If there is a single idea that has revolutionized the automobile industry in the past decade, it's the concept of leasing a car rather than owning it. For many car buyers, a lease makes sense not just from a dollars and sense standpoint, but because it removes all the uncertainty out of owning a car: unloading it in three to five years, worrying about the resale value, and all the hassles of trade-in or resale.
So it should come as no surprise that the marine industry is seriously looking at leasing as an alternative form of boat ownership that may attract new buyers who might be unlikely to buy a boat outright.
"We became interested with the lease concept several years ago when it became apparent that it was driving the auto marketplace", says Larry Russo, the largest powerboat dealer in New England with four locations in Massachusetts. "When you realize that one in three vehicles is leased — in some categories like sport utilities, leasing accounts for 50 percent of the market — then it should probably fit for boats, too."
Can you rush down to any boat dealer and lease a boat today? Not a chance, because the industry is barely dipping its toe into the leasing market, and hesitantly at that. There are, however, a number of dealers like Russo who are embracing boat leasing.
At this point, the only boat builder with a formal leasing program is Correct Craft, which builds the Nautique line of waterski boats. "Leasing isn't going to work for everyone", says Correct Craft marketing VP Larry Meddock, "because boat leasing just doesn't give you the low payments you find in car leasing. We like leasing not because it's a panacea for boatbuying, but because it gives the potential customer another option."
Although each of the three major boatbuilding companies, Bayliner, Sea Ray, and OMC, are looking at financing, none of them have gone beyond a few tests, although they are keeping an eye on what could be potentially a new way to market their products.
Ten years ago, there were two ways to go boating: buy a boat or rent it by the day from your local marina. Leasing is, in many ways, the best of those two worlds. Let's see how a lease works, and why it might or might not work for you.
For all intents and purposes, boat leasing is identical to car leasing. While most leases seem to run three years, the only limitations are between you and the dealer. Russo recently leased a boat to a customer just for a summer, because the client knew he would be transferred after that point and didn't want the hassles of resale.
You will negotiate your lease just as though you were buying the boat: dickering with the salesman until you come to an agreed sales price or capitalized cost. That price, along with the "residual value" (what the dealer estimates the boat will be worth at the end of the lease), are used to figure out your lease payments.
One piece of valuable advice offered by the lease manager for a Cadillac dealership is to fight just as hard for a high residual value as you do for a low selling price. "What, you're telling me that this $75,000 Puddlejumper 28 is only going to be worth $35,000 in three years? Maybe I'd better look for a better boat!".
When it comes to setting the residual value, each lessor has a number of variables to consider. How many hours a boat is used is often driven by a southern or northern climate, the choice of rack or wet storage is important, and so is use in fresh or salt water.
Once having established the cap cost and residual, you'll decide on the length of time you want the lease to run, and sign on the dotted line. At that point, the dealer turns around and sells the boat to a financial institution, which then holds title on the boat for the term of the lease and to whom you make your monthly payments. In the case of Russo, he found a local bank willing to handle leasing, while Correct Craft dealers work through TransAmerica Financial.
All of the experts we spoke to cautioned that marine lease payments aren't going to be the low-ball numbers found in cars. "No matter what people claim, a boat lease is going to cost about twice as much each month as buying the boat", says Russo.
"A boat lease is for those who want to know when the end is — they are prepared for a higher monthly payment in return for seeing the light at the end of the tunnel", adds Russo. "What most buyers fail to realize on that glorious day of purchase is that, in three years, the depreciation on the boat is going to be staggering. When you buy a boat, you don't recognize that fact for three years, and then it's a big hit. When you lease, you've taken care of the depreciation in 36 easy payments".
"We're finding a lot of leasing success", says Meddock of Correct Craft, "with people who get into our boats for a short term — two years — to see if our boats are as good as we say. In two years, you're in and out fairly fast and most then buy the boat."
Meddock points out that a lease works best on a boat that maintains a high resale value, which sets the residuals equally high. "If you take a boat that doesn't enjoy a good resale value, you'd die. That's why see a lot of people leasing Mercedes Benzs and BMWs, but no Hyundais".
Who is a likely candidate for a lease? Obviously, it's going to be someone who can handle the higher monthly cash flow in return for the privilege of just handing over the keys at the end of the lease and walking away. "The fundamental backbone of leasing", says Meddock, "is that no successful businessman ever invests cash in a depreciating asset. Most of us don't want to admit that a boat is really a depreciating asset, but it is. So we have to convince the typical consumer that spending your money on the part of the product that you use — and not on the product that's left over when you're finished — is a smart way to use your money. Take the money and do something else with it".
Russo points out that someone with a small amount of money for a down payment is also a good candidate for a lease. "We can do a lease with zero money down. Instead of having to put 20 percent ($20,000) down on a $100,000 boat, all you have to pay is your first and last month payment, which is your refundable security deposit. On a $100,000 boat, the lease payment might be $1,000, so you put down $2,000 instead of $20,000 at the start. In Massachusetts, we have a 5 percent sales tax, so there's another $5,000 you have to throw in, so you can either write a check for $25,000 to buy the boat or $2,000 to lease it."
Both Meddock and Russo agree that the best lease candidate is someone who keeps their boat from two to four years. "If you keep a boat 10 years," says Russo, it would probably be worth what you owe, so there's no advantage/disadvantage."
Meddock adds a twist to the concept: "If you take a boat to full term, I can show you that leasing will save you a ton of money", he says. "If your take the amount you pay to buy a boat over seven or eight years and compare that to your total investment in leasing a boat for two years and then exercising your option to buy it, I'd much rather take the lease/purchase."
Another candidate is one who can write off some of the leasing costs on his taxes as entertainment expenses, but that's something that you need to discuss with your accountant, because entertainment expenses are a prime target for IRS audits.
Who isn't right for leasing? For starters, you have to write a bigger check every month to lease the boat but, notes Russo, "It's a matter of when you want to bite the bullet on depreciation — now or later". And, if your boats take a lot of abuse and look worn fairly quickly, then you're also not a candidate for leasing because the lessor expects you to keep the boat in good condition.
That brings up the end of the lease. Most boat loans are closed-end leases, which give three options: hand over the keys and walk away, buy it at a pre-agreed price, or roll over the contract and re-lease the boat.
One particularly thorny issue in the automobile business is when it comes to determining what constitutes "normal wear and tear," and charging for the difference. Says Russo, "One car dealer told us that if a car comes back with a little dent in the door, that's normal wear and tear. If it comes back with the door in the trunk, then we're going to talk. That's pretty much how we feel, too. Boats are going to get scratched or dinged in three years".
Most car leases specify a maximum number of miles that can be driven, after which the lessee pays an additional charge. Most boat leases don't have an engine hours limitation, although Russo did write a lease contract with a customer for a 44-foot Trojan that specified the boat would only be used locally and not taken to Florida for the winter.
At Correct Craft, they've eliminated any animosity by removing the dealer from the wear and tear issue. "Our reps have a checklist that we've created," says Meddock, "because the day of reckoning is when the lessee has to take the boat back to the dealer. The dealer's idea of what's wrong with the boat may be different from the customer, so our rep comes in and makes the necessary adjustments. But we don't foresee any problems — our buyers take care of their boats and that's all we ask".
So what's the future of boat leasing? "The message we sent to our dealers," says Meddock, "is that how we get a buyer into a Nautique doesn't matter — it's getting him into it that counts."
Russo agrees, "Leasing is just one more option that encourages families to get into boating one way or another. It'll work for some and not for others. Just tell your readers to consider the choices carefully, read the fine print, weigh the financial side, and they'll make the right choice".