Consider the boomerang: released from its point of origin, it accelerates rapidly, aerodynamically slicing through the air on its journey, and then returning back to where it started, ready to head out again.
Certified Pre-Owned (CPO) vehicles work kind of the same way. They set out from the dealership, shiny and new–cars, SUVs, minivans and pickups – and then, when the lease is up, back they come.
For several months now, we’ve been seeing that happen at steadily increasing levels. The surge of new vehicles that rolled out of showrooms as the great recession eased is now translating into higher CPO inventories than we’ve seen in many years.
Record CPO sales
J.D. Power estimates Americans will return 3.36 million leased vehicles this year, following a 33 percent surge in 2016. This lift marks the sixth consecutive year the U.S. auto industry posted record CPO sales, and rumour has it a seventh consecutive year is on the horizon for 2017.
Cars and trucks coming off lease in the U.S. this year should rise about nine percent, and we’re seeing similar impacts here in Canada; some Canadian OEMs are expecting to see a 50 to 60 percent increase in lease returns over the next few years.
Audi Canada, for example, announced its first quarter in 2017 as its best start to a year ever and March as its best individual CPO sales month in history (sales rose 38.5 percent year-over-year, with 727 CPO units sold).
BMW Canada similarly declared March as their best CPO sales month on record, with a 14 percent increase on their sales numbers. Other brands such as Mercedes-Benz, Volvo and Toyota are reporting similar increased sales numbers for CPO, meaning that this trend is not affecting just one brand in particular, but a full range of dealerships across industry, as well as heading into a prime era of CPO success based on recent numbers.
This influx of CPO inventory can offer dealers a number of opportunities. It’s a solid alternative to Used and New vehicles, and enables dealers to protect gross margins. CPO improves turn rates, and can also provide a boost to finance and insurance revenue.
They can also be an excellent way of getting new buyers into a particular brand. A positive CPO experience this time around can, for certain drivers, lead them to buy a new vehicle down the road.
That said, the greater volumes of CPO vehicles are putting pressure on incentives for New car sales. Manufacturers are having to come up with some aggressive pricing to remain competitive, and that is tightening the price differentials between New, Nearly New and CPO. CPOs can offer a consumer more features at less of a cost than a new car.
Stay ahead of the learning curve
All of this adds further pressure to dealers, and requires even greater out-of-the-box thinking and strategies to move Used, CPO and New inventory. I meet with many dealers who are bringing some true creativity to their approach, but who are also always eager to seek out new opportunities to advance their learnings.
In the automotive industry, things are changing a mile a minute. That is why it is important to understand current industry trends, such as the rise in the importance of CPO. One way to stay in tune is to attend industry and marketing specific conferences to generate new ideas and opportunities.
So heads up: the boomerangs are back! And with good planning and solid strategies, dealers can harness that energy and use it to their advantage.