Is Parity Pricing for cars in effect in Canada?

[rc2002]

For brand new cars, I'd have to agree that the new incentives actually come pretty close to Parity Pricing. I went onto the Honda website and got the end value, monthly payment, and lease rate on a 48 month term for a Honda Civic SI sedan.

I did a comparison of the total obligation over the 48 month term for 3 cases:

1.) Purchase the car outright
2.) Lease the car with 0 down
3.) Import the car from the US at the current exchange rate.

http://img231.imageshack.us/img231/8164/comparisonby3.jpg (http://imageshack.us)

Basically it works out by my calculations that the best savings are from leasing a car in Canada, then by importing a car from the US, and finally buying the car outright with cash.

Some notes:
-Return on investment is assumed to be 5% which is very realistic over a 4 year term. My guaranteed investments bring in about 5%. For calculations, actual ROI is the 5% less the lease rate of 1.5% and is compounded monthly.
-For each month, the initial cash purchase price less all the previous monthly payments less the amount due at delivery is used to calculate ROI.
-There is a US Resale Value adjustment because US cars plain and simple do not sell for as much as CDN cars.
-The other expenses required to bring a US car over is estimated (i.e. time off work, excise tax, OOP inspection, accomodations, transportation, etc.).

After 4 years, I'm almost 100% certain you could sell this car for more than the end value ($13,606.80) that Honda quotes. So the obligations are actually lower.

This argument falls apart when you start comparing used cars and higher end cars with more markup. But for most cars I'm looking at, it seems that parity pricing is already in effect (and more). I'd definitely buy CDN before US.

[megavolt]

It's funny how all the Canadian dealers are treating the strong Canadian dollar as more of a reason to have a 'SALE' with incentives and marketing instead of just adjusting their prices... :P Reminds me of Soundaround with their 'WAS' prices...

[blownz]

Do you really have the full cash to invest in the lease senario? I ask only because 99% of people that lease do not which is why leasing normally costs more.

Also on the lease buyout amout is it including tax? Most manufacturers fail to clearly state that gst is still on top of that final payment. Just making sure you have it in there. :thumbsup:

Cool spreadsheet though. You mind emailing it out...? :angel:

[max_boost]

^^^

Leasing normally costs more because the interest rate is higher. Most residuals are subject to GST.

The numbers will be different for each car but in this case, the Civic is a smoking deal if you want one. 1.5% lease or 2.9% finance up to 48 months. I bought one :D

If you look even more closely at the numbers, there is no reason to finance and make a higher monthly payment. If you add up your total lease payments + buyout over 48months, you actually save $600 vs the 48month finance.

This scenario: leasing wins.

If you know anyone that's paying cash for this car, god help them.
:nut: :banghead:

[Toms-SC]

How does leasing make sense again? What do you own in the end?

[rc2002]

blownz, I did this spreadsheet to justify what the best way of buying a car is assuming you have the cash up front. But even if the buyer doesn't have cash and still decides to lease, the cost of borrowing is low and the residual is low so they will still come out on top. Since monthly payments are only $300, any other income during those 4 years can go towards investment/debt reduction elsewhere.

I didn't take tax into consideration on the residual because for all 3 cases the residual is constant. If you want a copy of the spreadsheet, pm me your email.


m_b is right - paying cash for this car is a bad decision. This is a 1.5% lease rate too - some Acuras have 0.9% rates right now!

[rc2002]

Originally posted by Toms-SC
How does leasing make sense again? What do you own in the end?

It makes sense because after all is considered, you pay less for the car than if you bought it outright.

[max_boost]

Originally posted by Toms-SC
How does leasing make sense again? What do you own in the end?

Leasing is attractive because of the low monthly payment and a lot of people can write off a portion of the payment on their taxes.

At lease end, you have the option to return the car to the dealer or buyout the car to keep it or sell it. 4 years from now the buyout on the Civic Si will be $14,300. Market value for this car will be higher than the buyout.

If you are worried that you can't come up with the $$$ to buyout the car at lease end, then just finance and pay the extra $200/month.

In this specific case, by leasing you have a lower monthly payment and at lease end when you buyout the car, your total cost vs finance is actually $600 less.

[blownz]

Originally posted by richardchan2002
blownz, I did this spreadsheet to justify what the best way of buying a car is assuming you have the cash up front. But even if the buyer doesn't have cash and still decides to lease, the cost of borrowing is low and the residual is low so they will still come out on top.


Originally posted by max_boost
This scenario: leasing wins.


I'm not disagreeing with the original post or this senario, just trying to clarify a few things. Plus I wanted to point out that some people use the argument that they can invest money when leasing to make it more attractive when in fact they don't have any money so it may not be the best decision.




Originally posted by max_boost
Leasing normally costs more because the interest rate is higher.

Even given identical rates for the identical term leasing will cost more since you are paying interest on a larger principle during the term.


Again, I'm not arguing for or against anything, just clarifying and making sure everything is being taken into consideration. :thumbsup:

I will send you a pm richardchan2002 :)

[blownz]

Originally posted by max_boost
Leasing is attractive because of the low monthly payment and a lot of people can write off a portion of the payment on their taxes.


Again, don't take this as me disagreeing with you, but what unfortunately happens in reality most of the time is this:

Guy walks into the Honda dealer knowing he can afford a $400 a month payment and thinking he wants a Civic LX sedan. He tells the salesman he wants to finance for 48 months and asks if he can make it work and the salesman says "you know for $400 a month I can get you into an Accord sedan...have you considered leasing...?" and next thing you know the guy has a 48 month lease for the same monthly payment as his finance would have been but he has a car he doesn't really need, but likes the idea of having a fancier car to show off to the neighbors.

So now he is paying more for gas and insurance and after 4 years he will own nothing when before he would have actually owned a car at the end.

This is how many people get into trouble and why leasing ends up being bad for most people (even though they won't admit this). :)

[98brg2d]

I have been looking into the leasing vs. buying arguments after seeing people discuss it on beyond and I certainly have found cars that end up being cheaper to lease then buyout compared to buying out in the beginning. Most of the time it is only a few hundred dollars but when you get lease rates for 3% or less for 48-60 months terms it can be a good deal, even if you don't account for the time value of money when looking at the residual.

I haven't looked at the difference between US and Canada other than MSRP and exchange rate since I would use a LOC and I am not sure exactly what rate I would get (I suspect around prime + 1%). Thanks for the work richardchan.

[blownz]

^ just remember that if you pay cash you are often eligible for a rebate that you wouldn't get by leasing or using dealer financing.

As well the example above doesn't include gst in the residule which it should since the full gst is paid in the cash senario.

Just make sure you include everything. :)

[98brg2d]

I would think by the tone of this discussion and the level of attention that some people have proven to give this subject one would think that all possible charges or occurances have been factored in.

It is good that you have mentioned the additional charges for those readers that don't have a complete grasp of the costs required for making an accurate cost comparison.

It is funny that the manufacturers were blabbing about people not doing an accurate comparison between US and Canadian cars and then using scare tactics to try and deter people from actually doing them!