New Car #1: Novated Leasing

10338768_10152599257904416_7918874057797780244_nRecently I got a new car – a Mazda 3 SP25 hatch in meteor gray. Unfortunately the image above is from the Mazda website because the winter weather has not provided me with suitable conditions (outside of work) to take photos… Since the original article published on 11 July, I have since expanded the series to a total of fire articles:

  1. New Car #1: Novated Leasing (this article)
  2. New Car #2: Fuel Efficiency
  3. New Car #3: Two Months In
  4. New Car #4: Good Bye Subaru Impreza
  5. New Car #5: GPS Navigation System Comparisons

The thought of buying a new car was on my mind since April/May, after my Dad went through his own experience of trading in his 2010 VW Golf for a 2013 model. Leveraging my dad’s hobby interest in cars, he had already recommended the Mazda 3 as my next car to replace the 2005 Subaru Impreza RS. This view was also confirmed by our neighbour/Lube Mobile mechanic who deeply respects my dad’s interest and knowledge in cars – this should give an indication of my dad’s knowledge if a qualified experience car mechanic endorses his personal knowledge. Within my social circle, the Mazda 3 is a popular choice – my new car becomes the sixth within the group of more immediate friends.

Part of my reasons for pursuing the replacement of the Subaru Impreza with a Mazda 3 include:

  • Trading up from a nine-year-old vehicle to a current generation one (age)
  • Improved fuel efficiency – my logbook of Subaru fuel payments indicates an average fuel efficiency of 11.5L/100km. More details on this topic in Part #2.
  • Taking advantage of all the standard and integrated technology/expectations that a modern car of 2014 comes with:
    • Bluetooth pairing for mobile phone (Subaru only has the feature because I had to replace the original radio unit)
    • Entertainment system with GPS (Previously I relied on Tom-tom App/Apple Maps on iPhone)
    • Reverse camera (will become standard in all new cars from 2015)
    • Keyless entry/remote
    • Push-button engine start
  • Creature comforts – automatic headlights & wipers

In early June, in figuring I had nothing to lose, I asked the question at work whether a novated lease was an option. With a response in the affirmation, I immediately began researching that option to determine if it was and is the best way to finance the purchase of the car.

In this way, this article will include some basic information guiding others through the experience of considering a novated lease for your vehicle. The option of considering a novated lease can be ultimately boiled down to a lifestyle choice:
1. Owning, spending your savings up-front and having all that money tied up in an asset which depreciates in value. Having to allocate post-tax savings into the ongoing maintenance costs:

  • Registration (for the life of the lease term)
  • Road-side Assist
  • Car maintenance and servicing
  • Insurance
  • Fuel purchases

2. Leasing and paying a monthly “rental” charge being deducted from your pre-tax income to cover all above-said costs.

The pre-tax income factor can be a significant incentive depending on your own earnings level. Depending on your income, the reduction in tax can translate into an overall savings. All the calculations and managing the complexity is part of the service provided by the lease company.

In a normal situation/process, in its simplest form, the lease car would source the vehicle of your choice. Via the online quotation process, I had the complete freedom to pick a car model. The process also allowed for individuals to also do some of the heavy lifting and find a suitable car model and offer – I ended up going down this path, in part because my dad was eager to still influence the process and our newness to the leasing process. The online quotation process simply began with my selection of the vehicle base details, including an estimate on annual travel kilometres – this is an important variable for allowing the lease financials to be determined. The other key understandably is the duration of the lease – anywhere from three to five years.

A novated lease is a three-way agreement between an employee-employer-lease company. The employer not only processes my twice monthly pays lips, which would now include the pre-tax lease payments & reduced PAYG withholding tax amount, but the employer is also agreeing to incur a fringe benefits tax (FBT) expense and a monthly charge payable to the lease company. In the event that an employee changes employer, they need to either negotiate the continuation of employer FBT and monthly payments by the new employer or take in the payment responsibility themselves.

After an initial online quote, my dad & I spent one Saturday visiting two Mazda dealerships – Brighton (who had provided the lease quote) and Glen Waverley/Garry Warren Smith (GWS). At Brighton I was advised to return during the week when their lease manager would be available. Having driven some 30 min to the dealership, we still used the opportunity to test drive a sedan Mazda 3 SP25 Astina, which was the top-of-the-range model, with all the bells and whistles. The experience of driving the Astina did create in me a sense of envy, wishing that was the model I would be getting.

From the initial lease quote, it was explained to me how to understand the various figures and what they meant. There is no direct apples with apples comparative figures, since individuals negotiating to purchase a vehicle direct from a dealership deals with a final packaged figure including on-road-costs (ORC). This includes registration, GST and stamp duty. These three components are all excluded from the cost of a car when being financed via novated lease.

The visit to Mazda GWS in the afternoon included another test drive – this time the proper Mazda 3 SP25 model as a hatch. The in-car comfort differences between the base model and Astina were obvious. However, given the $42K base price tag, compared to the $31K amount for a standard SP25, this extra $11K is not worth all that luxury, particularly when you consider an entry-level BMW can be bought for a similar amount! After the test drive, the salesman continued to work with us and showed us some of the End of Financial Year sales specials on offer. Two demonstrator SP25s were offered – one was a red sedan and the other a silver hatch. The red sedan was initially considered because my first preference was for a sedan model, but was then dismissed on learning it was a red colour paint. As a demonstrator model, with under 1000 clocked up on the odometer, the ORC was offered at around $28-29K. The silver hatch became the focal point of the sale. It was initially claimed to have only 10km on the odometer as it was fresh off a truck roll. Again, with a similar ORC price range being negotiated, it made complete sense to us that this was practically a brand new vehicle being offered at a second-hand demonstrator model price. This very point was discussed and we all in violent agreement. In order to prevent it from being sold, we were required to commit to the purchase, which I provided and we spent the remainder of the afternoon completing the necessary paperwork. Given it was a sales weekend, the whole process saw us being dealt with by 4 different staff members, who each guided us through the complexity of each document required to be signed, forms to be completed, etc… As part of the sales negotiations, a trade-in offer for my then current car – 2005 Subaru Impreza RS – was considered, but given the offer of $5.5K, we decided we would be better off pursuing a private sale in order to better recover our costs. Other conditions agreed to as part of the sale included:

  • Slim-line number plates (Astina operate in a very money-making fashion whereby the standard number plates are the old larger size, and force motorists to pay $60 to have the slim-line form factor!)
  • Two-years extended dealers warranty (provided by Mazda GWS)
  • Complimentary full tank of fuel…
  • Car mats (note: Mazda do not have custom/contoured rubber mats available for the Mazda 3)

The final post-sales accessories discussion was led by a lovely woman who very adamantly insisted that we should seriously consider the  special paint-work treatment that she was offering at the discounted price. However, since the car was going to be financed by a novated lease, where the lease company would exercise the final rights of ownership, I resisted all sales attempts to accessorise the car with tinted windows, the paint-work treatment, or reverse sensors. I was later affirmed in my decision to decline the special paint-work treatment by my mechanic neighbour. Before leaving the dealership, with the rain lightly but steadily falling, I quickly made my way to the rear car yard where the car was parked to take some quick photos. This would prove to be of critical importance.

So, within the space of a single day, I ended up committing to purchasing a demonstrator Mazda 3 SP25 silver hatch. During the actual time of contract completion, a number of mistakes were made by the dealership where they recorded a build date after the registration date. We had then pointed the errors out and had them correct on the spot that Saturday. Since the weather had cleared up the following Monday, my Dad decided to drop by the dealership to check up on the car in order to confirm the build and registration dates of the vehicle using the printed/stamped dates affixed to the car itself. In doing this, the odometer reading was found to have been 1009km, instead of the original 10km expected. This triggered the next sequence of events, whereby GWS attempted to contact me and sort out the issue. Fortunately, as that Tuesday I had the day off work, my Dad and I were able to pay GWS an in-person visit. As part of the negotiations, the dealership offered an extra $500 for the trade-in price of the Subaru ($6K) to placate the mistakes that had transpired during the sale on Saturday. As part of the negotiation and deliberation, I went to have a final look at the car that I had committed to purchase. With the sheet of technical specifications removed from the window, a quick check of the odometer reading stated 1013km. With this latest information, GWS made good on the dilemma that was unfolding and agreed to sell me a BRAND NEW Mazda 3 for the previously agreed price of the demonstrator/second-hand price. With this offer on the table, I agreed to the new deal.

As part of the process of pursuing a novated lease as the financing of the car, I had sent a copy of the first second-hand car contract to the lease company, which they had then used the base price/GST/stamp duty/registration items to produce the novated lease with revised amounts. The change affected on Tuesday required me to resubmit the new car contract and repeat the same process of paperwork with the lease company, including the requirement for me to get my employer’s authorisation. The various artefacts were completed and tasks performed as part of successfully signing up to a novated lease for my new Mazda 3 SP25:

  1. Day 1:
    1. Sign new/used car contract with dealer
    2. Commit to purchase with $1000 deposit paid to dealer
  2. Days 2 & 3:
    1. Submit car contract to lease company
    2. Issue of Car Packaging Plan / Online Quotation / Authority to Order (by lease company)
    3. Gain employer approval/signature of the Car Packaging Plan
    4. Submit signed documentation from (3) to lease company
    5. Initiate credit application with lease company
  3. Day 4:
    1. Receive paperwork with process checklist from lease company
    2. Complete and provide signed paperwork for lease company:
      1. Lease Agreement (signed & witnessed)
      2. Assets & Liabilities statement (signed and completed)
      3. Privacy statement (signed)
      4. Deed of Novation (signed by both myself and employer, each appropriately witnessed)
      5. Recent pay-slip OR letter of employment with driver’s license
      6. Insurance application
      7. Documentation Fee payment
  4. Day 5:
    1. Receive confirmation of lease being executed by lease company
    2. Organise delivery date/time appointment with dealership
  5. Day 6:
    1. Attend delivery appointment
    2. Complete banking details to receive $1000 refund from dealer (paid Day 1, Step B)
    3. Perform final sales inspection/walk-through/demo of new vehicle features by dealership salesman:
      1. Mobile phone bluetooth pairing
      2. Basic car controls
    4. Drive away car!!!

This six-day process took place over a duration of nine days, starting from Saturday 14 June and culminating in my agreed delivery date of Monday 23 June. All in all, after removing the complication and additional effort/paperwork involved in the change from a second-hand demonstrator model to brand new vehicle, the whole novated lease process is very fast. Whilst it isn’t super easy, anyone capable of handling office processes should find the whole experience manageable. The savings and convenience of going through a novated lease make this highly attractive to busy professionals who have mutually supportive employers.

Stay tuned for Part #2 of this mini series on my New Car!

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