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GM poised to leap out of ‘lease hole’
By Mike Colias – From Automotive News. Link to original article.

DETROIT — General Motors has a secret weapon in its bid to gain U.S. market share this year. Just consider the lease portfolio at Paddock Chevrolet in Kenmore, N.Y.

Owner Duane Paddock says he’s finally beginning to see customers trickling in with expiring 36-month leases, after having barely any off-lease customers in 2012. The lease drought — a lingering effect of the recession and GM’s 2009 bankruptcy — cut off a major customer stream for a store that once averaged about 180 lease returnees a month.

“By about November we expect to be full-blown” with returning lessees, says Paddock, estimating that his sales staff will convert more than 50 percent of those into fresh leases or sales. He expects a few hundred off-lease customers to return this year, rebounding to nearly 1,800 next year.

For nearly two years, GM dealers have been suffering through a shortage of off-lease customers. That’s because leasing by GM dealers all but dried up in late 2008, amid the financial crisis, and didn’t resume in earnest until mid-2010.

Three years later, those first post-crash lessees are returning to Cadillac, Buick-GMC and Chevrolet showrooms. GM executives view it as a potential tail wind for sales growth this year and next, just as it launches an onslaught of new and redesigned vehicles, many of which were delayed by the 2009 bankruptcy.

GM North America President Mark Reuss told Automotive News last month that he expects GM and its dealers to vault out of the “lease hole” this year.

“We’ve gained share, and we’re still running right around 18 percent on a market share basis even with those lease holes in those key lease markets,” Reuss said.

Through May, GM’s U.S. sales rose 8 percent, lifting its market share to 18 percent, up from a pre-World War II low of 17.9 percent last year. CEO Dan Akerson said in January that he expects GM to gain modest market share this year.

As off-lease customers slowly return, GM dealers should have a good shot at renewing them. Low interest rates and stronger residuals on new vehicles such as the Buick Verano and Cadillac ATS have helped GM offer increasingly aggressive lease deals.

That helped raise GM’s lease penetration to 21 percent in the first quarter of 2013, from 13 percent a year earlier.

Some Cadillac dealers in the Northeast say leasing now represents about 90 percent of their volume.

That’s a welcome change from much of the past two years, especially for Cadillac and Buick-GMC dealers in the Northeast and other lease-heavy markets. The dearth of returning lessees hurt not only new-car sales but cut service revenue and choked off fresh inventory for used-car lots.

Gordon Stewart, who owns four Chevrolet stores — one in Augusta, Ga., one in suburban Detroit and two in Florida — also is seeing a steadier stream of off-lease customers. But he expects the real influx in early 2014.

Stewart says his lease penetration has rebounded to around 35 percent at his suburban Detroit store, after falling below 5 percent in 2009.

“We lost a high percentage of those customers,” Stewart says. “Now that we’re starting to see some coming back, it will be very good for our sales. I think the main harvesting time should be about 12 months from now.”