GM FIGHTS BACK AGAINST RIVALS WITH LEASING ON CHEVROLET, GMC VEHICLES

By Greg Keenan, Globe & Mail - General Motors of Canada Ltd. is restoring leasing on Chevrolet and GMC vehicles beginning Monday, another sign that the auto financing market is recovering from the cataclysm that helped drive General Motors Corp. and Chrysler LLC into U.S. Chapter 11 bankruptcy protection in 2008.

The return of leasing as a financing option for customers buying vehicles from those two brands -- it was reinstated for Buick and Cadillac customers last fall -- will make GM more competitive in key segments of the market, such as subcompact and compact cars and full-sized pickup trucks, which are offered only through Chevrolet and GMC dealers.

The move comes while GM's market share Canada sits near historic lows as it faces several competitors that offer leasing, a financial tool that allows them to meet one of the key demands of Canadian car buyers -- obtaining the lowest possible monthly payment on a new vehicle.

"It's all about the monthly payment," said industry analyst Dennis DesRosiers, president of DesRosiers Automotive Consultants Inc., who noted that 80 per cent to 85 per cent of buyers focus on that payment and not the manufacturers suggested retail price.

Monthly payments on leased vehicles are lower than those purchased with a loan.

The payment options priced on GM Canada's website for a Buick Regal with a 1SC option package demonstrates the difference. With $3,000 down on the vehicle's price tage of $33,570 before taxes, the payment to lease is $420 a month for 48 months. With a loan at 1.9 per cent annually and the same down payment, the monthly payments are $662.

"We see this as another step forward helping to maintain our retail sales momentum," GM Canada spokesman Tony LaRocca said Sunday. GM's sales to retail customers rose 26 per cent last year, Mr. LaRocca said, five times the growth rate of the overall Canadian retail market.

Leasing is being restored on Chevrolet and GMC vehicles less than two weeks after GM announced it had purchased FinancialLinx Corp., one of the largest independent leasing companies in Canada. It also provides leasing services to Hyundai Auto Canada, Mazda Canada Inc. and other auto makers that don't have their own financial arm.

"This acquisition will allow us the flexibility to expand leasing into our Chevrolet and GMC brands," Marc Comeau, GM Canada's vice-president of sales, service and marketing said in a memo to dealers announcing that leasing returns effective Monday, April 11, 2011.

The ability to offer leasing is critical in the Canadian market. It peaked at 45 per cent of all retail sales in Canada in 2005 and stood at 42.4 per cent of the market in 2007, the year before the financial crisis. Leasing fell to 7 per cent of retail sales in 2009, before rebounding to 15 per cent last year.

GM's market share in Canada, meanwhile, slumped to 15.8 per cent in 2010 from 17.2 per cent in 2009. The lack of leasing contributed to that slide, as did the discontinuation of the Pontiac, Saturn, Saab and Hummer brands. Market share for the first three months of 2011 stood at 15.4 per cent.

"It's something we've really missed," one Chevrolet dealer in Western Canada said. "We're losing some business because of it."

The auto financing market collapsed during the liquidity crisis of 2008 that helped cause the Great Recession.

Auto maker financing companies such as GMAC Corp., as GM's financing arm was known then, Ford Motor Credit Corp. and Chrysler Financial would bundle hundreds of millions of dollars worth of leasing contracts together and sell them to investors on the asset-backed commercial paper market.

Demand for such securitized portfolios in the asset-backed commercial paper market is recovering, Mr. DesRosiers noted, but has not bounced back to precrisis levels.

Before 2008, his consulting company was being called upon six to eight times a year to assess the true value of the vehicles on which the leasing contracts were based.

That number dropped to zero when the liquidity crisis hit its peak in the fall of 2008.

In the past six to eight months, he noted, the firm has been asked to evaluate three to four portfolios.

The GM move back into leasing for Chevrolet and GMC cars and trucks indicates the market is getting healthier, he noted.

But Chrysler Canada Inc. is still out of the leasing game.

It does offer, however, a financial product called customer choice financing, which allows the buyer to return a vehicle to a dealer after three, four or five years of driving.

The difference is that under the Chrysler program, the consumer owns the vehicle, while leased vehicles are owned by a leasing company such as a dealer or auto maker's leasing division.