Ask Jack: Prius Inter Pares

It’s another underwater lease question! Never learned to swim! But I think this one will be even easier to answer.

my wife has a 2013 toyota prius persona with the nice 17 inch wheels. she has a 3 year lease. we are 16 months in and she already has over 23,000 miles out of the alloted 36 k miles on the lease. After 36k it is .025 cents per mile. The car is 22,000 to buy out right now. Around 15k to buy when the lease is done. she likes the car. it gets above average epa- unlike ford, hyundai. even in the winter of minnesota she usually got mid 40’s which is still better than anything else on the road with the exception of the volt & tesla. anyways, what should we do with it? should we attempt to get out of the lease? there is probably a 1500 penalty of negative equity. my manager of the toyota dealer says stick with the prius as the mileage she drives will pay for the extra money we have to pay for the mileage being over 36k. would love your thoughts. does it make sense to try and get her into a traditional car- i.e. a 2015 honda accord sport?

This gives me a chance to rant for a moment about lease mileage. Buy it up front. It’s always cheaper that way. Yes, it’s possible that you won’t need it, but if your life is unlikely to change in a lower-mileage direction, it always pays to buy the mileage at the beginning of the lease rather than the end.

Twenty-five cents a mile is, frankly, rapacious. No way this is a Toyota Motor Credit lease, right? Which brings me to another lease rant: Unless you’re wealthy enough to cover a wide variety of bizarre charges, never lease with anybody but the manufacturer captive finance company. It’s simple, really: The manufacturers view your lease return as a chance to get you into another one of their cars. The banks view lease returns as a profit center. Time and again during my time at dealerships I saw banks crucify lessors for “damage” that wouldn’t have rated a second look on a captive return.

The best leases are the Ford two-year Red Carpet leases; the worst are the five-year open-enders from third-tier banks. That’s how D-listers in Hollywood lease their Lamborghinis. It’s also, quite memorably, how my father leased a 733i about thirty years ago. He did it for the tax advantages, which have long since disappeared, but the money he paid to walk away in the third year of that contract was enough to make him bleed from the eye like Mads Mikkelsen in Casino Royale.

Back to our Prius-driving friend. Let’s do some back-of-envelope stuff. 23,000 miles after 16 months is equal to about 52,000 miles by lease-end, for a rather stout overage charge of about $3,900. That’s real money.

Will the admittedly stellar fuel economy of the Prius pay for that? Let’s keep that envelope out and doodle some more. The next 29,000 miles could be done in the Prius, which returns 45mpg, for a total of $2300 or so. Trading in for one of my favorite cars, a Dodge Viper TA, would drop that mileage to about 15mpg (in my Viper experience), for a total of $6700. So the dealer has a point — as long as my reader wants a Viper. And who doesn’t?

But let’s say he chooses an Accord Sport with CVT, a car I would expect to return about 32mpg in similar usage. Now the fuel bill is down to $3200. That’s only a $900 savings against a lease overage of $3900. So the dealer’s lying, or his calculator is broken.

So keeping it to the end isn’t necessarily a money-saver. But what are the alternatives? Is the negative equity in the car really just $1500? I doubt the car would bring any more than $19k at auction. So the negative equity is closer to three grand. But here’s the interesting part: a Prius with 55,000 miles on it that is two years older can still fetch sixteen grand. It’s possible, therefore, that our reader might find himself with a bit of positive equity a couple of years down the line.

Notice a trend here? As with our last questioner, this fellow and his wife have a car the resale market for which is not mileage-sensitive. Were he lucky/unfortunate enough to be driving a Maserati or even an Audi, he’d find it difficult to shuck off his 55,000-mile three-year-old car for anything like the lease-end value.

So the question becomes: Pay a known amount now, that known amount being the cost to trade in, or gamble on the Prius retaining its value for twenty more months? I know where I’d place my bet: on the girl with the shirt.*

* Man, nothing like heavy alcohol consumption and a couple of car crashes to age you. I look like this guy’s father now!