Leasing lags in Arkansas

The ads look good in print: A new C-class Mercedes-Benz for $479 a month. A Plymouth Neon for $166.68 a month.

Those are the hooks--the barbs are hidden in fine print. In those two examples, payments are for 36 months for leased vehicles. Sizable balloon payments ($19,000 for the Mercedes) must be paid after that period before a customer takes ownership.

The trend toward auto leasing, which started in earnest about three years ago, today amounts to a solid chunk of new car sales nationally. But Arkansans have been reluctant to follow the pack of U.S. auto shoppers.

"Arkansas has probably less than a 3 percent lease penetration," says Dennis Jungmeyer, president of the Arkansas Automobile Dealers Association. "It's 20 percent nationally and as high as 30 percent on the East Coast."

Jungmeyer says leasing is growing in Arkansas, but slowly.

"The state's tax structure is not lease-friendly," Jungmeyer says. "Under Arkansas law, leases are taxed at the front end for the total value of the car and, at lease-end option, the residual value is taxed again. The state says too much money would be lost without the taxes. I believe if you give some tax attraction, more people will consider [leasing]."

Leasing in Arkansas may be having problems for other reasons. Lease plans are loaded with hidden costs and a final balloon payment that becomes more inflated by interest rates.

Prospective buyers are repelled by charges for extra miles driven (usually 15,000 miles a year is the limit), penalties for early termination of the lease, insurance that may cover the car but not what's left on a lease and even restrictions on where a car can be driven during the lease period. And if a lessee decides not to buy the car at the end of the lease period, it better be in tip-top condition or more penalties will ensue.

More Car Per Dollar

Several publications, including The Wall Street Journal, have printed articles about the best approach to buying automobiles. The best way, dollar-for-dollar, is to buy a new car and keep it for a long period, according to the publications.

In its May 30, 1994 edition, U.S. News and World Report compared the cost of leasing and purchasing new cars over 12...