Subvented Lease

I first heard the term, subvented lease, a few years ago while I was completing the paperwork on a 2008 Hyundai Veracruz. When I thanked my sales person for making the leasing process quick, painless and easy, he told me that he realized I was after a subvented lease, and the Veracruz was the obvious choice. That’s nice, I thought, but what does he mean by subvented lease? That was a term I hadn’t heard before. I looked it up when I got home.

What is a Subvented Lease?

A subvented lease is simply a discount or subsidy used by car makers to provide car shoppers with an attractive monthly car lease payment offer in order to promote or increase sales on specific models. It is also known as a, subsidized lease. This is similar to the manufacturer discounts or rebates offered on the purchase price of certain cars. Often, these rebates are offered on cars that are not selling as quickly as they would like. There are many ways to get the price down on a car lease: Increase the residual value; discount the Money Factor  (interest rate); or through dealer incentives  reducing the cars capitalized cost. The result of these financial promotions is a subvented lease. Car Lessees are much less like to have heard this term than car dealers and while it doesn’t come up very often in glossaries or car leasing guides, a subvented leasing means nothing more than a good car lease deal. So, where do you find them?

Where to find Subvented or Subsidized Leasing Offers

Many of the car lease deals published on manufacturers and dealer’s websites and car lots can be considered subvented leases. There are a few exceptions and you can spot them by reading the fine print underneath the lease offer: Large down payments are usually just sales ploys to make a lease payment look better than it really is. With a subvented lease, the dealer or car maker is taking the hit in the form of a higher-than-average residual value; lower-than-average money factor or a huge discount off of the MSRP, to give you a low monthly payment. Calculating your average car payment and lease value ratio will help you discern the difference between a good lease deal and an overhyped one. Any dealer can make a car lease payment look lower by requiring a large cap cost reduction, but how is that a good car lease deal?  A good car lease deal is a subvented one. It is important to remember that some car makes and models simply lease better than others; usually due to higher resale values. The Monthly Car Lease ratings uses the LVR formula to rank 30 car lease deals every month. You can safely assume that most of these cars ranked in the Top-10 or with an LVR of 1.10% below are subvented leases.  It is also possible that a car with an LVR as high as 1.35% is subvented if it is a model that has a low residual value. Leasing is not a one-size-fits-all proposition.

Example of a Subvented Lease

By using the actual residual value, money factor and MSRP listed on the website we can get a reasonable idea on what a non, discounted lease deal might look like on a 2012 Honda Accord LX. The Accord has an MSRP of $22,950; a typical money factor of .002992 and residual value of 47% or $10,800. By doing the math or using my handy lease calculator,  I can see that the Accord would lease for $429.00 a month with nothing down; no discount off of the MSRP and a term of 36 months. Wow, that’s a pretty high lease payment, isn’t it? For just a few dollars more you could buy the Accord on a 60 month loan. Now, look at the Honda Accord LX Lease offer for January, 2012. The $250.00 a month payment is nearly $200 lower! Now, that’s a subvented lease. What makes the payment so low could be a number of things; higher residual, lower interest rate, huge MSRP discount; or probably a combination of all three. In reality, a dealer will always knock a little bit of money off the MSRP, so the $429.00 original lease payment is a bit of a stretch, but you can see the importance in a subvented leasing.