Scarsdale Ford in Scarsdale, N.Y., is getting about half of its regular lease customers to finance purchases with balloon loans instead.
"We just present both products to them," says General Manager Rich Pierorazio, and they make their own decisions.
But Ford Motor Credit Co. is helping persuade customers to take the loans. It provides a $1,000 higher incentive on a vehicle purchased with a Red Carpet Option, which is a balloon loan, than on one acquired with a Red Carpet Lease.
Why the emphasis on balloon loans? Vicarious liability laws, which say lessors can be forced to pay damages when their customers are in crashes and victims sue. With a balloon loan, the borrower owns the vehicle.
Some say balloon loans have disadvantages and will be little more than a stopgap remedy for the problems facing the automotive leasing business because of vicarious liability laws. One big drawback of a balloon loan is that the customer pays the sales tax on the full value of the vehicle upfront. And while extra cash in the form of incentives can help pay the tax, sources say incentives are not the answer. The cure, they argue, is for states to change their vicarious liability laws.
Leasing long has been a more popular choice in New York than in other states. For some dealers in metropolitan areas, leases have been as much as 80 percent of their business. So they take vicarious liability seriously, says Robert Vancavage, president of the New York State Automobile Dealers Association.