Ford spends big to save 24-month leasing program
Ford Motor Co. has thrown a considerable pile of cash into the pot to shore up 'the 24-month turnaround,' its costly foray into personal leasing.
The new twist is off-lease rebates. It's the latest chapter in a marketing scheme that is bolder and more daring than what Ford's rivals have done.
Some automakers prefer 36-month leases. That term provides reasonable monthly payments.
Ford likes 24-month leases because they bring the customer back to the dealership sooner. The plan worked great early in the game, but it has become very expensive as leasing volume has grown. Also, used-car prices have slipped.
It's like a dog chasing its tail. To keep the monthly lease fee within bounds, Ford jacks up the residual value, the amount it thinks the vehicle will be worth at the end of the lease. Ford's figure often is unrealistic; lessees say 'No thanks' when told how much it will cost to purchase the vehicle at the end of the 24-month lease. The dealer feels the same way, so the vehicle goes back to Ford Motor Credit Co., which must pay an auction to recondition it and sell it.
That doesn't help Ford Credit's profit picture. The auction guys and the dealers who attend their sales aren't swayed by high residual values. Their line: 'We know what a 2-year-old Taurus is worth. Residual value is your problem.'
In an effort to reduce those residuals and avoid a problem in 24 months, Ford is boosting the monthly payment on new leases. That makes it harder to retain the lessee as a customer.
So we come to Ford's newest prop: Rebates of $700 to $6,000 to dealers who buy the off-lease cars and trucks (from Ford Credit) and thereby keep them from discounted auction inventory. Ford knows that cheap, off-lease vehicles threaten the pricing structures of both new and used cars and trucks.
Ford should have thought of that before it plunged headlong into the 24-month whirlpool.
Perish the thought
It was inevitable that giant strides in design and manufacturing quality would lead to longer vehicle life.
The resulting lower scrappage rates have led some analysts to express concern about decreasing demand for new vehicles because they last longer.
But that's no reason to get silly.
It is ludicrous to suggest, as one analyst did, that 'synchronous durability' - designing all of a car's parts to wear out simultaneously - is an option. And the resulting brouhaha would make complaints about planned obsolescence pale by comparison.