The combination of consumer demand, increasing off-lease supply, and record-setting lease penetration is creating what could be sustainable momentum for the certified pre-owned (CPO) market.
To provide context, consider the following market dynamics:
- Lease originations exceeded 3.5 million in 2014, Manheim reports—their highest level since 2000.
- CPO sales increased nearly 11% last year and accounted for 20% of used car sales in 2014, according to Edmunds.com.
- TrueCar notes that CPO sales this year will total more than 2.5 million units, predicting 2015’s supply of one-to-five-year-old used vehicles, including CPO, at 10.4 million units.
As these market dynamics unfold, used car managers will need to source CPO inventory more wisely than their competition. To help stay ahead and grow market share, I suggest two strategies:
- Obtain CPO inventory from nontraditional sources.
- Get ahead of banks and lenders, lease-conquest marketers, and other dealers before lease-end.
Executing these strategies effectively will require a proactive and data-driven strategy. For example, intentional off-lease marketing using data-mining software enables you to bring consumers back into the market earlier than they otherwise would have considered and before the traditional 120-day lease-end campaign. The net result is:
- A 10% to 20% increase in CPO-quality trades per month from existing customers.
- A 30% to 40% trade-in capture rate from serviced-but-not-sold customers, 85% of which will drive the vehicles you want for your CPO inventory.
This is how it works: By daily monitoring of customer lease activity, credit criteria, and the impact of trade values against market factors like rebates and incentives, you can identify opportunities to buy out customers’ existing leases and put them into new vehicles for about the same monthly payment.
Here’s where you’ll find these opportunities:
- By telephone: These are calls to your existing customer base. It’s important these calls capture listener attention, meaning they’re not the traditional call approach. To ensure success, follow a prepared and tested phone script. A script will help you cover key talking points. It will also help you stay focused on the goal: to set an appointment for the customer to come in, when you’ll have their new vehicle and lease (or finance) paperwork ready.
- In the service drive: The offer and talk-track strategy used for telephone contact works well for existing customers arriving for service. Wait until they’ve completed the service check-in, and while they’re still in the service department, present your offer. The results can be dramatic—some dealers are leasing or financing as many vehicles in service as they do in the showroom.
- Service-not-sold: By using data mining software integrated with soft-pull credit data, this contact approach can increase the number of opportunities to sell in service by 50%. Converting service-only customers into new lease or vehicle purchasers deepens their relationship with the dealership, which is important to ongoing retention, additional purchases, and dealership profitability.
Data-driven preemptive strategies can help reduce cost of sale to $200 a car or less, two-thirds the industry average. They favor the proactive dealer seeking to solidify market share.
Brian Skutta is CEO of AutoAlert, Inc., North America’s premier data mining, lead generation, and sales opportunity provider. Skutta brings to AutoAlert more than a decade of leadership in helping auto dealerships sell more vehicles and retain more customers. He has a proven history of successfully managing innovation and growth, most recently at VinSolutions and Autotrader.com’s Trade-In Marketplace. Reach him firstname.lastname@example.org or visit www.autoalert.com.