California Car Dealer Sues BMW And Mercedes Over Lease Buyout Restrictions

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Photo: Kristen Lee/Jalopnik

If you were leasing a car, there was a time when you could trade that leased car to any dealership instead of giving it back to the brand you got it from. Due to the used car shortage, several automakers are no longer allowing these third-party lease buyouts, and a California luxury car dealer has filed a lawsuit against Mercedes and BMW due to these new restrictions.

Back in July, I wrote about how automakers are changing how they handle what is called a “third-party lease buyout.” These new policies severely limit a lessee’s ability to use the current market conditions for used cars.

Before the market went bonkers and inventory became scarce, if you were leasing a car you had three options at the conclusion of the lease. First, you could give it back to a dealer of the same brand. Second, you could buy it out yourself from the leasing company (the automaker’s financial arm), Or, finally, you could trade or sell your car to a different dealership.

Previously, it didn’t seem to matter to the leasing company which part paid the buyout amount. However, now that dealers are desperate for used inventory, the dealerships have been putting pressure on the leasing companies to enact restrictions so that the cars stay within that brand’s pipeline — whereas lessees may have better offers for their lease by other dealers like Carvana, Vroom, Carmax, or any dealer not aligned with the brand they leased from.

A number of automakers, including Honda/Acura, Nissan/Infiniti, BMW, and Mercedes have enacted recent policies prohibiting third-party lease buyouts. According to a recent report from Automotive News, a California luxury car dealer has filed a lawsuit against BMW and Mercedes citing that these restrictions violate California law. The dealership has asked the U.S. Central District Court of California to permanently block such restrictions and award attorney fees. In addition, it is also seeking a class-action suit against all dealers damaged by these restrictions.

In the suit, Calabasas Luxury — the dealer in question — is claiming that BMW and Mercedes have “cornered the used vehicle market by refusing to allow lessees to trade-in their vehicles with anyone other than Defendants’ affiliates.” In doing so, Calabasas Luxury Motors is claiming that these restrictions are in violation of “California Vehicle Code language governing trade-ins, wording which references purchases or accepting trade-ins of vehicles ‘subject to a prior credit or lease balance’.”

BMW and Mercedes, the defendants in this case, did not provide a response statement to AutoNews. It will be interesting to see how this case plays out and if other dealers that stand to benefit from removing these restrictions also take legal action against the automakers, as a win for the dealers would also be a win for consumers.