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Discussion Starter #1
On different posts, there have been discussions of the Ford Option Plan. Basically, the plan is 36 monthly payments with a balloon payment for the 37 month. If you decide to not to make the balloon payment, you can return the car. The purpose of the Ford Option plan is to give the lessee the benefit of the Federal Tax credit. In a normal lease, the title remains in the lessor who then gets the Federal Tax credit of $7,500.



There are several problems with the Ford Option Plan vs. a normal lease:



  • Taxes: in all but a few states, taxes are calculated on the total of monthly payments plus any cap cost reduction (deposit). On the Ford Option plan, as this is sale, the taxes are calculated on the sale price - MSRP. There are substantial taxes savings in leasing vs. the Ford option plan.

  • For example, a Tesla Model Y, MSRP of $51,190 including delivery charges, 36 months, 10,000 miles per year with no money down has a monthly payment of $633 plus acquisition fee of $695. NYS sales tax would be $1,966. Total outlay, $25,449.

  • A MachE Premium LR AWD, MSRP $58,800 including destination charges, 36 months, 10,000 miles per year, with $7,500 down, the Federal Tax Credit, with the Option Plan, has a monthly payment of $801. The NYS sales tax is based on the selling price, $5,072. As compared to the similarly priced Model Y, the Ford Option plan results in additional taxes of $3,106. Total outlay is $33,908.

  • Residual: In most leases, in order to keep the lease payments down, leases are usually “up side down”: this means that at the end of the lease, the car is almost never worth the residual value. Residual values on luxury cars, for 3 years, 10,000 miles per year are normally between 58% and 61%. With the Ford option plan, the balloon or residual is set at 44%. As compared to a lease for a similarly priced car, the effective monthly payment is $200 to $300 more. For example, the effective monthly payment of the Model Y is $233 a month less than the MachE Premium.

There is a simple solution to this problem that many other manufacturers have adopted: For an electric vehicle, the Federal Tax credit, $7,500, is put into the lease as a “cap cost reduction” or deposit. In other words, the Federal Tax credit, $7,500, that goes to the lessor, the lessor "gives it up" and gives it to the lessee but putting it into the lease as a deposit - cap cost reduction. By doing this:



  • Residuals of 58% to 61% are preserved and monthly payments are lower.
  • Taxes instead of being calculated on the selling price are calculated on the total of the monthly payments plus the deposit, savings several thousand of dollars in taxes.

The present Ford Option Plan, with a very, very low residual is nothing more than a “deferred purchase plan”. It does not afford the tax advantages nor the low monthly payments of a true lease.



If Ford truly wants to lease the MachE, they will have to abandoned the Option Plan with its astronomical monthly payments as compared to other similarly priced cars, and adopt true leasing with a cap cost reduction of $7,500 and residuals of about 60%.



When Ford does this, the monthly payments will be equal to or less than the Model Y.

As I intend to lease, if my only option is the Ford Option Plan, I will not take delivery of my First Edition, and my dealer will be the proud owner of a Rapid Red First Edition Mustang MachE!
 

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On different posts, there have been discussions of the Ford Option Plan. Basically, the plan is 36 monthly payments with a balloon payment for the 37 month. If you decide to not to make the balloon payment, you can return the car. The purpose of the Ford Option plan is to give the lessee the benefit of the Federal Tax credit. In a normal lease, the title remains in the lessor who then gets the Federal Tax credit of $7,500.



There are several problems with the Ford Option Plan vs. a normal lease:



  • Taxes: in all but a few states, taxes are calculated on the total of monthly payments plus any cap cost reduction (deposit). On the Ford Option plan, as this is sale, the taxes are calculated on the sale price - MSRP. There are substantial taxes savings in leasing vs. the Ford option plan.

  • For example, a Tesla Model Y, MSRP of $51,190 including delivery charges, 36 months, 10,000 miles per year with no money down has a monthly payment of $633 plus acquisition fee of $695. NYS sales tax would be $1,966. Total outlay, $25,449.

  • A MachE Premium LR AWD, MSRP $58,800 including destination charges, 36 months, 10,000 miles per year, with $7,500 down, the Federal Tax Credit, with the Option Plan, has a monthly payment of $801. The NYS sales tax is based on the selling price, $5,072. As compared to the similarly priced Model Y, the Ford Option plan results in additional taxes of $3,106. Total outlay is $33,908.

  • Residual: In most leases, in order to keep the lease payments down, leases are usually “up side down”: this means that at the end of the lease, the car is almost never worth the residual value. Residual values on luxury cars, for 3 years, 10,000 miles per year are normally between 58% and 61%. With the Ford option plan, the balloon or residual is set at 44%. As compared to a lease for a similarly priced car, the effective monthly payment is $200 to $300 more. For example, the effective monthly payment of the Model Y is $233 a month less than the MachE Premium.
There is a simple solution to this problem that many other manufacturers have adopted: For an electric vehicle, the Federal Tax credit, $7,500, is put into the lease as a “cap cost reduction” or deposit. In other words, the Federal Tax credit, $7,500, that goes to the lessor, the lessor "gives it up" and gives it to the lessee but putting it into the lease as a deposit - cap cost reduction. By doing this:



  • Residuals of 58% to 61% are preserved and monthly payments are lower.
  • Taxes instead of being calculated on the selling price are calculated on the total of the monthly payments plus the deposit, savings several thousand of dollars in taxes.
The present Ford Option Plan, with a very, very low residual is nothing more than a “deferred purchase plan”. It does not afford the tax advantages nor the low monthly payments of a true lease.



If Ford truly wants to lease the MachE, they will have to abandoned the Option Plan with its astronomical monthly payments as compared to other similarly priced cars, and adopt true leasing with a cap cost reduction of $7,500 and residuals of about 60%.



When Ford does this, the monthly payments will be equal to or less than the Model Y.

As I intend to lease, if my only option is the Ford Option Plan, I will not take delivery of my First Edition, and my dealer will be the proud owner of a Rapid Red First Edition Mustang MachE!
They could also just add a true lease option.

This would not burden those who are leaning towards keeping the car at the end of a lease with a residual above the value of the car. Negating the need to haggle, etc.

More choices, the better!
 

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Discussion Starter #3 (Edited)
They could also just add a true lease option.

This would not burden those who are leaning towards keeping the car at the end of a lease with a residual above the value of the car. Negating the need to haggle, etc.

More choices, the better!

One minor point:

You usually buy when the residual is below the actual value of the car - this is what is called "equity in the car."

So if the MachE is worth 60% of MSRP ($36,000) and the balloon (residual) is 44% ($26,400), that means the difference, $9,600 is the equity you have in the car.

So if you turn in the car, you are walking away for a potential gain of $9,600 and assuming you liked the car, most people would not do this.

That is why I said the Ford Option Plan is not really a lease, but a deferred purchase plan.

(the opposite is of course true: If the residual is $36,000 (60%) and the value is $26,400 (44%), then you would walk away and not over pay $9,600!


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One minor point:

You usually buy when the residual is below the actual value of the car - this is what is called "equity in the car."

So if the MachE is worth 60% of MSRP ($36,000) and the balloon (residual) is 44% ($26,400), that means the difference, $9,600 is the equity you have in the car.

So if you turn in the car, you are walking away for a potential gain of $9,600 and assuming you liked the car, most people would not do this.

That is why I said the Ford Option Plan is not really a lease, but a deferred purchase plan.
Sorry if I wasn’t too clear above. I’m not saying to combine a lease into the Ford Options plan, but have a separate true lease offering for those not looking to buy.

For those wishing to finance, leave the Ford Options in place.

As for the Options plan and vehicle equity, you do have the ability to sell the vehicle privately and recoup some of the equity. Third-party sale is one of the options Ford lists in the plan description.

Just my musings.
 

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Discussion Starter #5
Sorry if I wasn’t too clear above. I’m not saying to combine a lease into the Ford Options plan, but have a separate true lease offering for those not looking to buy.

For those wishing to finance, leave the Ford Options in place.

As for the Options plan and vehicle equity, you do have the ability to sell the vehicle privately and recoup some of the equity. Third-party sale is one of the options Ford lists in the plan description.

Just my musings.

I agree 100%!

It would be more than nice, but absolutely necessary for Ford to come up with a leasing plan.

As I posted, when cars are more than $50,000 the majority are leased.

What Ford has given us is, as per your post above:

  • Straight financing for 36, 48, 54 and 72 months
  • Deferred purchase plan
What Ford has failed to give us is a leasing plan.

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In my state, sales tax is paid when buying through a business (such as a car dealer). And, if a vehicle is traded in exchange for the vehicle being purchased, then sales tax is paid on the purchase amount that remains after subtracting out the trade.

So let's say I purchase (without using Ford Options) the MME for $50k this year. Then let's say 8 years from now, I trade it for the 2029 MME, priced at $45k. The dealer agrees to value my trade at $10k. So I pay sales tax on $35k at that time ($45k purchase minus $10k trade).

Anyway, in thinking about this Ford Options contract, it's confusing me on a few points. How do we know that sales tax is owed on the full purchase price rather than purchase minus balloon amount? I don't see that clarified anywhere on this page.

Continuing on this Ford Options scenario... If I decided to make the final ("balloon") payment to keep ownership of the car, do I pay sales tax on that amount at that time?

If I decided to give back the car in lieu of the final payment, and in the same transaction I am purchasing or leasing a new vehicle, does my trade-in reduce the tax owed on the new purchase or lease?
 

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As I posted, when cars are more than $50,000 the majority are leased.
I wonder if that will hold true for the Mach-E? I posted a poll over on the other forum (remove spaces from address): www. macheforum .com/site/threads/length-of-ownership.1131/

It's skewed because the responses are from people active on that forum, which is a small and biased subset of the actual ownership group of Mustang Mach-Es. But from the 63 responses so far, only 37% plan to keep the car for under 5 years.

2125
 

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I wonder if that will hold true for the Mach-E? I posted a poll over on the other forum (remove spaces from address): www. macheforum .com/site/threads/length-of-ownership.1131/

It's skewed because the responses are from people active on that forum, which is a small and biased subset of the actual ownership group of Mustang Mach-Es. But from the 63 responses so far, only 37% plan to keep the car for under 5 years.

View attachment 2125
I haven't kept a car for more than three years in decades and I bought my current car 2018 (Ford Fusion) at the end of a two year lease because I'm waiting for the MMe so I would fall into the "about 3 years" slot.
 

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Discussion Starter #9
In my state, sales tax is paid when buying through a business (such as a car dealer). And, if a vehicle is traded in exchange for the vehicle being purchased, then sales tax is paid on the purchase amount that remains after subtracting out the trade.

So let's say I purchase (without using Ford Options) the MME for $50k this year. Then let's say 8 years from now, I trade it for the 2029 MME, priced at $45k. The dealer agrees to value my trade at $10k. So I pay sales tax on $35k at that time ($45k purchase minus $10k trade).

Anyway, in thinking about this Ford Options contract, it's confusing me on a few points. How do we know that sales tax is owed on the full purchase price rather than purchase minus balloon amount? I don't see that clarified anywhere on this page.

Continuing on this Ford Options scenario... If I decided to make the final ("balloon") payment to keep ownership of the car, do I pay sales tax on that amount at that time?

If I decided to give back the car in lieu of the final payment, and in the same transaction I am purchasing or leasing a new vehicle, does my trade-in reduce the tax owed on the new purchase or lease?

I will try to answer as best I can:

The trade in value of a car is always deducted from the selling price of new car to determine the amount on which taxes are paid. In other words, you pay tax on the selling price, less the trade in value. This has been the way tax has been collected since the mid 1960's when I bought my first car. This is one advantage of trading in your car towards a new car rather than selling it privately and then paying taxes on the full purchase price of the new car.

Taxes on leases for at least 44 out of 50 states is calculated on the total amount of the monthly payments plus any deposit. The tax is due at lease inception, not over the terms of a lease. As in a sale the dealer collects the taxes.

When you finance a car, tax is collected on the amount of the sale at the time of the sale by the dealer. If you put down $5,000, this does not reduce the amount of the tax. The tax is paid on the full sales price.

In order to get the Federal Tax credit to the owner, Ford came up with Option Plan. Once title is transferred that is a taxable event. It is on the sales price including the balloon. The tax is collected by the dealer.

To clarify, assume the selling price is $50,000 with monthly payments of $100 for 36 months. At the end there is a balloon of $46,400. I think you can readily see that the tax cannot be on $3,600 (36 payments of $100) but must be on the purchase, $50,000.

So you have bought the car under the Option Plan and taxes are due, which the dealer collects, on the selling price.

If you do not exercise the balloon you do not get back any of the taxes.


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Thanks for the clarification. If this is right, then I'm with you on the tax issue. It's bonkers.

I leased the first car I "owned" in Florida. I paid sales tax as part of each month's payment. ($19.53 tax included in each of 35 monthly payments of $308.91.) But that was a few decades ago and it may be different now. I ended up buying that car at the end of the lease after negotiating a large discount with the leasor (BofA)... That's not likely to happen again, and for me personally, I see zero reason to lease a vehicle.

Here with the Ford Options, if I were to partially pay for the car (36 months) and then turn it back in for a different car before making the balloon payment, then based on what you've explained, I will have paid way too much in sales taxes. Which seems really messed up. To me it's just another reason that I wouldn't choose to use Ford Options.
 

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Discussion Starter #11
Thanks for the clarification. If this is right, then I'm with you on the tax issue. It's bonkers.

I leased the first car I "owned" in Florida. I paid sales tax as part of each month's payment. ($19.53 tax included in each of 35 monthly payments of $308.91.) But that was a few decades ago and it may be different now. I ended up buying that car at the end of the lease after negotiating a large discount with the leasor (BofA)... That's not likely to happen again, and for me personally, I see zero reason to lease a vehicle.

Here with the Ford Options, if I were to partially pay for the car (36 months) and then turn it back in for a different car before making the balloon payment, then based on what you've explained, I will have paid way too much in sales taxes. Which seems really messed up. To me it's just another reason that I wouldn't choose to use Ford Options.

Points of clarification:

The sales tax is computed then added back into the lease. As it is item in the lease, you actually pay tax on the tax - but do not get upset this is normal and done all the time and I highly recommend putting everything into the lease including sales tax, acquisition fee and putting no money down.

When you sign the lease a taxable event happens, and the dealer is obligated for the tax which he pays on your behalf.. He then "lends" you the money in the lease, to repay him for advancing on your behalf, the tax.

Today almost all finance companies have "gap" insurance to protect them from the actual value of the car vs. the residual. What you did 15 years ago was quite common - negotiate the price. Today that is very, very rare because of the gap insurance. The difference between residual (high) and actual value (low) is covered by GAP insurance.

Paying too much in tax: If you financed the car for 72 months, you would have paid upfront the sales tax on the selling price. If after 3 years, you decided to sell and/or trade in your car, you would not get any of that tax back.

Once you realize that the Ford Option Plan is nothing more than a deferred purchase plan and not a lease, then the decision boils down to:

  • Pay cash for the car
  • Straight finance
  • Option Plan

As I posted, for many, many reasons I do not want to buy the MachE. Unless Ford comes up with a real lease plan, I will not take delivery of my ordered First Edition - even if that means forfeiting my $500 deposit.


I have done numerous spread sheets and between the tax savings and use of money, for owning to be cheaper than leasing, assuming 10,000 miles per per year, you must own the car for more than 6 years. Anything 5 years of less, it is cheaper to lease and you are driving a new car with manufacturers warranty and up to date safety features.

But the benefits of leasing vs. owning is a different topic for a different day!


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Paying too much in tax: If you financed the car for 72 months, you would have paid upfront the sales tax on the selling price. If after 3 years, you decided to sell and/or trade in your car, you would not get any of that tax back.
If I pay cash and/or traditionally finance, and I later trade-in, I'm essentially refunded tax based on the dealer's value for the trade.

From what you've explained, though, if I use Ford Options and "trade-in" without making the final payment, I won't be refunded any tax. The only time someone might do this, though, is if they prefer to do a dealer trade, they don't want to keep the car, and the balloon payment is at least 8% (or whatever the sales tax rate is) higher than its dealer trade-in value.

Isn't a Tesla 3 or Y lease a non-standard lease? I heard that it isn't a closed-end lease. There is no option to purchase at the end of lease.
 

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...a topic for a different day
I agree, the Leasing vs owning decision is unique to the each individual’s situation and preference.

If you plan on keeping the MMe, then it comes down to the interest rate on the finance, options or traditional.

With traditional, you lock in on the interest rate for the entire contract.

With options, even a low interest rate now (say 1.9 for discussion), you have to hunt for a good interest rate in 3 ( or 4) years when you refinance the residual.
 

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If I pay cash and/or traditionally finance, and I later trade-in, I'm essentially refunded tax based on the dealer's value for the trade.

From what you've explained, though, if I use Ford Options and "trade-in" without making the final payment, I won't be refunded any tax. The only time someone might do this, though, is if they prefer to do a dealer trade, they don't want to keep the car, and the balloon payment is at least 8% (or whatever the sales tax rate is) higher than its dealer trade-in value.

Isn't a Tesla 3 or Y lease a non-standard lease? I heard that it isn't a closed-end lease. There is no option to purchase at the end of lease.
If you trade in at the end of the Options for a new vehicle, you should get a trade-in value on a new car, therefore reducing the sales tax on the new vehicle.

You only lose the tax if you ‘surrender’ the vehicle at the end of the contract. Thats how i read it.

There is no purchase option on the Tesla lease.
 

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Discussion Starter #15
If I pay cash and/or traditionally finance, and I later trade-in, I'm essentially refunded tax based on the dealer's value for the trade.
Yes

Mathematically that is correct.

From what you've explained, though, if I use Ford Options and "trade-in" without making the final payment, I won't be refunded any tax.
Yes

If you return the car, without making the balloon payment, you will have nothing to trade in.

The only time someone might do this, though, is if they prefer to do a dealer trade, they don't want to keep the car, and the balloon payment is at least 8% (or whatever the sales tax rate is) higher than its dealer trade-in value.
Yes.

Before you buy the car at the balloon and then use it as a trade in, you first have to determine how much the dealer will give you on car. If the car is worth more than the balloon and there is equity, then it would make sense to pay off the balloon and either sell the car privately if it is more than 8% of what the dealer will give you or use it as a trade.


Isn't a Tesla 3 or Y lease a non-standard lease? I heard that it isn't a closed-end lease. There is no option to purchase at the end of lease.
Yes.

You aced the test! Congratulations.

..
 

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..Before you buy the car at the balloon and then use it as a trade in, you first have to determine how much the dealer will give you on car. If the car is worth more than the balloon and there is equity, then it would make sense to pay off the balloon and either sell the car privately if it is more than 8% of what the dealer will give you or use it as a trade.
..
Overall, there is nothing special about the Ford options plan, other than your ability to return the vehicle and walk away when the balloon payment comes due. its just a nomal loan otherwise.

So, If the balloon payment is $26,000, and a dealer (of any manufacturer, not just Ford) agrees to a trade-in of $32,000, you shouldn’t have to pay the final balloon upfront, the account would be settled during the trade-in process. The remaining $6k in this example is used as down payment towards the new vehicle. Overall, it still reduces the new vehicle sale price by $32k (therefore reducing sales tax), because that is the value of the trade, regardless of the money owed. The balloon payment is just rolled back into the new loan, as would the balance of any loan at trade-in.
 

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Discussion Starter #17 (Edited)
To clarify:

Only the amount of the trade in can be used to reduce the price for tax purposes.

A down payment does not reduce the price for tax purposes.

This is a special "perk" in the tax law: only the amount of the trade can reduce the price for tax purposes.

So in fact you trade in car, get the $32,000 value to reduce the amount on the new car and either pay off the balloon or if you finance roll the balance due, $24,000 into the new loan. (This is corrected as per MACHDRIVE pointed out rolling the balance into the new loan. My error, but to be honest I have never financed a car so I forgot about rolling the balance of the old loan into the new loan: I either bought for cash and for the past 35 years I have been leasing.)

see: https://www.cars.com/articles/selling-to-a-dealer-taxes-and-other-considerations-1420680466499/

Trading in your car can bring sales tax benefits if you buy another car from the dealer at the same time. Many states offer a trade-in tax exemption that lowers the amount of sales tax you’ll pay in the trade. If, for example, you and the dealer negotiate a $20,000 purchase price — and you trade in a vehicle for $5,000 — the trade-in value is deducted from the new car’s cost and you’ll only be taxed on $15,000. There are, however, seven states that don’t offer a trade-in sales tax break: California, Hawaii, Kentucky, Maryland, Michigan, Montana and Virginia. The District of Columbia doesn’t offer this benefit, either, so you’ll pay sales tax on the purchase price including trade-in. DMV.org shows you where to look up your state’s new car sales tax rate.
 

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On different posts, there have been discussions of the Ford Option Plan. Basically, the plan is 36 monthly payments with a balloon payment for the 37 month. If you decide to not to make the balloon payment, you can return the car. The purpose of the Ford Option plan is to give the lessee the benefit of the Federal Tax credit. In a normal lease, the title remains in the lessor who then gets the Federal Tax credit of $7,500.



There are several problems with the Ford Option Plan vs. a normal lease:



  • Taxes: in all but a few states, taxes are calculated on the total of monthly payments plus any cap cost reduction (deposit). On the Ford Option plan, as this is sale, the taxes are calculated on the sale price - MSRP. There are substantial taxes savings in leasing vs. the Ford option plan.

  • For example, a Tesla Model Y, MSRP of $51,190 including delivery charges, 36 months, 10,000 miles per year with no money down has a monthly payment of $633 plus acquisition fee of $695. NYS sales tax would be $1,966. Total outlay, $25,449.

  • A MachE Premium LR AWD, MSRP $58,800 including destination charges, 36 months, 10,000 miles per year, with $7,500 down, the Federal Tax Credit, with the Option Plan, has a monthly payment of $801. The NYS sales tax is based on the selling price, $5,072. As compared to the similarly priced Model Y, the Ford Option plan results in additional taxes of $3,106. Total outlay is $33,908.

  • Residual: In most leases, in order to keep the lease payments down, leases are usually “up side down”: this means that at the end of the lease, the car is almost never worth the residual value. Residual values on luxury cars, for 3 years, 10,000 miles per year are normally between 58% and 61%. With the Ford option plan, the balloon or residual is set at 44%. As compared to a lease for a similarly priced car, the effective monthly payment is $200 to $300 more. For example, the effective monthly payment of the Model Y is $233 a month less than the MachE Premium.
There is a simple solution to this problem that many other manufacturers have adopted: For an electric vehicle, the Federal Tax credit, $7,500, is put into the lease as a “cap cost reduction” or deposit. In other words, the Federal Tax credit, $7,500, that goes to the lessor, the lessor "gives it up" and gives it to the lessee but putting it into the lease as a deposit - cap cost reduction. By doing this:



  • Residuals of 58% to 61% are preserved and monthly payments are lower.
  • Taxes instead of being calculated on the selling price are calculated on the total of the monthly payments plus the deposit, savings several thousand of dollars in taxes.
The present Ford Option Plan, with a very, very low residual is nothing more than a “deferred purchase plan”. It does not afford the tax advantages nor the low monthly payments of a true lease.



If Ford truly wants to lease the MachE, they will have to abandoned the Option Plan with its astronomical monthly payments as compared to other similarly priced cars, and adopt true leasing with a cap cost reduction of $7,500 and residuals of about 60%.



When Ford does this, the monthly payments will be equal to or less than the Model Y.

As I intend to lease, if my only option is the Ford Option Plan, I will not take delivery of my First Edition, and my dealer will be the proud owner of a Rapid Red First Edition Mustang MachE!
Very interesting discussion.

Question: so why doesn't Ford do as you suggest? What is the disadvantage to Ford?
 

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Discussion Starter #19
Very interesting discussion.

Question: so why doesn't Ford do as you suggest? What is the disadvantage to Ford?
Because if there are enough buyers who buy via:

  • Full payment
  • Regular finance
  • Ford Option Plan
all cars are sold. There are no cars coming back to Ford in 3 years.

In a lease, Ford owns the car: you are renting the car for three years. At the end of three years, Ford has the headache of selling the used MachE.

When you buy the car, what to do with the car, is your headache.

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Because if there are enough buyers who buy via:

  • Full payment
  • Regular finance
  • Ford Option Plan
all cars are sold. There are no cars coming back to Ford in 3 years.

In a lease, Ford owns the car: you are renting the car for three years. At the end of three years, Ford has the headache of selling the used MachE.

When you buy the car, what to do with the car, is your headache.

.
Interesting.

So are you saying that Ford lacks faith in the long term value of the MME, or rather that they simply want to book the maximum earnings from the MME sales over the next three years?
 
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