BACK IN THE DAY
We have heard all the urban
legends, and jokes from back in the
day about acquiring a used car.
Cars were not reliable when
new, with suspect durability.
You can just imagine when they
were used…it was a leap of faith to
buy a used car (vehicle) or was it?
IS THE CAR SICK?
Chances were good that the car
had at least a few ailments, some
obvious, some not so obvious,
some well camouflaged.
At a time when cars were relatively
simple, with common features, and
standardized components like
distributors, carburetors etc.
It was fraught with perils!
Also relatively easy to quickly
diagnose a car.
ACCIDENTS…
Most cars had frames, the common
knowledge was that if the frame
was not touched, it was only sheet
metal damage.
Some things never change.
Body panels were thick, repairable,
body filler was prevalent.
The various chrome moldings
camouflaged many surface
inaccuracies.
Was it much different than today?
With crush zones for safety frame
damage is prevalent.
BRING A MECHANIC
When cars had common
components, with a widespread
knowledge base.
The informed used car shopper
brought his mechanic with him, to
empower himself while inspecting
the car that was of interest.
The used car salesman as
expected had no clue of what was
wrong with the car.
The vehicle history was word of
mouth, and hear say.
PEACE OF MIND
The prospective used car buyer
was seeking peace of mind in his
purchase.
While the seller had the vehicle
which was already a huge
advantage.
The saying was: “ There is only one
like this one, and I have it”
For the buyer peace of mind was to
bring a knowledgeable mechanic to
empower himself to make a
purchase decision, and negotiate a
price.
HAPPY WITH THE PURCHASE
In most instances the buyer that did
some due diligence, empowered
himself.
Negotiated a price, had the car
reconditioned, by his mechanic.
This individual was satisfied with
his purchase.
Manufacturers literally staid away
from the used car department of
franchised dealers.
Used car dealers were usually
clustered on “used car row” to
facilitate locating used cars.
PROGRESSION
As cars progressed and improved
through the years. While acquiring
increased technology, and
complexity.
The purchase process evolved
supported by various forms of
technology which have become an
intrinsic part of the process.
The prospect/customer is
empowered by the information that
technology disseminates
While the technology content of
most vehicles continues to pose a
formidable challenge.
HOW DID CPO START?
Luxury cars were the first movers in
the voyage towards CPO. When a
used luxury car was the price of a
new “non luxury” car the customer
demanded assurances.
The recession of the early 1990’s
with the ensuing lease
repossessions. The introduction of
GST with the resulting residual
losses by the customers created
the initial steps of the remarketing
process.
Luxury manufacturers subjected to
lease repossessions, and
profoundly upset customers over
residuals losses.
Started connecting the dots.
PAIN
There was immense initial pain, with varying opinions from a myriad
of stakeholders.
Before the gains emerged from the dust and debris of the recession
and GST issues from 20 years ago.
Manufacturer supported used car warranties had been in place for a
short time, with a cursory knowledge base.
Closed end leases gave assurances to customers, and were
fraught with perils for manufacturers, and captive finance. Who had to put “skin in the game”.
The fellow that first offered “walkaway” leases on luxury cars in
Canada rocked the market.
CONNECTING THE DOTS
By connecting the dots the Certified
Pre Owned vehicle slowly emerged
with a distinct identity in the
Canadian used car market.
Initially the domain of luxury cars to
offer assurances to prospective
customers. The CPO pread at a
glacial pace.
“Luxury cars, complex, full of
electronics and black boxes,
expensive to repair”
Until leasing exploded to a high
penetration. The CDN dollar
increased in value.
Remarketing lease returns became
a priority and obligation.
RELEVANT POINTS OF VERSION 1.0
Manufacturers started offering warranties on
used luxury cars.
The recession of the early 1990’s created
numerous lease repossessions.
The advent of GST created havoc on residual
values, leaving customers profoundly upset.
Remarketing repossessions initiated a
process.
Closed end leases shifted the lease residual
risk from the customer to the manufacturer /
captive finance.
The initial concept of a manufacturer backed
used car warranty is emerging.
Closed end leases oblige the manufacturers to
engage in remarketing efforts to sell the lease
returns.
The low Canadian dollar generated high prices
in Canada increasing the lease penetration.
Initial lease remarketing efforts were easy, many
vehicles were sold at auctions and exported.
The “remarketing” industry has grown and
evolved by leaps and bounds greatly facilitating
the remarketing of any vehicle.
Retail is slower takes longer compared to
wholesale which is lightning fast.
Retail is the bottle neck/log jam in the
remarketing process.
The sluggishness of retail compared to
wholesale does not keep up with changing
wholesale values.
History/provenance reports are a standard
feature, provide no distinction or advantage.
Manufacturer supported CPO programs begin to
emerge as a distinct feature.
The business model works while showing signs
of strain.
ASYMMETRIC INFORMATION
The fear in the mind of the
consumer (buyer) was the fact that
the seller knew more about the
vehicle that the buyer.
For decades Asymmetric
Information posed a formidable
barrier to creating a level of trust in
a used vehicle transaction.
The current history reports for used
vehicles diminish the asymmetry of
information while creating a more
“level” playing field.
Increasing technological
complexity, creates an asymmetry
of technology challenging the
peace of mind that a consumer
demands.
ASYMMETRIC TECHNOLOGY
With increasing technological
complexity.
Aggravated by the proprietary
nature of manufacturer specific
applications.
The seller and the buyer are on a
level playing field. Neither know
when the “black box” might / will
fail.
Asymmetric Technology between
the vehicle and the seller/buyer.
Requires an enabler / assurances
to establish a level of trust.
EMERGING CPO
Manufacturer supported used
vehicle program with warranties,
alleviate the asymmetry of
technology.
A rigorous inspection process.
Various incentives applicable to a
CPO vehicle from lower rates, to
return policies.
Luxury dealers are active in CPO
programs more than non luxury
dealers.
The consumer can access a vehicle
that provides a higher level of
confidence and peace of mind.
DOWN THE ROAD IN CANADA
Retail must accelerate in speed of
creating customers and converting
vehicles to money.
The recent demise of leasing the
used vehicle value risk is
transferring from captive finance to
dealers.
The wholesale process is a finely
tuned operation and speed.
The retail process requires
recalibration to achieve a
competitive advantage.
The various technology platforms
are not a replacement for a
comprehensive pre owned
knowledge base.
IMPACT OF TECHNOLOGY
RETAIL WHOLESALE
Cannot sell, customer will not buy with a click.
Uniform history reports remove asymmetry of
information.
Aggregating retail market information is
arduous, not standardised.
Challenging to arrive at retail market values.
What retail values? Changes when?
Easy when buying from captive finance taking a
loss on residual.
More risk in trades, with erratic retail value
databases.
Customer can access immense databases of
used vehicles plus history.
Transaction based on price and documentation.
Not so easy to pre sell, peace of mind.
Can sell and buy with a click.
Uniform inspection process enables buying with
a click.
Gathering market information is easy, uniform,
standardised.
Easy to arrive at wholesale values.
Values vary on a weekly basis.
Easy when selling for captive finance assuming
residual risk.
More work selling for dealers.
Dealer can access immense database of
vehicles, history, uniform inspection reports.
Transaction based on price and documentation.
Easy to pre sell.
IMPACT OF DIMINISHED LEASING
RETAIL WHOLESALE
More trade ins to do a deal.
Increased risk in used values.
Increased losses on used inventory.
Enduring lack of retail value information in the
near future.
Increase in front line reconditioning.
Luxury will further increase CPO penetration.
Technology, documentation are a standard
feature of all used vehicles.
More risk to achieve the same results.
Dealer groups will assume increased risk with
used vehicles.
Less business with captive finance.
More business with dealers to adjust
inventories.
Still exceptional wholesale value information.
Loss of massive reconditioning contracts with
captive finance.
Luxury captive finance will continue to do
business.
Technology and documentation are no longer
an advantage.
More work to achieve the same results.
Dealer groups will replace captive finance.
IMPACT OF INCREASINGLY EMPOWERED CUSTOMERS
RETAIL WHOLESALE
Customer has access to same, and at times
more information than dealer.
Aggregating retail information would be a value
feature (not easy to do).
The lease return no longer exists in the same
numbers (customer more skeptical).
More challenging to locate specific vehicles.
“There are 5 other identical vehicles, with
comparable histories.”
“Why should I buy this vehicle from you?”
For the franchised dealer CPO is a compelling
differentiator.
For any dealer aggregating retail information is
a meaningful value added feature.
Vehicles with a compelling history will have an
advantage.
Does not do business with retail customer.
Aggregating information becomes a value
feature (already doing so).
The lease return was easy to sell.
Less pre selling of lease returns.
Larger pool of available units from dealers.
Offer an independent CPO package?
IS VERSION 1.0 RESPONSIVE TO THE FUTURE?
Version 1.0 was effective during a
different Canadian used vehicle
reality, market, and demographics.
Will version 1.0 continue to function
…yes!
Will version 1.0 be responsive, and
pro active?
…NO
What do you think?
LOOKING AT CANADA
For every new vehicle sold there are 1.5 used
vehicles sold…ratio is 1.0 new to 1.5 used.
Franchised dealers sell 39%, independent
dealers 24% and C2C (consumer to
consumer) 37% of sales.
How many are CPO…good question without a
good answer.
The following data for 2010 is from J.D.Power PIN
In 2010 the used vehicle buyer is younger
(1%). Yes Gen Y is emerging as good
prospect for used vehicles.
With a younger buyer cash sales are down,
while finance (financial services) is up (3.5%).
The female buyer is constant at 38.4% is there
an opportunity here?
Although the average vehicle is still 3.8 years
old, the price is up from 17.7K in 2009 to
18.4K in 2010. Is it the effect of CPO?
The distance is up by 1K kms not a huge
difference to 64.8K kms.
The F&I variables are constant, be it extended
warranty and insurances.
The retail turn rate is 57 days. A n eternity in the
used vehicle market powered by technology.
Points that grasped our attention
The used vehicle buyer will continue to be
younger…a Gen Y.
What is Gen Y seeking in a used vehicle?
Imagine consistent marketing to attract more
Gen Y and women.
When the bench mark is a 30 day turn, and at
45 days its get rid of the vehicle…57 days is an
eternity.
The retail process persists in being slow.
WHAT WE KNOW…ABOUT CPO IN CANADA
Most manufacturers have a CPO program that
is deployed through their dealers.
CPO works well with luxury/hi line vehicles.
The manufactures that walk the talk are close
to 2 new for 1 CPO.
These same manufacturers gather data to
empower themselves, and their dealers with
timely retail information.
History, and provenance is no longer enough
to distinguish any vehicle. Like saying that a
car has ABS-Air Bags-Stability Control.
CPO sales have increased dramatically in
Canada during the past few years (data from
some manufacturers).
Conclude that the Canadian market is very
receptive to CPO vehicles.
CPO is a compelling trust inducing initiative
deployed by manufacturers, and executed by
franchised dealers.
Luxury manufacturers will continue to calibrate
their CPO offerings to be more responsive to the
market.
At a time when everyone disseminates the same
information from the same sources for vehicles
that are easy to locate by the consumer.
CPO is a powerful differentiator.
Dealers will assume a larger share of the used
value risk compared to market. CPO offers a
value added alternative to diminish risk.
The inspection/reconditioning procedure
provides service, and parts sales to the fixed
operation department.
RECONDITIONING & MAINTENANCE
Is it Detailing?
Is it Front Line
Ready?
Is it Cosmetics?
Is it Inspecting?
WHAT WE KNOW…ABOUT CPO RECONDITIONING
Implies a meticulous inspection and
reconditioning to factory standards, with
factory parts.
Sounds expensive…perhaps its is!
Is the market prepared to pay for such
reconditioning?
What is the expected CPO baseline for
reconditioning?
What are the average reconditioning costs on
a per unit per model basis?
More important what does the customer
expect from a CPO vehicle?
Will the customer understand and pay extra
for a higher level of reconditioning?
When its easy to locate vehicles online, with
the same history reports, is reconditioning a
factor for a consumer beyond the CPO
requirements?
Any CPO vehicle implies a specific level of
reconditioning to meet the CPO standards from
the manufacturer or the purveyor of the
independent program.
In most instances there are stipulations that
discourage reconditioning after the facts.
If Gen Y is emerging as the next wave of used
vehicle buyers.
Understanding Gen Y at large, and in a specific
market will provide insight to arrive at a
competitive advantage.
Gen Y’s are not inclined towards reconditioning
or maintenance, although they desire a good
vehicle.
Blending the required reconditioning with value
added maintenance, to arrive at a unique value
proposition.
CAR 2 CONCEPTA CONTRIBUTION TO PRESERVING OUR ENVIRONMENT, A SUSTAINABLE PROCESS TO CONSERVE ENERGY AND
RESOURCES. THERE IS NO NEED TO MANUFACTURE A USED VEHICLE, IT WAS DONE A FEW YEARS AGO.
NEW VEHICLECREATES WASTE – USES ENERGY
CAR 2 - USED VEHICLE
SUSTAINABLE
RELEVANT POINTS OF VERSION 2.0
Retail turn rate must increase.
Focus on retail, creating customers,
converting assets to money.
Aggregating retail market information is
an urgent priority, ongoing challenge.
Alleviating the asymmetry between
wholesale (fast) and retail (slow).
Used vehicle valuation risk inexorably
shifting towards the dealer (in the short
term).
Trending towards a younger used
vehicle buyer, demanding more peace of
mind, services, value.
Increasingly empowered, informed,
mobile consumer.
Where is the advantage? The unique
value proposition?
Technology, software, apps, level the
playing field for the various stakeholders.
CPO becoming a mainstream pre owned
market segment.
Will CPO become a model similar to a
new vehicle?
Will reconditioning and maintenance be
packaged to increase value?
CPO vehicles should/will be reviewed
similar to new vehicles, an example..here.
Car 2 Concept = sustainability =
conservation of resources.
Car 2 Concept = Dark Side of Green Pre
Owned.