Increased Resale Values Key to Improving Operating Margins, General Motors Says

Leasing is a potentially profitable business for carmakers, but success is largely determined by high resale residual values, and a lower residual value can cut into company profit margins. General Motors wants to increase leasing as part of its sales mix, and is pinning its strategy squarely on improving the desirability of its models, thus raising their residual value, according to Bloomberg.

GM’s mass-market benchmarks are currently Ford and Volkswagen, which enjoy higher average residual values than GM models, which affect operating margins, an area GM CEO Dan Akerson is targeting for improvement. GM’s current average residual value is 44 percent, one point behind the industry average, but a major improvement from its 36.5 percent average in 2009. Chuck Stevens, GM’s chief financial officer, said “The key will be great products and pricing and incentive discipline, it’s that simple.”

Of GM’s four brands, Cadillac showed the greatest improvement over the last four years, going from 34.7 percent in 2009 to 45.6 percent in 2012. Cadillac has kept an aggressive product pace with the introduction of the ATS compact performance sedan, and a totally re-designed 2014 CTS midsize sedan due in showrooms later in 2013.

The Chevrolet Impala, a vehicle traditionally associated with heavy fleet sales, has been totally re-thought for 2014, with styling and features to make it more appealing to retail consumers. Only one percent of Impalas were leased last year, but GM is targeting a lease rate of up to 20 percent for Chevrolet’s fullsize family sedan. Chevrolet is also targeting a 70-percent retail sales mix for the new Impala, up from 30 percent for the outgoing model.

Source: Bloomberg

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