GM aims to boost resale values of its models and save $200 Million each year

Article by Andrew Christian, on April 2, 2013

General Motors aims to boost the resale values of its models in hopes of increasing its profit margins and attaining savings of up to $200 million each year. GM wants to continue to narrow the gap with rivals who don’t need to spend the same amount to provide lease deals. ALG Inc., the company that sets resale values, said that what’s referred to as residual values increased to 44% from being at a 36.5% level in 2009 when the automaker experienced a bankruptcy reorganization.

Because of higher residuals, automakers are able to offer lower monthly lease payments since the cost is based on the projected resale value when the contract ends.

On March 27 at a Bank of America Corp. forum in New York, Chuck Stevens, chief financial officer for GM North America, told analysts that GM's lower resale values relative to competitors mean that the automaker uses up $150 million to $200 million more each year to make its lease payments competitive. Stevens said that the key is in having “great products and pricing and incentive discipline.”

GM Chief Executive Officer Dan Akerson is encouraging the company to increase operating margins to become more competitive with Ford Motor Co. and Volkswagen AG. This year, GM is presenting around 20 new models to the U.S. in 2013 after its model lineup had grown stale after the bankruptcy.

Last year, GM’s market in the U.S. dropped to its lowest in 88 years. The increase in GM’s residual values is comparable to a boost in the industry average to last year’s 46.5% from 42.7% in 2009. ALG said that Ford posted a 45% increase from 39.6% and Chrysler Group LLC reported a climb to 44% from 36.4% while Honda Motor Co.'s Honda, the major auto brand with the best resale value, fell to 51.5% from 52.3%.

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