Association of Consumer
The Leasing Vs. Buying
January 28, 2002 – 2:00 PM
Room 256, Ernest N. Morial
Senior Executives from:
Automotive Lease Guide (ALG)
Kelley Blue Book
Terry O'Loughlin – From
the Florida State
Attorney General’s Office
ACVL Press Conference
January 28, 2002
Introducing: The Lease Vs. Buying Quiz
Table of Contents
Randall McCathren, Bank Lease Consultants ................................. 2
Bernard de Souza, ACVL ................................................................... 2
John Blair, ALG .................................................................................. 3
Charles Vogelheim, Kelley Blue Book .............................................. 4
Bob Kurilko, Edmunds.com .............................................................. 5
Ron Loshin, Bank Lease Consultants .............................................. 6
Terry O’Loughlin, Florida Office of the Attorney General............... 6
Closing Remarks (de Souza) ............................................................. 8
“Leasing vs. Buying Quiz: What Will You Do When Your Lease Runs Out?” 12/14/01
“Consumers Choose Longer Term Vehicle Leases” 8/6/01
“ACVL Corrects Consumer Reports Advice on Leasing” 2/27/01
“Association of Consumer Vehicle Web Site Provides Comprehensive Consumer
Information On Leasing” 10/9/2000
Randall McCathren, President, Bank Lease Consultants
Thank you for coming today. Before I introduce this distinguished panel, I‘d like to take just a minute to introduce the
Association of Consumer Vehicle Lessors (ACVL) to you. ACVL is a relatively young association compared to NADA
and the other key players in the automotive area. Its creation grew out of recognition by the largest leasing companies
in the early 1990‘s, whether they were captive finance companies, banks or independent finance companies, that the
industry needed to do a better job of educating consumers, and dealer staff, about how leasing worked and how it
compared to financing. However, it took the vision of Bill Odom, then Chairman of Ford Credit, and Bill Lovejoy, then
President of GMAC, to see that the inconveniences, and potential liability, of embracing new leasing disclosures and
consumer protections were a necessary cost of developing the long-term health and acceptance of leasing.
I think ACVL has remained true to that initial vision. In 1995, ACVL took the unprecedented step of asking the Federal
Reserve Board to expand the Regulation M Truth-in-Leasing federal requirements beyond what the Board thought it
had the statutory authority to require. ACVL then went further and adopted a voluntary capitalized cost disclosure
standard prior to any state or federal requirement to disclose the value of the vehicle to the consumer. The reason
was simple: it was the right thing to do to increase consumer understanding and protect the integrity of leasing.
In late 80‘s, prior to ACVL‘s creation and its leadership role in consumer protection, Ron Loshin and I wrote in our book
and newsletter that consumer leasing was ―the last bastion of under-regulation in consumer financing.‖ I think we
can proudly say today that ACVL has righted that problem. But where we are left today, in my view, is that leasing is
now ―the last bastion of consumer misunderstanding in consumer financing.‖ My personal opinion is that if every consumer were able to complete a thorough economic analysis of leasing vs. financing including: (1) his or her true
personal discount rate on the comparative cash flows and (2) the value of the right to return the vehicle in the all-too-
common instance where it has depreciated below the lease residual value, the great majority of consumers would
realize that leasing would be less expensive than financing for them on a net present value basis. Of course, it‘s valid
as a consumer to simply have a preference for ownership without regard to the relative costs and not all consumers
would meet leasing credit standards. But at least consumers wouldn‘t be misled into thinking that leasing was more
expensive because ―you don‘t own the vehicle at the end.‖ My personal goal, which I think the ACVL web site has
successfully implemented, is simply to help consumers become fully informed about the differences between financing
and leasing, and to dispel the misunderstandings, half-truths and outright falsehoods that circulate about leasing.
With that historical background on ACVL, let me introduce our panel: Bernard de Souza of BMW Credit who chairs the
ACVL Customer Satisfaction Committee that designed the web site; John Blair, CEO of Automotive Lease Guide;
Charlie Vogelheim, Editor of Kelley Blue Book; Bob Kurilko, Vice President of Edmunds; Ronald Loshin, Chairman of
Bank Lease Consultants and Terry O‘Loughlin, Chief Investigator for the Attorney General of Florida.
Bernard de Souza, Chair, ACVL Customer Satisfaction Committee
I would like to start by giving you a little background on the development of the ACVL site. In 1997, the ACVL was
asked to provide input into the development of the Federal Reserve Board web site – A Consumer Guide to Vehicle
Leasing. Much of the content on the FRB site was developed with expertise provided by ACVL members. In 1999, the
ACVL decided to utilize their FRB information and other material to present a simple explanation of leasing for
consumers. Since then we have steadily expanded the site to improve the understanding of leasing for the general
consumer. We also provide extremely complete information for dealers, accountants and sophisticated consumers
through a download from the ACVL.com site.
The reason for spending much of the association‘s resources on the site is to achieve our mandate – to increase
consumer understanding of leasing. The education goal focuses on two areas: helping consumers make their decision
whether to purchase or lease and increasing their understanding of how leasing works.
In addition to writing over 80% of the vehicle leases written in America last year, ACVL members also originate a
majority of the finance contracts for consumers who buy and finance. Thus, the ACVL site is not intended to push
people into leasing, rather to help make the financing versus leasing decision an educated one.
To that end the ACVL.com site includes material on many areas. One of the more unique sections provides common Leasing Advertising Terms. Using an example ad, this section gives an explanation of the most common phrases used in lease advertising.
The ‗Leasing vs. Buying‘ section offers consumers a side-by-side comparison of the major leasing and financing issues,
identifying the areas that are similar and those that are different. The section also includes the Leasing vs. Buying Quiz that we are here to announce.
The ‗FAQ‘s‘ section is split into three sections: the beginning of the lease, during the lease and the end of the lease.
Within all areas of the site, all leasing terms in the glossary are highlighted. Clicking the word opens a pop-up screen that provides an explanation of that term without leaving the page - allowing you to quickly return to the area of interest. I believe this is the most complete leasing glossary available on the web.
The ‗About ACVL‘ section includes a list of the association members, the board of directors and some of our prior
Leasing vs Buying Quiz
The ‗Leasing vs. Buying Quiz‘ represents the culmination of our work on the site. While other sites have similar quizzes, few explain why certain aspects point toward leasing or buying. The Quiz provides points for each question depending on the consumer‘s response. At the end of the Quiz, the customer is given a score indicating whether ―leasing,‖ ―buying‖ or ―either form of financing‖ best suits their needs and preferences.
One area that is rarely discussed in leasing explanations is the sales tax issue - although the benefit is not realized equally throughout the country. The Quiz points out that when you buy a car you pay sales tax for the entire car at the point of purchase. However in non-up-front tax leasing states, you only pay that portion of sales tax applicable to your lease payment. You don‘t pay sales tax on the portion of the vehicle that is the residual.
The Quiz also discusses how the ownership cycle, the desire for a walk-away option and annual mileage impact the Leasing vs Buying decision. Please visit ACVL.com or obtain the information through the sites of other companies participating on the panel.
Protecting the Public Perception of Leasing
An informed consumer is our goal. Thus, the ACVL also is active in pointing out inaccuracies in media reports on leasing and financing. An example of this was our press release commentary on the Consumer Reports December 2000 article on leasing. The Consumer Reports article did not completely cover certain issues while other areas contained what we felt were inaccuracies. For example, they stated: ―Unless you can claim tax deductions for the business use of an automobile, leasing offers no inherent financial advantages over buying." Anyone on this panel could cite you at least five advantages of leasing that have nothing to do with business use vehicles. After Consumer Reports refused to respond to our requests to discuss their article, we took the role of public information provider via a press release that is also available on the site. While the ACVL is not quite a consumer advocate, we feel that it is our role to correct public sources of misinformation. We will continue to do so in the future.
I am pleased to now have the opportunity to introduce John Blair CEO of ALG. ALG is also concerned about consumer education on leasing and has devoted a large part of its site to that purpose. They are recognized as one of the leaders in the development of leasing in the country and are always working to help improve this product.
John Blair, CEO ALG
As CEO of ALG I am proud to be here to support the efforts of the ACVL. By way of background I will tell you a little about our company.
Automotive Lease Guide forecasts Residual Values (lease-end values) for the automotive industry. We have been in the leasing business for 38 years. As such, we are often consulted on automotive leasing matters by both the industry and consumers. While our emphasis is directed toward working with automotive manufacturers and lenders, we also feel it is highly important to provide education to consumers about the risks and benefits of leasing compared to
financing. In our view, leasing still remains a mystery to most of the buying public. When you unravel the mystery
often you find a financing solution that is tailor-made for a consumer. The problem has been educating the public.
The best example I can think of is the effect of declining used car values over the last several years. As many of you
know, automobile manufacturers finance organizations have been aggressive with Residual Values to drive volume
and, of course, the parent company makes a considerable amount of money on the sale of the vehicle. In essence,
they risk potential lease-end value losses against this profit and hope for a strong used car market or low lease-end
returns when the cars mature. Because consumers have the right to return the vehicle and walk away, many lessors
have suffered losses of several thousand dollars on returned vehicles. Somehow, though, consumers still don‘t understand that if they had purchased and financed the vehicle and tried to trade it or sell it, that loss would have been
theirs. Then, even though the lessee may have saved $3,000 on depreciation that he didn‘t pay for in his lease, if he
drove 10,000 excess miles and owes $1,500, the lessee still feels this is somehow ―unfair.‖ It continues to be hard for
consumers to understand the benefit they receive by paying much less per month for the vehicle, not building equity in
their car, and shifting this ―residual risk‖ to the lessor. Especially in hindsight, consumers tend to forget the benefits
they have received and focus only on the out-of-pocket amount they owe at lease end. I‘m glad no one in this room
takes this simplistic, erroneous view.
The ACVL quiz and web site help consumers understand the full benefits, along with the risks of leasing compared to
The ACVL has advanced consumer education in automotive leasing to new levels with the introduction of its website.
In fact we were so impressed with the work that we borrowed the ―leasing 101‖ content from the ACVL for our own
website. In addition we link our visitors to the ACVL site if they are desirous of additional leasing education—that says
a lot coming from a company that‘s name is synonymous with leasing. We have been fortunate to work closely with
the ACVL over the years and have enjoyed watching the success of the association. From it‘s crafting of Regulation M
legislation to the annual lessor‘s survey, the ACVL has continued to advance the interests of both lessors and
consumer lessees in a responsible manner. As a company, we listen carefully to the concerns of the organization and
take many cues from its members. We congratulate the ACVL on launching a fine site and encourage anyone
interested in leasing a car to visit www.acvl.com. In addition, our staff looks forward to borrowing more material in the
Charlie Vogelheim, Editor, Kelley Blue Book
In recent years, Kelley Blue Book and it‘s Internet site, www.kbb.com, have grown to be virtually synonymous with consumer advice on vehicle values. However, we aren‘t content to just tell consumers (as well as dealers and
finance companies) the value of vehicles in different configurations. We also want to be the trusted resource for all types
of consumer information on vehicles.
In that regard, we have taken the initiative to work closely with the ACVL in helping consumers understand
the ins and outs of leasing vs. financing. We think the Leasing vs. Buying Quiz will be a great source of information
for consumers making this decision. Having the Quiz accessible from the ―Advice‖ page of our kbb.com website
now gives millions of car shoppers the opportunity to make a more informed decision on buying vs. leasing. We
recognize ACVL as the experts in the leasing field and applaud the great job they‘ve done with all the leasing
information they‘ve put into their ACVL.com lease site. It‘s definitely the best on the Web.
Probably the biggest consumer issue related to leasing is vehicle condition. If a consumer plans to drive
the vehicle hard, not repair scratches, stains and dents and be lax on following the manufacturer‘s recommended
maintenance schedule, choosing leasing just because the payment is lower can be a big mistake. Inevitably,
these consumers end up owing a substantial amount at lease end because of their failure to follow the
maintenance and ―upkeep‖ requirements of their lease. For example a 1999 Explorer in Excellent Condition shows
a value of $11,365, while the value of same vehicle in Fair condition is $9445. The $1,920 difference is the excess
wear that the consumer might owe if they returned the vehicle at lease end. Moreover, that consumer rarely
understands that they would suffer a similar financial loss if they had financed the purchase of vehicle. The only
difference in the purchase is that the loss is incurred only when they trade in the car. In many cases, to ensure
loyalty, the amount assessed by the leasing company is less than the actual loss in value as a result of the wear.
On the other hand, many of the consumers most suited for leasing are afraid that the vehicle will have to
look brand new or they‘ll be hit with unreasonable excess wear charges. To alleviate this fear, many leasing
companies now provide specific guidance on the extent of the scratches, scrapes and dents that are permissible
before they are judged to be ―excess.‖ The ACVL Quiz alerts consumers to this issue and helps steer the ―wrong‖
consumers away from leasing, while alleviating the concerns of consumers who should be considering leasing.
Along these lines Kelley Blue Book is working with ACVL to develop a survey regarding the experiences of
consumers at lease end.
Coming from California, a high insurance cost state, I‘m also impressed with the good advice the ACVL
Quiz gives in this area. Consumers with the minimum state requirements, or who periodically let their insurance
lapse, are not good candidates for leasing. They often discover, after they have signed their lease, that moving up
to the 100/300 coverage typically required is very expensive. On the other hand, many consumers who already
have 100/300 coverage or more are misinformed to believe that their car insurance is more expensive when they
lease. The ACVL Quiz helps both kinds of consumers understand the insurance aspect of leasing.
About Kelley Blue Book
Based in Irvine, California, Kelley Blue Book is relied upon by both consumers and the automotive industry, as
the trusted resource for car-buying research and information. The company is currently celebrating its 75th anniversary.
It‘s website kbb.com is the number one automotive site in the nation, according to Jupiter Media Metrix and
Nielsen//netRatings. It attracts over 4 million unique visitors generating nearly 30 million pricing reports per month. For
the 4th year in a row, kbb.com is also the most visited site by consumers who go on to buy both new and used
vehicles according to research by J.D. Power and Associates.
Bob Kurilko, Vice President Product Development & Marketing, Edmunds.com
Edmunds is pleased to join forces with the Association Of Consumer Vehicle Lessors in a joint effort to educate the
public about vehicle leasing.
Launched in 1966 Edmunds is a content provider whose mission has always been to provide automotive consumers
with complete, accurate, timely, and, most importantly, unbiased information needed to make informed purchase and
o First with FREE content on the web
o First wireless site
With approximately 3 Million unique visitors a month, and a website that provides complete transparency of automotive
information, this partnership with ACVL is a natural extension of our mission to aggregate and distribute relevant
Consumer Misinformation In The Marketplace
It‘s amazing how much misinformation there is in the marketplace regarding leasing. Clearly there is currently no real
information transparency out there. Consumers naturally avoid what they don‘t understand. There is a lot of angst
that still remain in the public from the days of ―open ended‖ leases and even today‘s mishandling of leases whereby
the lease is structured without regard to the consumer‘s personal situation (annual mileage driven, etc.). Leasing is a
very favorable way to finance a new and used vehicle purchase, but it has to be done properly. Creating transparency
of leasing information is the key to eliminating consumer frustration and also enabling others to take advantage of
leasing as a preferred way to finance a vehicle.
This transparency will come in two forms:
1. Using ACVL‘s information as a foundation to educate the car buying public regarding the general topic
of vehicle leasing.
2. Edmunds is supplementing this qualitative information with uniquely smart, decision tools that guide
the consumer to make the right financing decision based on their individual circumstances. These
products will include a Market Pricing Based Leasing Calculator and a Buy Versus Lease Decision
Tool that will actually tell each consumer, in real dollar terms, whether it is more advantageous to use
traditional financing or to lease.
Closing Comment Using ACVL‘s first rate information combined with Edmunds.com‘s proprietary leasing decision tools, we believe, we will take a mammoth step in creating much needed information transparency regarding leasing.
Ronald Loshin, Chairman, Bank Lease Consultants
I am Ronald S. Loshin, Chairman Bank Lease Consultants, Inc. and Co-Founder and Co-Administrator of ACVL. From
the very inception of ACVL, a sincere and dedicated commitment was made to make consumer vehicle leasing an
exemplary industry in consumer practices and satisfaction. Preceding ACVL‘s inception, this was not the case.
Without reciting a litany of practices that could then be found in the industry, however non-universal and limited they
may have been, the industry was a focal point of regulatory interest and embarrassing media scrutiny, which
undermined public confidence in consumer vehicle leasing. Many companies, particularly many of the captive finance
companies and major banks active in consumer vehicle leasing were, along with consumers, also victims of such
unfair and unethical practices by being placed at a competitive disadvantage and by making the marketing of their
ethical products more difficult. These leading leasing companies came together in 1993 to form the ACVL. Members
of ACVL then accounted for over 75% of all consumer vehicle leasing in the country. With the consolidation that has
since occurred, that figure now may be as high as 85%.
Among the mandates and commonality of interest in the establishment of ACVL was the ―cleaning up of the industry‖
and elimination of unfair and onerous practices. ACVL soon earned an outstanding reputation with both federal and
state agencies for this commitment and our active, indeed sometimes pro-active support in cases when regulatory
bodies lagged behind the industry in their attention to redress these problems. Regulation M (―Truth in Leasing‖)
reform, for example, directly traces its roots to ACVL member initiatives and the work of ACVL staff and member
counsels. Officials of the Federal Reserve Board have publicly recognized the pre-eminent role of ACVL in Reg. M
reform. No less is our standing with state regulatory agencies.
ACVL‘s Web site, the reason we are here today, is an extension of our ongoing efforts to increase public knowledge
and understanding of consumer vehicle leasing. As with our support of regulation when appropriate, we have created
an Internet-based site that has been acclaimed for its wide breadth of information and its OBJECTIVITY. The result is
the wide support and utilization of our site by key Internet providers of car buying and lease finance information, by
Internet services and by public agencies for both their internal use and as a means of furthering public education in
consumer vehicle leasing.
ACVL welcomes and applauds enlightened and well-informed regulators who can work with us to identify and solve
consumer problems. In this spirit, I am very proud to introduce such a regulator – Terrence O'Loughlin, Assistant
Attorney General, State of Florida, who is held in wide esteem by Attorney General offices throughout the country for
his knowledge of consumer vehicle leasing. Terry has most graciously responded to our invitation to comment on
ACVL‘s Web site from the perspective of a regulator. I am very pleased and greatly honored to invite Terry‘s remarks.
Terry O’Loughlin, Chief Investigator for the Office of the Attorney General
for the State of Florida
Thank you for inviting me
Government offices cannot endorse products or services but we can endorse consumer education. We endorse and
encourage all industries to provide accurate information to consumers so that they can make informed choices. In fact,
the truth remains that full and fair disclosure of information regarding consumer purchases, whether they are for
automobiles, products or services, provides the consuming public an opportunity to exercise its buying option with
informed consent. Government agencies spend considerable sums of money to assist in this effort by providing public
service announcements, press releases, brochures, and website data to further this effort.
Experience With The ACVL As a government representative, I cannot endorse the ACVL website and Leasing versus Buying Quiz; however I am here today to support efforts of this nature in providing this kind of informed consent assistance. I think that it is safe to I have had the pleasure of working with the ACVL for the past six years in addressing consumer issues regarding say that most, if not all consumer agencies support these types of efforts. motor vehicle leasing. In fact, my experience with one of the principals of the organization pre-dates the ACVL. Randall McCathren, along with attorney Tom Hudson drafted a model automobile leasing statute sometime around
1994, which predated most if not all the state statutes that were passed in the mid to late 1990's.
My direct experience with Randall began with a leasing consumer education committee sponsored by the Federal
Reserve Board. There were numerous representatives from both the private and public sectors who participated on
this committee, but there was really only one professor: Randall McCathren. He educated the committee, and me in
particular, about the leasing industry and its inherent complexity and served as an excellent ambassador of the
automobile industry. I benefited greatly from this experience.
Since that time, I have had the pleasure of working with Ron Loshin, and the ACVL as well as Randall. They have
been helpful partners in responding to my questions and I want to compliment them for their assistance in responding
to consumer inquiries, which is the subject of this press conference.
Government And Industry
The public and private sectors, especially in the automobile business, shouldn‘t be antithetical towards one another.
Both serve the same essential market: the consuming public. Truly effective economic markets depend upon accurate
information. However, in the early 1990's there was tremendous confusion in the ranks of the consuming public
regarding leasing. And even worse, some consumers became the victims of outright fraud and theft.
The State Of Florida’s Investigation Of Motor Vehicle Lease Fraud
When Florida Attorney General Bob Butterworth directed our office to investigate leasing in late 1992, we didn‘t know
much about the car business or leasing. There were numerous complaints about leasing and they varied significantly.
Consumers were angry about their leasing experience.
Our legal research indicated that the federal Consumer Leasing Act, even though it was a part of Truth in Lending, did
not provide sufficient disclosures for the average consumer. Even with these limited disclosures, some dealers were
avoiding disclosing them by using
―N/A‖ (not available or not applicable).
The result was that there were major discrepancies in these complaints and how the leases were being prepared and
Legal Developments Regarding Leasing
The good news is that I can stand before you ten years later and state that many of these abuses were cured by state
legislation and federal regulation. Many states, such as Florida, passed motor vehicle lease disclosure acts, which
provided contractual information and disclosure so that consumers could better understand their leases.
On the federal level, the Federal Reserve Board promulgated a revised Regulation M, which took effect on January 1,
1998, with direct participation from the industry. The new Regulation M provided many new disclosures, which assists
the public greatly in weighing the advantages of leasing and understanding their leases.
During 2002, many states will consider an even more detailed Uniform Consumer Leases Act, adopted last summer by
the National Conference of Commissioners on Uniform State Laws.
Benefits Of A Quiz Of This Nature
As Albert Einstein remarked, certain matters can be made simpler; however, in some cases, these matters cannot be made simple. Automobile leasing may be the most complex transaction consumers enter. The ACVL‘s Leasing versus Buying Quiz helps consumers identify whether they are good candidates for leasing and simplifies the process. By taking the quiz, consumers are led to consider factors that they may not consider otherwise. Moreover, the answers are explained in complete helpful detail. Consumers can then proceed to educate themselves further if they have additional questions about leasing.
ACVL‘s Leasing versus Buying Quiz does, indeed, simplify the leasing process.
Thank you very much.
Bernard de Souza, Chair, ACVL Customer Satisfaction Committee
I would like to close the meeting by thanking the members of the panel for their participation. John Blair, Charlie Vogelheim, Bob Kurilko, and Terry O'Loughlin have taken time out of their schedules to support a better understanding of leasing. All of the participants have consumer education as the major goal of their organizations. Each has seen the value of the easily accessible information provided by the ACVL and has promoted the use of the information.
I would also like to thank Ron Loshin and Randall McCathren of Bank Lease Consultants, the group that has provided the ACVL with tremendous expertise over their 8-year relationship with the association. Their services have provided the foundation for the success of the ACVL and particularly this web site.
I would like to close by discussing the impact of word of mouth on the public perception of leasing. Often consumers will state that they will never lease again because of an unexpected surprise, usually due to early termination charges or excess wear and tear. They will often publicize their anger about leasing to anyone who will listen. Many consumers who are strong candidates for leasing, upon hearing the outcry, will avoid leasing without taking the time to understand the product. Had that original customer been informed about both the risks and benefits of leasing, they might have lived within the terms of the contract and hopefully would not have been so irate. Why is it that people do not consider being upside-down on a retail installment loan as being a problem of this type of financing? Both types of financing have risks, yet consumers find problems with retail installment loans more acceptable.
One misinformed customer will often lead to many missed opportunities. It is the responsibility of all organizations associated with automotive consumer financing to educate and to provide a balanced view of the available options, both the pros and the cons. The ACVL has done so and will continue to devote its resources towards this effort. Journalists in the audience can support consumer education by referencing the ACVL.com site in both the popular press and in industry periodicals.