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TheStreet Open House

GM Leases Are The Post-Recall Bargain

NEW YORK (MainStreet) — The saving grace for General Motors amid its recent recall debacle has been robust sales; the company sold 2,505,889 vehicles worldwide in the second quarter of 2014, with year-over-year sales in the United States up 7%.

Consumers' purchasing behavior may be unfazed by the safety concerns, but the true bargains for those at GM dealerships are to be found on leases.

Wantalease.com, the nation's first online car lease marketplace for new lease deals, says certain GM models saw the largest drop in prices in June, with new lease deals offered on the Buick Regal Premium going for $229 per month, down from $426.46 in May. The Buick Lacrosse was being offered for $249 per month, down from $425.21 in May, and GM's Chevrolet Cruze LT had a $159 new monthly lease price, down from $226 in May.

GM active lease pricing has undergone some turbulence this summer and into July for a few reasons, according to Scot Hall, executive vice president of Wantalease.com.

Also See: GM Proves America Can Still Drive Big

"First, through a natural course of short-term incentives and other promotional offers, lease pricing has a tendency to see noticeable swings over the course of the year, and we're seeing some of this with GM vehicles," Hall said.

There may also be "inventory control strategies in play," Hall said, whereby lower prices on particular models ensure the optimal number of cars is available at any one time. That said, Hall points to the recalls as a possible reason for dealerships to lower monthly rates to ensure that customers sign up for leases.

"In looking at the price changes on GM leases from a year ago, however, the recalls may in fact have an impact here," Hall said. "Last summer, while seasonal price swings were present, they were not as dramatic, which leads us to believe that the recall may be contributing to lower prices to maintain shopping and consideration interest from consumers."

The Regal only went from $248.16 to $297.31, from May to June during the summer of 2013. The Cruze also had a less drastic shift from $215.38 to $179.65, from May to June during the summer of 2013.

Steven R. Elliott, an LMC Automotive analyst in the North American Forecasts division, attributes the steep drop on certain GM lease prices this year to "an effort to clear inventory of those models," not the recalls.

As of July 1, inventory on the LaCrosse is at an 80 days' supply – meaning it would take that long to sell all available inventory – down from 111 the previous month. The Regal is at a 96 days' supply, up from 77. The ideal days' supply level is around 60 days, Elliott says, so GM is staring down these increased supplies and offering incentives to move inventory. Though GM is selling well in light of its PR challenges, it has failed to reached its own expectations.

"Part of the reason for the Regal in particular is that it is a relatively stale product in a highly competitive segment with a lot of newer product," Elliott said. "Buick is also trying to change the perception of the brand and attract younger buyers which is an uphill battle."

June sales for the Regal and LaCrosse were up 36.5% and 44.4% respectively, with increased price incentives getting consumers to the dealerships.

Nick Richards, a Buick communications manager at GM, disputes the extent of the dramatic dives seen in the Wantalease.com prices.

According to internal data from the GM sales team that works with dealers nationally, the national monthly Regal lease was $259 with $2,229 due at signing in both May and June. The LaCrosse, according to Richards, went for $299 a month with $849 due at signing, down from $299 a month with $1,289 down in May. Wantalease.com prices are a combination of data from manufacturer websites, dealer websites and dealer relationships with Wantalease.com. Despite the discrepancy over the exact lease price changes, any way you slice it, there are bargains to be found on GM models – whether in monthly payments or downpayments drops.

Justin Sgro, general sales manager at Liberty Buick in Peoria, Ariz., thinks that the low leases have been baked into the system as part of GM's strategy.

"There was probably a master plan put in place – how we were going to make these leases very low, how do we go after conquests," he said. "We wanted to go after the competitors –Toyota, Honda, Audi."

Sgro wants the LaCrosse to take market share away from the Toyota Camry and Honda Accord, and he sees the incentives on the Buick Verano as going head to head with the Toyota Corolla and Honda Civic.

"Leasing is taking off like a rocket," said Sgro, who noted that monthly lease payments on a two- to three-year leases are still lower than monthly payments on 60- to 72-month auto loans for those who purchase their vehicles.

"Generally speaking, leasing can enable you to drive a lot of car for the money while keeping the repair and maintenance costs to a minimum," said Jesse Toprak, chief analyst at Cars.com.

That's all the more the truth when the monthly lease payments are significantly diminished.

Though Buick has long been perceived as stodgy and staid, Sgro, who has sold Buicks for 16 years, believes the brand is coming around. He says his customers are not talking about the recalls at the dealership and are instead just focused on the product and the prices.

"Buick has finally got it," he said. "Running the low leases is bringing [potential customers] through the doors and getting them to test drive at least."

—Written by Ross Kenneth Urken for MainStreet

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