GM Ups Used Car Warranty to Staunch Leasing Hemorrhage

Robert Farago
by Robert Farago
gm ups used car warranty to staunch leasing hemorrhage

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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  • 86er 86er on Aug 20, 2008

    @ 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.

  • Morbo Morbo on Aug 20, 2008
    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.

  • Mark MacInnis Mark MacInnis on Aug 21, 2008

    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 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....

  • Capeplates Capeplates on Aug 22, 2008

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