By on August 19, 2008

The other sort of CPO (courtesy navy.gov.au)I know I [once again] risk the wrath of those who view me as GM's bête noir (I prefer to think of myself as an enfant terrible, but I'm way too old for that action). Even so, the news [via Reuters] that The General is upping the warranty on its Certified Pre-Owned (CPO) vehicles– from 3 months/3k miles miles to 12 months/12k miles– should be seen in context. It comes on the same day that GM announced it's pulling back on Buick, Pontiac and GMC leasing. Pulling back as in no longer offering leasing on any of the brands' models save the Pontiac G6 (go figure, fleet fans). With more brands to follow (suffer the little Cadillacs). Folks, it's all about the residuals– and I don't mean the customer's residual values. I'm talking about the multi-billion dollar hammering GM's taking on lease returns. And so is GM spokesman John McDonald, to The Detroit Free Press. "Leases, for a long time, have been supported at below-market rates. We're not able to financially support leases at below-market rates when the residuals have eroded as much as they have." So the CPO deal and the leasing no deal are designed to put a tourniquet on GM's self-inflicted wounds of lousy products, weak brands, the wrong products, chronic over-production, fleet sales and, I think that's it. Who can remember any more?

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15 Comments on “GM Ups Used Car Warranty to Staunch Leasing Hemorrhage...”


  • avatar
    jerry weber

    This is a long time coming. Back in the late 90′s, we were trading back GM cars at book value (pick a book blue, black, kelly) and almost every time the dealership got caught with the piece. It meant a painful trip 4-5 weeks later to the auction.

    Here a loss compounded by transportation and selling costs became real. WE should not have had to wholesale that many cars as we all know the dealer retailing his own trades is the most profitable solution.

    We were starting to bring back the endless amount of SUV’s from the GM auction. For a while a 2-3 year old SUV like a blazer made some money, however you weren’t going to sell new ones at twice the price. I remember the summer of 98, gas prices in New Jersey were 89 cents and you could sell anything with a big motor. This was the year the Hummer hit the streets.

    But even then, the feeling was that Ford trucks and chrysler cars were stealing the GM thunder. Little of engineering and design was going into the few new products we got. The Impala arrived as a Taurus killer but it didn’t fly high. The new monte carlo was a dud with it’s six banger engine. And then came the new Buick Lesabre, it looked like the old one and sold at the same level.

    Cadillac, was in the doldrums, the eldorado and seville were almost dead and the deville weakening.The Catera came, and died a year later as our small car. The list went on and on, even the new pickups arrived from Chevy and looked like the old ones. GM was purging people in the zones and districts continuously and the feeling of warmth with the company was never there.

    In 98 they said they needed 30% of the market to make profits. They just about hit it in the spring and then a general strike hit for a month and back to 28% we went. I don’t think GM ever came forward of 28% again. If they had that today there would be gigantic celebration.

  • avatar
    obbop

    “GM Ups Used Car Warranty”

    If a used car warranty is handled in the manner GMC handled my new vehicle warranty all GMC will do is lose even more customers… permanently, with some of those permanently-lost customers making it a point to warn as many other consumers as possible.

  • avatar
    Samir

    The end of GM leasing is another nail in the coffin. But it may be one of the biggest nails yet.

    I admit this is anecdotal, but no one I know with a bew GM product has actually bought it, because people view these products as throw-aways. Seriously, if it comes to making a buying commitment, how many people are going to buy a Malibu over an Accord, which has a proven track record for lasting 10-12 years almost hitch-free?

    Same thing for the G8. Buy one or lease a BMW?

    Same thing for the CTS. Buy one or lease a Lexus?

    Same thing for the Tahoe. Buy one or lease an MDX?

    About the only GM vehicle I’d buy is a Silverado or a Corvette.

    As for the used cars… I’ve been to a few GM dealerships lately. They’re hungry. One of the guys told me days go by without any buyers. Hunger breeds desperation. Which breeds the need to constantly upsell service work. I thought I was scared of nothing. Then I saw GM “service” in action.

  • avatar
    romanjetfighter

    The warranty extension is a good thing, even if it is desperate.

    What’s puzzling is… why get a CPO GM when the new one is the same price?

    My neighbor’s having a similar problem. No one will buy his Tundra that he got for 30k when a new one costs 25.

  • avatar
    Landcrusher

    That’s a CPO warranty? All the CPO’s I am familiar with are even better than the original warranty. Is that a 1 year extension?

  • avatar
    Ingvar

    One thing I’ve always wondered is, who buys all the used fleet cars? Considering the high amount of fleet sales, and the fact that the cars in question are not particularily attractive in their own, what happens to all the fleet cars after the three year lease is up? Where do they go? How much are they sold for? And who buys them? And why?

  • avatar
    John R

    [I know this is off topic but what is the story with the TTAC ten best? I\'m anxious to see the results.]

  • avatar

    I know Enterprise, at least, has their own used-car dealerships where they sell off at least some of their fleet. Guy there told me Enterprise keeps the cars in the best condition to sell themselves to private buyers for more $, and sends the rest to auction.

  • avatar
    shaker

    I hope that the Sebring they gave me last time went to auction…

  • avatar
    kericf

    Ingvar :
    August 20th, 2008 at 4:45 am

    One thing I’ve always wondered is, who buys all the used fleet cars? Considering the high amount of fleet sales, and the fact that the cars in question are not particularily attractive in their own, what happens to all the fleet cars after the three year lease is up? Where do they go? How much are they sold for? And who buys them? And why?

    Most fleet vehicles get sold back at dealer auctions once their leases are up. Some independent firms make a killing on buying and flipping the vehicles on the cheap. They buy them at lease auctions for nothing then turn around and sell them for a small profit. They sell them for less than you can get at a dealership and deal on volume. The best example of this in in Houston at a place called Texas Direct Auto. I went there to look at a Pathfinder and they are in a lot with a single building and cars so crammed into the space it takes an hour to get one out to look at, but boy are they busy and do they sell cars. Their prices are very good. They were not bad to deal with, better than a normal used car salesman. This company exists thanks to cheap lease returns.

  • avatar
    NoSubstitute

    Samir :

    Malibu over an Accord, which has a proven track record for lasting 10-12 years almost hitch-free?

    Malibu

    Same thing for the G8. Buy one or lease a BMW?

    BMW

    Same thing for the CTS. Buy one or lease a Lexus?

    CTS

    Same thing for the Tahoe. Buy one or lease an MDX?

    Tahoe

  • avatar
    86er

    @ jerry weber:

    Your story about being at a GM dealer circa 1998 was enthralling (maybe it was just me).

    Ever think of doing a story for this site? It might have to be a series due to the 800-word limit, but I know I would read it.

  • avatar
    morbo

    I remember the summer of 98, gas prices in New Jersey were 89 cents

    Must be from Nort’ Jersey. Down here in the great 609, WaWa was just opening up Super WaWa’s (w/ gas stations) and only charging $0.69/gal as a promotion for the first 3 months.

    Which was great for me and my 10 MPG (on a good day) GMC.

  • avatar
    Mark MacInnis

    What we are dealing with here is basic supply and demand economics. As beancounters, my colleagues and I saw this coming years ago….when GM started getting drunk on leasing cars back in the the halcyon days, it should have been apparent that they were going to have to sell the car TWICE….(hard enough to sell those cars ONCE, but I digress)..once to the lesses, and then again on the used car market when it comes in off-lease. Stay with me….here is where GM management made the mistake. Lower lease prices to the consumer (lower monthly payments) made for increased initial “sales” to lessees, but conversely and perversely, this resulted in a glut of harder-to-sell used cars off-lease. Made even harder, because IMHO (don’t know if there are statistics bearing this out)leased cars are not maintained as well and driven more abusively than cars an owner actually owns and plans to keep for many years. So, this glut of used cars lowered used car prices, thus eroding the residual values for leases, making GM’s car leases more expensive than say, Honda’s or Toyota’s. Even still, GM was moving metal. So, they cranked up the factories. What did they do with the cash generated by the volume in the late 90′s? Did they invest in new product, technology, etc.? No, they paid their execs, bought brands they had no business buying (I’m looking at you, Saab) and otherwise pissed away and/or burned cash in massive quantities. When the excess used cars began to steal sales from the “leased sales” market, no problem. “let’s just jack up the residuals, on paper, and jack up the list prices, on paper. We can “report” high earnings on “lease unit sales” to our own financing subsidiary, and the shareholders will never know the difference…”

    So this, monumental wave of cheap, undesirable used, off-lease cars polluting the residual values so that even leasing is out of the question for the average, $12/hour joe or jane, then comes the oil price shock, so on top of everything else, GM’s product mix is way out of tune with the newly chastened, more energy conscious consumer. The perfect storm. Nero fiddled while Rome burned….

    When the ashes are cold on this conflagration, I hope we truly examine the way we teach at our MBA factories. We need to teach all these bright students that they need to look at the business practices and strategies with a long-term view. In any business, if a strategy cannot be seen to be sustainable for 10 years, it should not be embarked upon.

    Anyone with any wisdom and insight about the industry should have been asking questions internally at GM years ago. I am sure some did, but got hammered for disloyalty and for telling the emperor he had no clothes….

  • avatar
    capeplates

    Can’t believe the deals they are getting stateside. Compared to the UK they are far more attractive than anything we get here


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