CONTINUOUSWAVE

If an outboard engine could be leased, do you think boaters would be interested in this? What I imagine would happen is that instead of investing, say $20,000 in a new outboard engine for your boat, you could lease an outboard engine for three years, for a certain monthly payment, and the lease would provide for use of the engine for a certain number of hours of operation. When the lease ended, the leased engine would be removed from the boat transom, the boat owner would lease another engine, a new engine, and the new lease-engine would be installed on the transom. This model of leasing instead of ownership is very common now in automobiles. Is there a market for this in boats?

The engine would be leased from the manufacturer. At the end of the lease, the manufacturer would get the engine back. The manufacturer could then re-lease it to customers who didn't mind getting a used engine, or they could sell it, or they could re-furbish it and sell it or re-lease it. At the end of the engine's useful service life, the manufacturer would be able to re-cycle the materials from the engine, like the aluminum, the steel, the copper, and the other components, and use those materials in the manufacturing of new engines. But the manufacturer would own the engine for its entire service life, and ultimately be able to recover its final residual value when it was too old or no longer attractive as a leased engine.

I suspect that if engines were leased and if, during the lease, the repair and maintenance of the engine was the responsibility of the engine manufacturer, there would be a change in the quality of the engine. The manufacturer would strive for the highest reliability and fewest repairs, since they would have to absorb the costs of those repairs. The service of the engine would be done regularly, as part of the lease agreement, and the work performed by the manufacturer's own technicians. This would free the boat owner from worrying about and paying for any repairs or routine service. It would all be covered by the lease payment.

We see that boat hulls themselves tend to have very long service life. My 1990 boat is still very useful after 26-years. But its original engine is gone, replaced in 2009 with a new engine. I think this is a very common occurrence with high-quality outboard-engine boats: the hull lasts much longer than the engine.

Would engine leasing be attractive to you as the owner of an older outboard-powered boat that would benefit from a new engine? Please let me have your comments.

Yes, Where do I sign? I'd like to re-power, but the dollar investment is too much. So I'm still running my 1993 Yamaha two-stroke.

I would be very interested. I think the do lease outboards to Commercial fishing guides down in the Keys.

Interesting. I've pondered this subject many times.
Since FREEDOM BOAT LEASING came into the market, it has been an intriguing subject.
Will the market accept "used outboards", and at what price?
Can the numbers work? If they could, why hasn't this been done?
Apparently, leasing the whole deal is working!

Re leasing out the whole boat: this would be a lot more expensive, and there is much greater risk of damage, compared to leasing just an outboard engine. I would expect that in an engine lease deal the boater would take on the risk of damage to the engine from grounding or other external influences; the manufacturer would take on the risk of defects in the engine due to original manufacture and perhaps other problems that could occur.

I don't know how this works in automobile leasing. If you lease a new car, it is under warranty, but what about some repair needed that is not due to a defect covered by the warranty. If your windshield has a stone chip or a crack, I don't think that gets covered under warranty. I would think in outboard engine leasing it would be something similar. If a boater backs the boat into a dock and breaks the engine cowling, the boater pays for repairs. If the engine develops a leak an internal oil hose, the manufacturer pays for the repair.

Also, modern engines keep a historical log of how they have been operated. This might also factor in the the lease cost. For example, a guy that puts on 100-hours of engine running time at maximum throttle would have to pay more than a guy who trolled for 100-hours at 5-percent throttle.

I have no idea what the costs would be. I suspect cost of leasing will be determined by the initial value and the residual value. If the engine costs $20,000 when you lease it, and if after three years the residual value is $12,000, then your lease would have to cover the $8,000 loss in value and some profit for the manufacturer. I don't know how that would work out. To pay for $8,000 in lost value over 36-months suggests that the lease would be at least $222-per-month. Add something to that to account other costs and some profit.

Maybe we have a reader who knows more about leasing, maybe a car dealer, who could give more insight into how the cost of leasing really is calculated.

It's a great idea. As you said, lease is primarily a function of residual value. In the case of cars, this is fairly predictable over time since there's a long history Bank can rely on for their modeling and forecasts. Not sure if same consistency exists in outboards, but I would imagine it's really tied to hours the same way a car is tied to miles. There's probably a much broader range of hours from owner to owner of a boat than miles from owner to owner on a car which would be challenging.

It would also be appealing to combine with included scheduled maintenance, assuring lender that motor was getting proper care and allowing lessee to spread out cost of the oil changes and service... I think I'm paying something like 500 an engine on my F300s every 100 hours which would be nice for some people to spread out.

In my proposed model of outboard engine leasing, the manufacturer retains ownership of the engine all during its service life. This gives the manufacturer several incentives:

--to make the engine as durable and free-of-defects as possible
--to design the engine in a way that the materials used in the engine can, as much as possible, be recovered and re-used to make new engines

Note that in automobile leasing, the manufacturers typically have separate leasing companies, like GM and GMAC. In auto leasing, when the first lease ends, and if the leasing customer does not want to exercise an option to buy the auto, the auto goes back to the leasing company. Then they usually have a private auction and let dealers bid on the used-in-lease autos. The eventual disposition of the auto, when its service life ends, is usually by some individual owner of the auto. If goes to a scrap yard and has a value of a few dollars per ton.

I would hope for a better recovery of the materials in the engine. Instead of scrap metal value, the used engine might have greater value to the manufacturer for him to recycle the materials into new engines. This would be a way to create closed-loop manufacturing.

I would proffer that for this to be realistic, the manufacturer would need to create a leasing and finance subsidiary or create a relationship with an existing leasing and finance corporation.

My proposal was only to inquire if boaters would be interested in leasing outboard engines instead of purchasing them.

Since I have no experience as a manufacturer and seller of outboard engines, I can't really offer much insight into how the business model of leasing instead of selling would work for the manufacturer of outboard engines. But I can observe that in the automobile business, leasing instead of retail sale has become a very significant portion of total new car delivery to customers. The costs involved in automobiles are not too far apart from outboard engines. The retail price of a new outboard engine is approaching the price of a smaller automobile.

I think another problem affecting the value would be fresh or saltwater use and if it was flushed after every use. HUGE difference in these two instances.

In reality, auto leases tend to be nothing more than a very expensive way to finance a new car. I suspect the business model for outboard motors would be the same in order for it to appeal to the manufacturers or their parent companies.

Rigging and unrigging a motor is not nearly as simple as driving a car back onto a dealer's lot. I think the hassle and expense of that would alone be a major barrier to this business model. I would definitely not want to go through that exercise every 3 years, and considering the ever shrinking number of qualified marine installers, I'd suggest the industry is not set up for it either.

I think Outboard motor quality and reliability has improved over the last 10 years, so motor buyers have a reasonable expectation of long service life, which makes a lease less appealing from an economic standpoint as well.

Andy--good assessment. Thanks.

Leasing of outboards is currently done on a commercial basis and "off" lease motors are available in the market: http://bridgeviewmarine.com/product-cat ... n-engines/

Will leasing of outboards ever become a consumer financing option? Probably not because of the points noted above, but leasing a new boat/motor package might be some we see in the future as costs continue to rise. Boats like larger Boston Whaler's could make good leasing candidates. If we look at the structure of a lease you can see why.

The main components of a lease are:
1) The term of the lease
2) The negotiated selling price of the asset
3) The depreciation, the reduction in the value of the asset over the term of the lease, which leaves the residual value of the asset at the end of the lease.
4) The cost of money, or financing rate / money factor
5) The sales tax, which is added to the monthly lease payment

One of the most important factors is the residual value of the asset at the end of the lease term, that is why a less expensive car with a low resale value will cost more per month than a more expensive car with a higher residual value. Leasing is based entirely on the concept that you pay for the amount by which a asset's value depreciates during the time you’re using it. Depreciation is the difference between an asset's original selling value and its value at lease-end (residual value), and is the primary factor that determines the cost of leasing. The smaller the difference, the lower the lease payment, and the better the deal. Remember your only paying for what you use of the asset.

When you lease a car you can pick your lease term (24/36/48 months), negotiated the selling price (just like buying the car) and shop for interest rates, but you have no control of the deprecation/residual value of the car.

When you see an attractive lease rate offered on a national lease plan from an automotive manufacture there is a good chance that the residual value of the car is artificially high and the manufacture is taking the risk between what the residual value of the car is that is written into the lease agreement and the real market value at the end of the lease. This is common place in higher end cars when major changes are taking place in the new up-coming model year. By increasing the residual value of the car, manufactures can move cars - while not heavily discounting off the MRSP (driving down current market prices) and take the hit at the end of the lease term 2, 3 or 4 year later on the residual value delta. Typically manufactures can only do this through their own financing divisions. Also, automotive manufacturers' leasing companies will often temporarily boost residuals on slow selling vehicles so that they can offer better lease deals. These are called subvented lease deals.

The residual percentages are calulated as a percentage of MSRP. A 36-month, 50% residual on a new $50,000 car means that its estimated depreciated value at the end of a 3 year lease will be $25,000. The actual value at the end of 36 months might be higher or lower. Residual percentages decrease as the length of a lease increases. The older a vehicle gets, the less it's worth. For example, the 24-month residual on a particular car might be 57% of MSRP, decreasing to 50% for 36 months, then to 44% for 48 months, and 39% for 60 months. Residuals fall rapidly in the first 24 months, then more slowly in later months. This is why shorter term leases can be more expensive than longer leases. High residuals make the best leases. The best cars to lease are those whose 36-month (3 year) residuals are at least 50% of their original MSRP value. Remember, the higher the residual, the lower the lease payments.

Money Factor - Lease Rate, when you lease, you're tying up the leasing company's money while you're using their asset. This interest is expressed as a money factor, sometimes called lease factor, lease rate, or simply factor, and is specified as a small decimal number such as .00297.
Money factor can be converted to annual interest rate (APR) by multiplying by 2400. For example, a money factor of .00297 multiplied by 2400 = 7.13% APR. Lease money factors, converted to APR, should be comparable to, if not lower than loan interest rates.

The sales tax is calculated on the selling price minus the residual amount, divided by the term length. So a car with a selling price of $47,000 with a 52% residual rate in a state with 7% sales tax on a 36 month term would be, $47,000 x 48% = $22,560, $22,560 x7% = $1,579.02, $1,579.02 / 36 = $43.86 a month for sales tax.

A Boston Whaler boat has strong resale value, so in theory could be a good candidate to lease.