Cash or Credit for Cars?

In just the past two years, the portion of new-car buyers that have paid cash, rather than lease or borrow, has increased from 3.9 percent to 8.8 percent. (CNW Marketing/ Research provided the data.) The percentage of cash purchases varies by the cost of the car. Thus, last year 23.5 percent of Jaguars were purchased for cash, as were 21.34 percent of Porsches. In contrast, only 5.3 percent of buyers of Kias paid cash, as did 5.6 percent of buyers of new Hyundais.

Several factors explain the dramatic change in just two years. Luxury cars had frequently been leased, with the manufacturers basing the leases on high residuals, which did not materialize. Faced with heavy losses, banks and finance companies reduced residuals, thereby increasing monthly lease payments. For many buyers, paying cash became more attractive than leasing. In order to get immediate delivery of "hot" cars, buyers offered immediate cash to dealers. For example, when it first came out, about 40 percent of the buyers of the Lexus LX 430 luxury sedan paid cash. Also, their heavy losses in the stock market may have encouraged some buyers to put their money into something tangible, like a car, rather than dot.coms.