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FINANCE & INSURANCE

GMAC spiffs' aim: Turn leases into sales

A new 2008 Chevrolet Tahoe large SUV will be worth 31.7 percent of its sticker price in three years, Automotive Lease Guide estimates.
GMAC Financial Services is offering auto lease customers new incentives to buy the vehicles rather than return them when their leases end. The program is an effort by General Motors' captive finance company to cut the huge losses it is taking on vehicles that come off lease.

In recent months, sales and prices of large used trucks have plunged because of rapidly rising gasoline prices. As a result, end-of-lease pickups and SUVs are worth much less than their predicted residual values when their leases began, usually 36 months earlier.

Under the program, GM dealers get $750 for each car or truck they sell. But some dealers complain that GMAC is poaching their customers.

GMAC launched a test program last month in Pennsylvania and Ohio. An "aggressive rollout ... to quickly include all remaining states" will follow, according to an undated GMAC memo sent to dealers and obtained by Automotive News.

GMAC spokesman Mike Stoller confirmed the program but declined to discuss details.

Lease to buy
GMAC is giving selected lease customers the opportunity to buy their vehicles at a discount.
• The program began last month in Ohio and Pennsylvania and is set to extend nationwide.
• Customers’ leases must be scheduled to expire within 61 to 90 days.
• GMAC sets the purchase price based on mileage; price is nonnegotiable.
• GM dealerships get $750 for each sale handled under the program.

Leasing losses

Last month, GMAC reported $716 million in second-quarter write-downs related to its North American lease business. GM took a $2.0 billion second-quarter charge because of residual-value losses.

For example, Automotive Lease Guide estimates that a new 2008 Chevrolet Tahoe large SUV will be worth 31.7 percent of its sticker price in three years. The guide, which sets residual values for the industry, previously assigned a new 2007 Tahoe a residual of 42.1 percent.

GMAC is aiming the new purchase incentives at selected customers whose leases are scheduled to end in two to three months.

According to the memo to dealers, GMAC is contacting eligible lease customers by telephone. GMAC bases the purchase price it offers for a leased vehicle on its mileage. The company waives remaining lease payments and refunds the security deposit.

GMAC sends the customer a letter specifying the nonnegotiable price and deadline to make the deal. The customer takes the letter to the dealership to complete the sale. "The lessee may not purchase the vehicle directly from GMAC," the memo says.

'Special' prices

The "special" price will not exceed the fixed purchase price listed in the original lease contract. The new price includes past-due payments and charges.

Rodger McClain, general manager of a multibrand GM dealership in Lima, Ohio, says the new program puts GMAC between him and his customers. He says none of his lease customers has asked about the special purchase program.

But McClain concedes that the plan makes good business sense for GMAC, given its big losses on off-lease trucks.

"It will help them immensely," McClain says. "When people don't buy their lease vehicles and GMAC takes them to the auction, sometimes they lose $3,000 and $4,000.

"I understand where they are coming from. They are trying to survive, like we are." 

You can reach Arlena Sawyers at asawyers@crain.com

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