Healthy ATS residual to boost Cadillac leasing
Value should help GM take on German luxury rivals
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DETROIT -- The Cadillac ATS compact sedan will arrive in showrooms this month with a strong projected resale value, which should help General Motors offer lease deals to rival those of German competitors.
That would be in line with GM's broader effort to expand its lease business.
Last week, ALG, a research company that monitors and projects vehicle values, assigned a forecasted residual of 65 percent after 36 months for the base ATS. That's higher than the base models of the Mercedes-Benz C class and the Audi A4, both of which are forecast at 59 percent.
It's also the highest residual for the base model of any vehicle in Cadillac's lineup. ALG assigns a residual of 53 percent to the recently launched XTS large sedan and 41 percent to the CTS mid-sized sedan.
Residual values are used by lenders to set monthly lease payments. A higher residual means that the vehicle will be worth more when the lease is up, which allows the lender to set a lower monthly payment.
Competitive leases are critical to success in the luxury market, where leases typically represent more than half of total sales. The compact-luxury segment is even more lease-heavy.
Over the past few weeks, ALG staffers in Santa Barbara, Calif., have been comparing the ATS with key rivals, including the C class, and the redesigned BMW 3 series, which was launched in March. ALG expects to publish its projected residual for the 2013 3 series sedan this week.
The ATS "is extremely competitive," says Eric Lyman, ALG's vice president of residual value solutions. "They clearly have the 3 series in their sights."
In coming weeks, GM and its lenders will set the lease terms for the ATS, a Cadillac spokesman said. The car should arrive in showrooms by the end of the month.
ALG's residual ratings for the ATS offer some validation for GM executives who have trumpeted their 3-series fighter for months. The ATS is built on a new rear-wheel-drive platform and engineered to emphasize driving dynamics, a key attribute in the entry luxury segment.
The lofty residual "helps our plan in terms of managing profitability and reaching an attractive payment point without having to throw a lot of support dollars at it," Cadillac marketing chief Don Butler told Automotive News.
He said the money GM might have spent subventing ATS leases could be plowed back into marketing.
Butler said Cadillac residuals have been increasing in part because Cadillac has backed off big incentives and sales to rental car companies, both of which tend to hurt resale values.
Butler expects leases to account for more than 40 percent of ATS sales, which is slightly higher than Cadillac's overall lease penetration.
Even before the sales launch of the ATS, GM has been using special promotions and a 2010 acquisition to lift its leasing volumes closer to the industry average. Buick has promoted its Buick Experience 24-month lease program since March, and captive finance company GM Financial has increased its lease business.
GM bought GM Financial in 2010. It is the former AmeriCredit Corp., which specialized in subprime auto loans. GM Financial launched leasing nationwide about a year ago, after a state-by-state rollout. GM also offers leases through Ally Financial and U.S. Bank.
In the second quarter, GM Financial almost doubled its lease business as a percentage of total originations to 21 percent, up from 11 percent in the year-ago quarter, the company said.
GM increased its U.S. lease penetration slightly in the second quarter to 15.3 percent of retail deliveries, from 13.5 percent a year earlier, the company said. GM said that for the rest of the industry, not counting GM, lease penetration was about 21 percent in the second quarter, compared with about 22 percent a year ago.
Jim Henry contributed to this report
ATS: 65%
XTS: 53%
CTS: 41%
Escalade: 48%
Source: ALG
You can reach Mike Colias at mcolias@crain.com.
