
As a final thought, I would like to propose that instead of buying a new car, you should consider buying a certified, "pre-owned" vehicle. Alternatively, I would consider buying a used car from Hertz car-sales. Hertz sells the top cars from their fleet - vehicles that typically have under 20,000 miles and are approximately one year old. The vehicles are very well maintained, and come with both a manufacturers warranty and Hertz's own short term warranty. The cars sell for a substantially lower price than an equivalent car at the used car dealership, and best of all: it's a no haggle transaction. The price quoted is the final price.
About 3 years ago my wife and I bought a nine month old Honda Accord from Hertz, and I have nothing but great things to say both about the car and about the transaction. The car even had an (almost) "new car smell".