An Expensive Experiment?
General Motors scores points for originality on its latest vehicle incentive program, a 60-day buyback promotion launched Sept. 13. But the promo could come back to bite the OEM if consumers take advantage of the two-month return policy.
GM’s “60-Day Satisfaction Guarantee,” as the program is called, enables buyers of 2009 or 2010 Cadillac, Chevrolet, Buick, and GMC vehicles a 60-day money-back guarantee on their purchases. Customers may return their vehicles starting 31 days after purchase, as long as they have not logged more than 4,000 miles.
But consider the depreciation on those vehicles. Once a vehicle is driven off the dealer’s lot, its value is calculated in wholesale terms. For instance, the Kelley Blue Book value of a 2009 Chevy Malibu LS is $22,325. The Blue Book suggested retail value of a 2009 Malibu LS with 4,000 miles is $20,090. That’s a difference of $2,235 in 60 days.
Now, I’m certain GM has done the analysis and expects only a small number of vehicles to be returned, but it seems like a gamble for a company that, like others in the industry, has seen loss severity on recovered vehicles skyrocket in recent years.
GM’s “60-Day Satisfaction Guarantee,” as the program is called, enables buyers of 2009 or 2010 Cadillac, Chevrolet, Buick, and GMC vehicles a 60-day money-back guarantee on their purchases. Customers may return their vehicles starting 31 days after purchase, as long as they have not logged more than 4,000 miles.
But consider the depreciation on those vehicles. Once a vehicle is driven off the dealer’s lot, its value is calculated in wholesale terms. For instance, the Kelley Blue Book value of a 2009 Chevy Malibu LS is $22,325. The Blue Book suggested retail value of a 2009 Malibu LS with 4,000 miles is $20,090. That’s a difference of $2,235 in 60 days.
Now, I’m certain GM has done the analysis and expects only a small number of vehicles to be returned, but it seems like a gamble for a company that, like others in the industry, has seen loss severity on recovered vehicles skyrocket in recent years.
Tags: buyback, depreciation, gm, guarantee, resale
Comment
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Comment by David Ruggles on September 23, 2009 at 6:01pm -
Marcie,
I don't know how original the GM ploy is. Lee Iacocca and Chrysler had a similar program. I have nightmares about the paperwork to this day. As a practical matter, very few vehicles were returned, even though some Chryslers of the day were terrible. So GM has a precedent to follow. Manufacturers buy back vehicles all the time. I'm driving a MB "buy back" myself. The most difficult part of "buy backs" is unwinding finance contracts, service contracts, rebates, etc. It's complicated.
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Comment by JJ Hornblass on September 23, 2009 at 3:44pm
- The key is the number of vehicles returned. Even the preliminary fine print on the offer reads as follows, "Return between 30 and 60 days with less than 4,000 miles. Not available with some other offers. Other restrictions apply. Take delivery by 11/30/09." There are rules and they will no doubt limit the risk exposure GM faces. I can't see the absolute risk GM is taking as being anywhere near the program's actual costs.
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