TAX RE­FUND SYS­TEM MAY HURT LEASES, USED CAR SALES

The Gulf Today - Business - - FRONT PAGE -

The warn­ings flashed a few years back: 2019 was to be a year of the “lease tsunami.” A glut of cars, trucks and SUVS leased a few years ago are set to come off three-year leases and re­turn to dealer lots, driv­ing down used car prices. In 2019, we’re ex­pected to hit a peak of 4.1 mil­lion re­turns of leased ve­hi­cles.

The threat of a tsunami re­mains but so far ex­perts say the im­pact might not be dire as ex­perts and Wall Street an­a­lysts ini­tially fore­cast.

Used car prices look like they might be able to hold up fairly well, as the job mar­ket re­mains strong and the US econ­omy con­tin­ues to grow.

“What we’re see­ing is we’ve got a hot econ­omy and all these off lease ve­hi­cles are be­ing ab­sorbed,” said Char­lie Ch­es­brough, senior econ­o­mist for Cox Au­to­mo­tive. Cox owns car-shop­ping web­sites in­clud­ing Kel­ley Blue Book and Au­to­trader.

Sure, risks re­main. Wild swings in the stock mar­ket, a fed­eral gov­ern­ment shut­down and news about lay­offs at big com­pa­nies, in­clud­ing Gen­eral Mo­tors, all can erode con­fi­dence. In Michi­gan, who doesn’t know some­body who is wor­ried about los­ing a job?

An­other lurk­ing un­known: How ex­actly will your tax re­fund com­pare to last year’s pay­out?

Tax re­fund checks play a big role in sell­ing used cars. A $2,500 or $3,000 in­come tax re­fund can be a siz­able down pay­ment, par­tic­u­larly on a used car.

The peak pe­riod for used ve­hi­cle sales typ­i­cally fol­lows when tax re­funds have been re­ceived by most house­holds, ac­cord­ing to Jonathan Smoke, chief econ­o­mist for Cox Au­to­mo­tive.

Now, there’s a grow­ing con­cern that some house­holds could re­ceive a far smaller re­fund − or might even owe a big­ger tax bill than they’d nor­mally ex­pect − be­cause they re­ceived more money each week in 2018 in their pay­checks, thanks to changes in the tax with­hold­ing tables un­der the new fed­eral tax law.

A Cox Au­to­mo­tive anal­y­sis of em­ployee with­hold­ings in­di­cated that the amount be­ing with­held from each pay­check for taxes is even less than the tax rate re­duc­tion should have pro­duced.

Many peo­ple may not have been with­hold­ing enough in taxes out of their pay­checks in 2018 to even cover the new, lower tax rate, Smoke warns.

As a re­sult, there’s a siz­able risk for a sur­prise in the spring when it comes to see­ing smaller tax re­funds.

While work­ers were en­cour­aged to re­view how much money was be­ing with­held and per­haps ad­just their W-4 forms to have more money with­held, most peo­ple didn’t do that, ac­cord­ing to H&R Block and oth­ers.

If the re­fund is far smaller, ex­perts are con­cerned that some con­sumers may be far less mo­ti­vated to go out and buy a used car.

And, of course, we don’t re­ally know if the fed­eral gov­ern­ment shut­down will lead to de­lays of some sort when it comes to is­su­ing fed­eral tax re­funds.

The gov­ern­ment shut­down is mak­ing the “sit­u­a­tion even more murky,” Smoke said.

Right now, the strength of the used car mar­ket could be used to ben­e­fit some con­sumers who are see­ing their cars and trucks come off lease.

Con­sumers who are at the end of a lease might want to re­view the resid­ual val­ues − or the ex­pected value at the end of the lease.

Brad Korner, gen­eral man­ager of Cox Au­to­mo­tive Rates & In­cen­tives in Ann Ar­bor, said con­sumers can use in­for­ma­tion that’s avail­able on­line to their ad­van­tage to un­der­stand what that leased ve­hi­cle is now worth. On­line sites, such as Kel­ley Blue Book, can help.

You’d also want to re­view your lease con­tract, Korner said, to see the es­ti­mated resid­ual value for your ve­hi­cle.

If the mar­ket value now is higher than that resid­ual value, it may be pos­si­ble to ne­go­ti­ate a bet­ter deal if you’re go­ing to lease or buy an­other car.

Used-car prices saw some drops dur­ing parts of last year, but over­all prices in­creased, ac­cord­ing to data from Man­heim, a Cox com­pany spe­cial­iz­ing in auto auc­tions.

The Man­heim Used Ve­hi­cle Value In­dex posted a 4.3 per cent year-over-year in­crease in De­cem­ber.

Cars and trucks that were 3 years old ended De­cem­ber worth 2 per cent more than they would nor­mally have been worth had typ­i­cal de­pre­ci­a­tion oc­curred, ac­cord­ing to the Man­heim Used Ve­hi­cle Value In­dex. In­stead, used car prices ben­e­fited from some more ben­e­fi­cial ap­pre­ci­a­tion dur­ing the sum­mer.

No sur­prise, per­haps, but more af­ford­able com­pact cars and mid­size cars showed the great­est in­crease in val­ues. But re­mem­ber this tip: Don’t walk into a deal­er­ship and say any­thing like, “My lease is up next week.” It only makes you look like a des­per­ate shop­per.

An­a­lysts ex­pect leas­ing to con­tinue to re­main strong in 2019, par­tic­u­larly as con­sumers con­tinue to fo­cus on a man­age­able monthly pay­ment. You can still spot pay­ments un­der $200 a month.

Leas­ing should re­main a pop­u­lar op­tion for au­to­mo­tive con­sumers in 2019.

About 30 per cent of new car sales are ex­pected to in­volve leas­ing, sim­i­lar to the rate the last few years, ac­cord­ing to Scot Hall, ex­ec­u­tive vice pres­i­dent of Wan­talease.com.

“It is likely that man­u­fac­tur­ers will work hard to re­tain those clients they presently have in leases now,” Hall said. He ex­pects to see more loy­alty in­cen­tives to cur­rent lessees to stick with their cur­rent brand and there is also the po­ten­tial for ag­gres­sive pull ahead pro­grams, as well, to trade in a leased car early for an­other car.

The best lease deals in 2019 will be on tra­di­tional mid-size sedans, which are in less de­mand than SUVS and trucks, he said.

“We may also see an in­crease in at­trac­tive pickup truck leases be­ing of­fered stem­ming from new model in­tro­duc­tions like the Chevy Sil­ver­ado and the sub­se­quent sales bat­tle be­tween pickup man­u­fac­tur­ers that will en­sue,” Hall said.

In ad­di­tion, leas­ing will likely gain an even stronger foothold on elec­tric ve­hi­cles as more mod­els are in­tro­duced, he said.

For ex­am­ple, the Chevro­let Cruze is be­ing of­fered at $189 a month; the Honda Civic is priced at $179 a month; and the Ford Fo­cus is of­fered at $159 a month, ac­cord­ing to ac­cord­ing to Wan­talease.com, a mar­ket­place for new lease deals.

The Volk­swa­gen Jetta is priced at $139 a month on Wan­talease, mak­ing it the most af­ford­able ve­hi­cle for Jan­uary, ac­cord­ing to the on­line mar­ket­place.

In metro De­troit, Cox Au­to­mo­tive spot­ted a 24-month lease deal for $129 a month, with $999 down, on a 2019 Chevro­let Cruze.

One 24-month lease deal on a 2019 Chevy Trax was even as low as $39 a month with $999 down.

Once again, though, con­sumers are warned to do their home­work when it comes to a su­per-at­trac­tive lease pro­mo­tion.

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