It used to be that leasing a car was a way for some people to drive more car than they could afford if they had to buy it directly. And it allowed dealers to hide lots of fees, charges and extras in the paperwork. For all practical purposes, the leasing customer only cares about one thing – the monthly payment.
One of the advantages was that the person who leased the car could buy it at the end of the leasing period at a predetermined price. Many people liked that level of security. Leasing was good for dealers because it encouraged people to get a new car every two to three years instead of driving it until the wheels fell off. It was a way to pump up the market for new cars and provided a good range of off-lease cars that dealers could have their used cars in stock with. In other words, everyone was happy.
But a funny thing happened thanks to the Covid pandemic. Suddenly, supply chain problems made it harder to get new cars, which in turn drove up the price of used cars. For those who had leased their vehicles, they found that they could make a nice profit by buying the car at the agreed price at the end of the leasing period and then reselling at a profit – sometimes a significantly profit – in the overheated used car market.
Well, if there is one thing that the automotive industry is good at, it is maximizing the amount of money it realizes from every opportunity. Having private parties profit from being in the right place at the right time does not bode well in the industry. They think of these profits as money that rightfully belongs to them. So they’ve made a plan. Many new leases now prohibit leasing customers from buying their cars when the lease expires.
Tesla was one of the first companies to do this. At first, the policy only applied to Model 3 sedans because, in theory, the company would make all of these off-lease cars the basis of its robotic taxi fleet. So, early this year, word got out from the high that all rented Teslas should now be returned to the company.
The mercurial Mr Musk may be furious in the press that the company is losing billions, but in fact the company is making a nice profit from selling its off-lease cars in the used car market. Musk and his henchmen are anything but stupid.
Now, Autoweek reports that Ford has sent a letter to its dealers eliminating the possibility of termination of lease of the F-150 Lightning, Mustang Mach-E and E-Transit van – yes, all 100% electric vehicles. In the clearest possible language, Ford’s new ban tells renters, “you do not have the option to purchase the vehicle at the end of the lease term.” The amendment went into effect June 15 in 37 states and will be enacted in the remaining 14 states plus the District of Columbia in the last quarter of this year. Cars directly was the first to capture the new policy.
It’s for your own good!
Apparently, the change is a step towards Ford’s commitment to CO2 neutrality by 2050 and an industry-wide effort to lower MSRPs for electric cars. The letter explained to dealers: “The acquisition of BEV Lease is to help with our goal of delivering CO2 neutrality by 2050 by controlling the vehicle’s battery throughout its life and keeping it in the Ford network. Ford Motor Company is committed to making Battery Electric Vehicles (BEVs) more sustainable and affordable for our customers by locating the complex battery supply chain network, creating recycling opportunities for end-of-life vehicles and increasing US battery production. “
The last part may be the critical function. Companies like Redwood Materials – which has attracted a $ 50 million investment from Ford – find that they can recycle and recycle 95% of the chemicals and materials in an EV battery and use them to make new batteries. The result is that the company sees gold in them in the hills in the form of precious goods that they themselves want to control.
Maybe there’s nothing behind it. Maybe if the world is to switch to battery-powered electric cars, there are not enough raw materials available at affordable prices to produce as many as the world needs. But again, maybe this is an extension of the paradigm shift that has happened with computer software in your shiny new EV. Do you as a customer own it, or does the manufacturer continue to own it, even though you paid the purchase price for the car when you bought it?
As the EV revolution rolls forward, it seems that we consumers only rent a lot of the vehicles we thought we were buying. The programming belongs to the manufacturer, and now much of the battery does too. Do we see a trend here?
Last year, GM and Honda began mandating that renters who wanted to sell their vehicles at the end of their leases should sell them back to the automakers at the price in the lease. If anyone had to take advantage of a pressured used car market, it was the companies and not the customers.
Ford has reportedly also informed its dealers that they able to insert language in the sales contracts for F-150 Lightning pickup trucks that prevent buyers from reselling the vehicles within 1 year of the original date of purchase. We do not know how many dealers do it, but there are reports of almost new electric cars crossing used car auction blocks at prices significantly higher than the original purchase price, something that makes dealers frown.
Things are changing
Tesla rocked the automotive industry with its model of selling directly to customers over the Internet, something that dealership associations oppose with every fiber of their being. They like to blow their breasts out and proclaim the contributions they make to society through Little League and Pop Warner sponsorships and such, but the truth is, they have what amounts to a monopoly that should have been banned for years back.
Ford has even suggested that they might like to try out some of the online sales strategy themselves. It is simply too expensive to have hundreds of unsold cars and trucks on dealer grounds waiting for buyers to discover them. So the relationship between manufacturers and dealers also comes under scrutiny as everyone tries to figure out how to make money in the brave new world of electric cars.
Interesting times for buyers, dealers and manufacturers ahead. Please keep your seat belt fastened until the trip stops completely!
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