It’s going to be the hottest game in town. The question is, will your dealership be sitting at the table or watching from the sidelines?
I’ve been predicting for much of the year that used-car values would take a monumental dump in the fourth quarter due to the glut of off-lease and fleet units returning to market. What I didn’t count on was Donald Trump getting elected to the presidency.
Yes, I am a huge Trump supporter, believer, and advocate, but, like many of you, I was beginning to buy into the belief that Hillary had him beat. So with the uncertainty came the miscalculation that pre-owned values would drop significantly due to the flood of used inventory returning to an already saturated market.
Well, it appears I was wrong — at least for now. Look, I still believe we’re on the path to market saturation, as every prospect out there already owns two cars. Long-term financing and escalating prices will eventually kill the market, the cycle having repeated itself in Ground Hog Day fashion every five years since World War II.
There is a “but,” however. See, in the immediate future, the manufacturers are going to create even more inventive and creative ways to pump more units into the market. Hey, with all these fresh, low-mile, late-model units flowing into the market, the manufacturers are going to have to make programs more and more attractive to absorb the four million additional units returning to market this year.
See, the challenge after five successive years of record sales — each year outperforming the previous year — is finding creative ways to build additional value and prestige in pre-owned vehicles so they’re more attractive to buyers.
The fact that these off-lease units and fleet returns were over-residualized in the first place means they will be overpriced — that’s unless the manufacturers can create additional ways to add value in the eyes of consumers. General Motors already tried several stupid failed programs to transfer their predictable losses to their dealers, including its Shop Click Drive-powered Factory Pre-Owned Collection and several other busted attempts to get dealers to absorb the losses it created. Of course, none of that foolishness worked, because neither the dealers nor the public were gullible or trusting of something with such a foul odor.
Now we’re seeing another unpredictable factor playing into the used-car phenomenon. The public dealer groups are paying “stoopid” money for pre-owned inventory. That’s right, the buyer from CarMax, AutoNation and all the other big publics are standing in the auction lanes buying cars for way too much. Eventually, this will bite them in the ass, because it’s unsustainable. Until then, they’re disrupting the market for the rest of us.
So what’s the best strategy? My best guess is to bet on pre-owned certified programs and the strong certainty that manufacturers will go deep into CPO leasing. Hey, they have to shorten terms to keep consumers in the market, and they have to offer a better value proposition to make used vehicles attractive to upscale buyers. And if that’s where the market is headed, your dealership better be primed, trained and ready to present and build value in CPO programs.
I’m always suspicious of manufacturer programs, because, let’s face it, they’ve rarely ever presented something that was also a win for the dealer. That being said, I’d be all in on CPO sales and leasing, and I’d dedicate a lot of resources toward advertising the program and training my people on it. Hey, the two main issues that hold any program back is educating the public and training the team to build value in CPO leasing.
The manufacturers and private companies have muddied up the image of certified in the eyes of consumers with crappy programs touting qualifying cars with up to 100,000 miles on the odometer. Personally, I think there needs to be an industrywide standard for what can be labeled “certified.”
It might not last and it might be the Band-Aid before the dam breaks, but in my mind, CPO and short-term leasing is the best strategy for the surviving and thriving dealer. Keep those calls and emails coming.
Jim Ziegler is the president of Ziegler SuperSystems Inc. Contact him at [email protected].