Year-End Lease Expirations Challenge GM Customer-Retention Strategy

MONTICELLO, NY – General Motors is girding for an extraordinary volume of year-end lease expirations in the coming months, an event sure to measure the success of its 4-year-old customer-retention strategy and dramatically influence future sales and revenue at the restructured auto maker.

“There have been no repeat (lease) customers for a long time, but now we will begin a period where our customers (should) come back,” North American President Mark Reuss says.

“We're making huge progress in service and customer retention,” he tells WardsAuto in a wide-ranging interview here, referring to GM car buyers. But the auto maker’s ability to retain mostly conquest lease customers will determine how effective recent initiatives have been.

GM leasing was practically nonexistent as the auto maker slipped into bankruptcy four years ago, Reuss recalls, and the practice was not revived until the company emerged as the new GM. It has played a growing role in the auto maker’s sales every month and is an important tool because lessees often return for another vehicle on a fixed timetable.

Executives consider whether conquest customers renew their leases this year or purchase new vehicles a bellwether of GM's success in improving service and customer retention. The returning batch of customers could result in thousands of new-vehicle sales and billions of dollars in potential future revenue for the auto maker.

GM estimates each percentage point of the company’s retention rate is worth about $100 million.

Reuss says customers require a quality dealer showroom, good service and the right product in order to stick with a brand. All of the pieces of that strategy should be in place by December.

The auto maker also will learn in the coming months whether its strategy to retain former owners of the now-defunct Pontiac and Saturn brands will remain with GM for the long term. Attractive lease deals offered to those owners should be expiring.

Reuss is confident GM has the right products, noting the Chevrolet Impala launch is going smoothly, with the V-6 model accounting for most sales. The Hamtramck, MI, plant only recently began rolling out 4-cyl. Impalas.

“I won't be surprised if sales are 50-50 for a while after we get the supply pipeline filled,” Reuss says. “But we're very agile with this.” GM can supply whichever version is in demand.

There have been no ’14 Impala sales to fleets yet, except for a small number to daily rental companies in an attempt to familiarize potential customers with the new model. Reuss expects the Impala to make conquest sales among Chrysler 300 and Ford Taurus drivers.

“We're also seeing a little (action) with Toyota Avalon owners,” he says.

The new Chevy Malibu with its refreshed front end, roomier back seat and improved fuel economy with standard stop/start technology will be a stronger competitor to the Toyota Camry and Honda Accord. But Reuss makes no claim of aspiring to lead the midsize-sedan segment.

“We're not going to give it away,” he says. “We're not in it to win the incentive game. I don't want to over-incentivize the car for sales at all cost.”

Reuss also is encouraged to have the new Chevy Silverado and GMC Sierra large pickups on the market.

“We have the newest and best truck for the first time in many years,” he claims, suggesting combined sales of the Silverado and Sierra could surpass those of the Ford F-150. “We haven't done that in the past.”

The high-margin trucks are GMC’s, while Chevy aims for the work-truck segment, he says. “The (large-pickup) segment is the most profitable in the world. I think GM can own that segment again.”

Reuss also says GM is seeking new markets for its European Opel brand in other markets.

When asked whether the tiny Adam model could become Buick's entry-level vehicle in China, he says he's not the right person to make that call. “But I don't know if I would do that car with the Buick brand in China. There would be a profit problem for GM there unless it builds the car in China.”

There are rumors in Europe GM is considering importing the small Opel Cascada convertible here and selling it as a Buick. Reuss does not confirm this, saying GM's strategy board is studying what markets in which to sell Opel vehicles.

“There's a whole portfolio of decisions to be made,” he says, adding Opel architecture is not just for Buick and China. “Our discussions will be ongoing, and we can get a car ready in one to two years.”

Reuss says there could be more diesels in GM cars. “I'm really excited about the (Chevrolet) Cruze diesel. We're still in launch state, just putting our toe in the water with it.” But no firm decision has been made on whether to offer more diesel-powered cars in the U.S.

‘We have to see how the Cruze does, and we're taking one car at a time,” he says. “The market will help us decide.”

Responding to reports GM is considering development of a $35,000 electric vehicle with a 200-mile (322-km) range between charges, Reuss says GM is studying the concept, he emphasizes no decisions have been made to go ahead with the project.

Sales of the Chevy Volt extended-range EV have soared in the past two months since Chevrolet lowered the price of that model.

During the interview, Reuss acknowledges GM brands have lost sales because the auto maker accepted federal money during its 2009 bankruptcy. He reveals a survey the auto maker conducted a year ago uncovered a GM boycott by some consumers as a result of the bailout. “We know it's there,” he says. “It’s really high on trucks.

“It would be a massively positive thing if the government sells its (remaining) shares,” he adds. “It will be a big day for the company.”

Earlier this week, the U.S. Treasury said it reduced its stake in the auto maker to 7.3%. It originally held 60.8% as part of the $49.5 billion bailout of GM four years ago. The government intends to fully divest its shares in the auto maker by the end of the year.

The governments of Canada and Ontario also reduced their stakes in GM this month by 21%. Canada originally controlled 9% of the auto maker after a contributing C$10.8 billion ($10.3 billion) to the 2009 bailout.

Reuss declines to predict 2013 sales, saying it's too early to forecast fourth-quarter volume. “If I knew, I could be a rich man.”