Sweeping Changes Occurring

Some sweeping changes are taking place just off the radar screens of most pre-owned departments.

While these changes are occurring almost unnoticed, they will have an impact of historic proportions. They already are affecting your pre-owned success.

For the first time in years, private-sale transactions outnumbered used-vehicle deliveries by both franchised dealers and independent dealers.

The used-car industry recorded roughly 42 million transactions to customers in 2006. Of that, franchised dealers captured about 34%, independent dealers 30% and private-party transactions 35%.

Why is this important? Simple. The Internet has caused the tide of competition for the franchised dealer to move from the independent dealer body to the private-sale arena. This will change many things for years to come if this becomes a trend. As a franchised dealer, take note and start reacting today.

For franchised dealers, certified pre-owned unit sales continue to grow. CPO unit sales reached a new all-time high 1.64 million. Yet there are hundreds, even thousands of dealers that are not really in that market segment.

The dealers that are competing for the CPO business are getting better at it. Every month since January of 2006, the premium prices paid for CPO units have increased, showing that we are no longer just taking a traditional used-vehicle customer and “forcing” them into a CPO unit.

When this happens, there is little or no premium paid. In fact, the average premium paid for a CPO unit in January of 2007 ($1,692), is more than double the premium paid in January of 2006 ($806). These numbers obviously vary by brand, but still increased by over 100%.

Pre-owned inventory will continue to become scarcer. Trades taken in on new-vehicle deals have declined by 20% from 1996 to 2006. Trades taken in on used-vehicle deals have declined by 16% over the same period. Inventory purchased at auctions has increased by 31%.

What's going on? Well, behind the scenes, there was a huge drop in lease volume in the 2002 to 2004 time frame, which causes a lower number of off-lease units to enter the market when the leases expire. Also, more leasing customers are opting to purchase their units when they come off lease.

Add to this the fact that in 2007, rental companies will control over 50% of the units in their portfolios as risk units.

So, there could be trouble ahead for inventory procurement, at least for the late-model program vehicles. To top it off, many manufacturers are scaling back from rental fleet sales.

The Internet will continue to grow in both retail transactions (dealer and private) and dealer-inventory transactions.

Last year 27.5% of all used-vehicle customer transactions were initiated or conducted via the Internet.

AutoTrader.com boasts of over $99 billion in transactions. eBay Motors now sells one unit every 60 seconds and ATC-OnLane reported over 114 units sold per hour. And they are open 24 hours a day, 7 days a week.

Most dealerships have become serious about selling new vehicles online. When you consider that reliable estimates show seven of 10 automotive Internet users will or did buy a used vehicle online, it's time to get serious about the Internet aiding our pre-owned departments.

Related to that is a fundamental shift in advertising media consumption and the advertising business in general.

In the future, advertising will be digital, personal and measurable. It will be delivered to individuals based more on their personal circumstances than through an interruption-based technique, such as the way TV and radio are today.

The newspaper landscape and the advertising agency landscape are changing rapidly to adjust. Newspapers are folding and selling out in record numbers. The old standby print “liner” ad is dying. Monitor your advertising effectiveness with a vengeance and think about digital marketing and advertising.

Ed Curry is director of pre-owned operations for NCM in-house training and consulting. He can be reached at [email protected].

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