General Motors dealerships should experience a sharp uptick in returning lease customers this year, providing a potential boost to new-vehicle and F&I sales.
"Our lack of returning lessees has been a bit of an issue for us in '13," Kurt McNeil, vice president of U.S. sales operations for GM, said in a conference call for investors last week. "They started coming back around November, and they continue to grow. That's going to be a huge opportunity for us in 2014."
Returnees should include a growing number of Buick and Cadillac lease customers.
Buick launched a 24-month lease program called Experience Buick in March 2012. The first two-year leases will start expiring this March. That's about the same time Cadillac should see a spurt of returning lessees from its uptick in 36-month leases in early 2011.
Lease customers are more loyal to a brand and more loyal to the selling dealer, compared with cash or loan customers, notes analyst Eric Lyman.
"We see loyalty as positively correlated with leasing. You've got someone in the market who has to return the vehicle to the dealer," says Lyman, vice president of partner development and editorial at ALG Inc., which specializes in setting estimated residual values on leases.
"As a marketer, one of the most difficult things to do is to get that customer on that dealer's lot," he says. "But with a lease you're getting what I think of as 'the first opportunity to lose that customer.' That is, they're yours to lose. If you can't take that opportunity as a dealer to get that person exposure to the product on your lot -- that would be a real issue."
On the rise
Bill Cariss, vice president of dealership operations for Holman Automotive, says returning GM lease customers are on the rise. The 16-store group has one GM dealership, Holman Cadillac in Mt. Laurel, N.J.
"We have begun to see large increases already and expect to see considerably more in 2014," he told Automotive News. He said the F&I and sales departments both work to contact returning lease customers several months before the lease expiration.
"Obviously, the more customers that come through the F&I office, the better for everyone," Cariss said.
Holman Automotive ranks No. 43 on Automotive News' list of the top 125 dealership groups, with retail sales of 15,544 new vehicles in 2012.
GM's lease originations fell during the recession and the run-up to the recession, from about 442,000 in 2007 to about 36,000 in 2009, the automaker said, citing registration data from R.L. Polk & Co. Meanwhile, GM dropped the Pontiac, Saturn, Saab and Hummer brands in bankruptcy restructuring in 2009.
Because lease originations fell, GM says, lease expirations dropped on average 36 months later. New leases for GM brands started to rebound in 2010 from a very low level. From January through October of 2013, the latest data available, GM leases were up 52 percent from the same period a year ago to almost 350,000, according to GM.
McNeil said GM lease expirations keep growing in proportion. GM and its dealers can predict when those returning lease customers will be in the market and pitch them when they're in the right frame of mind. Other competitors got an earlier start on that since their leases started rebounding sooner than GM's.
"Our numbers continue to build progressively until probably May of next year," when they "will be in the 30,000 to 40,000 unit per month range," McNeil said. "Other competitors have been working those portfolios pretty hard. We're looking forward to that opportunity."