The Leasing Problem

[Bruce Nunnally]

Luxury buyers want to lease their new cars. GM cut back severely on leases due to losses in buyback last year.

Cadillac has been limited in what lease terms are available for new buyers, and so has likely lost sales to other luxury brands.

Just 6% of Cadillac customers in August leased a vehicle as opposed to buying one, according to Edmunds.com. That compares to 32% of customers taking the lease option at the five import luxury brands that Cadillac competes with: Mercedes, BMW, Lexus, Audi and Acura.

So far in 2009, all of those five brands except Acura either held or gained U.S. market share even as consumer spending was seriously constrained and car sales overall plunged.

"Our business used to be about 65% leasing," said Kori Churchill, co-owner of Frank Kent Cadillac in Fort Worth, Texas. "We're currently running at about 5% lease [and] we are continuing to lose people who we used to be able to go from one Cadillac lease to the next."

Fixing Cadillac's leasing problem is critical for GM as it battles to bounce back from bankruptcy reorganization. It is counting on hefty margins from luxury cars to drive profit.

Cadillac's sales chief, Ed Peper, said the company is looking to boost lease penetration back up to the 25% to 30% range by "getting more aggressive with leasing each month." He said the company will monitor BMW and Mercedes -- both of which are spending heavily on lease incentives -- and potentially court more banks to help it on leasing.

[WSJ]