DETROIT -- General Motors dealers scored a victory when it comes to leasing value-priced vehicles: GM is restoring dealers' ability to mark up interest rates on lease offers, dealers say.
Many dealers had complained that GM's lease arrangement on some value-priced models was costing them thousands of dollars in profits, Steve Shannon, Buick's general manager, told Automotive News. Dealers often boost the finance charge and keep the difference, or reserve, as a profit. That reserve is typically 1 to 2 percent above the finance charge the bank sets for the loan.
Shannon says that on certain lease deals, GM limited how much dealers could mark up the finance charge. That's because GM wanted to keep the monthly lease payment low for the customer.
Dealers say GM also worried that dealers would advertise the vehicle with the financial reserve included. One Detroit-area Buick dealer called that "absurd" because, he said, dealers would want to advertise the cheapest price.
The dealer, who spoke on condition of anonymity, says he lost a lot of money during the 45 days the rule was in effect. He estimates his profits took a $25,000 to $30,000 hit.
Shannon says GM was aware of dealers' concerns. The issue of leasing was "on the table" for discussion. But on Nov. 2, dealers say, GM lifted the restriction and now dealers can mark up all lease deals again.
"The smaller dealers relied on that because the amount of money they were paid on the finance reserve became their month-end profit," says the Buick dealer.
GM spokeswoman Deborah Silverman declined to comment on the controversy but issued a statement saying GM offers a variety of incentive programs that vary by region and model. "It's important to remember that customers individually negotiate their purchases and leases with dealers, who are independent businesspeople," Silverman said.
GM put the finance reserve restriction on certain vehicles in its value pricing strategy, which it calls Total Value Promise, Shannon says. The idea behind value pricing is to lower the price on the base vehicle closer to the transaction price, minimizing incentives and rebates.
Many dealers say their profits are 30 to 35 percent lower than they were five years ago, and that's why they pressured GM management to lift the restrictions on the markup for leasing.
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