When your customers cannot afford what you’re selling, you finance it.
Literally, sell them the item, the interest, plus a bill of goods.
This is Cadillac’s new business model for selling its soon-to-here array of electric vehicles, beginning next year with the 2023 (and $59,990 to start) Lyric.
It’s a ride that not many can afford to buy, which is true of electric cars, generally. And conventional lenders–banks, credit unions and so on–are inevitably going to be less willing to write loans for these electric cars because of the unique problem with electric cars.
In addition to the depreciation of the car, which becomes a problem for the lender when the car reaches the financial event horizon of being worth less than the remaining loan balance due, there is the EV-specific problem of the degradation of the battery, which accelerates the depreciation of the car.
Almost any six-year-old non-electric car still has at least another six years of probably reliable service life left. It is unlikely it will need a new engine or transmission for years after the loan is paid off. But a six-year-old electric car will need a new battery before six more years pass by. This is inevitable and has nothing to do with quality control or defective design. Batteries always lose their capacity to hold a full charge over time. It is a function of the discharge-recharge cycle and it is why the 12-volt battery that starts your non-electric car doesn’t last six years, either. But that battery only costs about $120 to replace.
EV battery packs (many times the size of a 12 volt starter battery and an item you cannot replace yourself) cost many thousands of dollars more.
The need to replace the battery pack is accelerated by deep discharging–running the battery to essentially “empty” so as to get the maximum range out of the car.
Put another way, if electric cars are used normally (if they aren’t mostly not used) they will regularly drain their battery pack, which will then have to be recharged from zero or nearly zero to fully recharged, again. And again. And again.
This is hard on batteries–the equivalent in engine terms of running WOT almost all the time. The engine will wear out faster.
And there is a related problem that makes this problem even worse. Most people who own EVs will not want to wait while this recharging occurs. Or at least, they will want to wait less. Hence the much-heralded “fast” chargers, which use extremely high voltage to instill the charge that would otherwise take hours using common household electrical voltage (120v or 240v).
The price to be paid for this “fast” charging is decreased battery life, due to the toll on the battery pack. People familiar with batteries are already aware of this. If you want an ordinary 12V battery of the type that starts a non-electric car’s engine to last a long time, you trickle charge it. If you “fast” charge it you are exchanging convenience for shortened battery life.
It says so, right there on the box.
It probably won’t say so on the Cadillac’s box but it’s in there, just the same.
And Cadillac knows it.
Knows they are going to have trouble selling these electric loss leaders, in part because banks and credit unions aren’t run by dummies. They understand depreciation and are probably aware of what battery degradation will do to the value of electric cars as they age. Bankers do not want to be left holding the bag when it becomes evident that a six-year-old EV with a battery pack that is losing its charge-holding capacity is a car few will want to hold the keys to. The first owner will want to dump it rather than pay for a new battery pack. He may decide to stop paying on the loan.
Would you buy a second-hand EV that you knew had already lost a third of its originally advertised range and would lose more, soon? That would require you to spend $6K or so on a new battery pack before you finished paying the car off?
Enter in-house financing, which Cadillac is marketing as a “convenience” as well as a higher end “experience.” Potential buyers will be able to apply for and get credit online, even via an app on their phone.
So easy!
“This is far beyond a rebranding exercise,” Cadillac’s vice president of Sales, Service and Marketing, Mahmoud Samara told The Detroit Free Press. “It’s an ecosystem approach to deliver a frictionless, seamless experience that’s fully connected, predictive, and highly personalized.”
Would you buy a used car from that man?
Behind all the gooblygok about “connected ecosystems” is the Rent-a-Center model for these transactions. It’s for people who probably can’t afford what they’re buying, signing up for special handling, right there in the store. Or via their phone.
The Detroit News was more straightforward in its coverage of this blossoming. “Cadillac leaders now recognize that the financing arm will be the key to Cadillac’s profits as it goes all-electric . . .”
Italics added, though the emphasis is hardly needed.
Cadillac Financial, as the new key to Cadillac’s profits is to be called, goes online (and into customers’ pockets) sometime in the middle of 2022.
More financialization. Less value.
And to think that, once upon a time when Cadillac was the standard of the world, you could pay off a new Eldorado or Sedan deVille in three years and probably not have to put a new engine in it for another ten.
Eric Peters lives in Virginia and enjoys driving cars and motorcycles. In the past, Eric worked as a car journalist for many prominent mainstream media outlets. Currently, he focuses his time writing auto history books, reviewing cars, and blogging about cars+ for his website EricPetersAutos.com.
Editor’s Note: The opinions expressed in this article are those of the author.
