GM Offers Leasing Deals That May Counter Goal to Cut Incentives
GM Offers Leasing Deals May Counter Goal to Cut Incentives
Jeff Kowalsky/Bloomberg
Flags fly outside General Motors Co. world headquarters in Detroit, Michigan.
Flags fly outside General Motors Co. world headquarters in Detroit, Michigan. Photographer: Jeff Kowalsky/Bloomberg
General Motors Co. is offering to waive the last three payments on existing leases if holders buy a new car, adding an incentive onto deals that last month exceeded offers made by rivals.
The promotion began this month and is valid on most models with leases that expire between now and Aug. 31, according to the company. GM raised incentive spending in January by 16 percent to an average of $3,663 per vehicle, the highest among major carmakers, according to researcher Autodata Corp. GM sales outpaced the industry that month.
GM said in a video presentation for its initial public offering in November that it intended to offer fewer incentives that crimped margins and created an impression that price was the main selling point for GM vehicles. Early-return leasing deals may conflict with the that pledge, said Jessica Caldwell, an analyst at Edmunds.com.
“I hope they’re not walking down that road,” said Caldwell, who is based in Santa Monica, California.
Sales at Detroit-based GM rose 22 percent last month, topping the industry’s 16 percent gain. Don Johnson, GM’s vice president of U.S. sales, said on the company’s monthly sales conference call with analysts and reporters that the company would begin discussing incentives “directionally” rather than giving specific data on a month-to-month basis.
“I am not seeing any internal behavior that suggests we have gone back to old ways,” Rick Scheidt, GM’s vice president of Chevrolet marketing, said in a Feb. 9 interview at the Chicago Auto Show. “It’s still way too close to the bankruptcy for us to be sliding back into bad habits. We know everybody’s watching.”
Smart Incentives
GM is being smart about incentives, said Duane Paddock, who owns Paddock Chevrolet in Kenmore, New York. His dealership advertises a Chevrolet Cruze compact for $119 a month and the Chevrolet Equinox sport-utility vehicle for $219, including other incentives. The promotions fend off Honda Motor Co. and Toyota Motor Corp., both of which have drawn customers away with attractive lease offers, Paddock said.
Toyota, which halted deliveries a year earlier due to a recall, raised incentive spending in January by 24 percent to an estimated $1,962 a sale. Honda boosted discounts 41 percent to $2,016. GM had increased its promotions by $498, or 16 percent.
The incentives may be GM’s way of signaling it’s back in the leasing business after spending $3.3 billion last year to buy General Motors Finance, said Nicholas Colas, chief market strategist at BNY ConvergEx Group in New York.
“I don’t think these incentives have as much to do with overall discounting as they have to do with messaging to the marketplace,” Colas said.
Below Average
Leasing was about 14 percent of GM’s deliveries in January, up from less than 5 percent during the recession, Johnson, the U.S. sales chief, said on the Feb. 1 conference call. GM remains below the industry average of about 20 percent, he said.
GM’s leasing partners also include Ally Financial Inc., which was formerly known as GMAC Financial Services and served as the captive lending arm of the automaker’s predecessor.
GM fell 53 cents, or 1.5 percent, to $35.88 yesterday in New York Stock Exchange composite trading. The shares have risen 8.7 percent since the company’s IPO.
To contact the reporter on this story: David Welch in Southfield, Michigan, at dwelch12@bloomberg.net; Craig Trudell in Southfield, Michigan, at ctrudell1@bloomberg.net.
To contact the editor responsible for this story: Kevin Orland at korland@bloomberg.net.
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