Do GM's Lease Offers Signal Return To Bad Habits?

Bloomberg seems to think GM is heading back towards bad habits, reporting

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….

Given GM’s decision to release less incentives data, the signs do seem to be piling up. But, says Chevy marketing VP Rick Scheidt

I am not seeing any internal behavior that suggests we have gone back to old ways. It’s still way too close to the bankruptcy for us to be sliding back into bad habits. We know everybody’s watching.

Another perspective on GM’s move towards subprime lease deals comes from Automotive News [sub]’s Donna Harris, who writes

The credit crisis and recession expanded the subprime segment. Some of these “new” subprime customers walked away from their mortgages when their property values plunged. Under normal circumstances, they would pay their bills on time.

A lease can coax these people back into the new-vehicle market at affordable terms while helping GM move some metal.

Vehicles are typically leased at shorter terms than finance contracts — often three to four years, as opposed to five years or more for a car loan. So the customer will be back for a new vehicle quicker.

And the subprime lease can improve customer loyalty: Research has shown that customers are extremely loyal to businesses that help restore their credit. Lease renewal rates also are typically much higher than repurchase rates.

All of which makes a certain amount of sense… if risk is being managed well. Given the post-bailout concern over moral hazard, however, it’s hard to just sit back and trust that these leases aren’t simply re-inflating a subprime bubble that will necessarily pop again. Meanwhile, concerns about the larger market aside, GM is running yet another risk with its lease deal: it’s offering cheap terms on its latest vehicles ( including Equinox, Cruze, and Traverse) potentially eroding gains in resale values, brand equity and average transaction prices.

It seems that Hyundai’s John Krafcik may well be right… it is beginning to look like GM is pushing the industry into a price war.