DRIVING GROWTH FOR THE REMARKETING PROFESSIONAL
GREENLIGHT
THE COMING DELUGE
ISSUE 23
TWO INNOVATIONS FROM MANHEIM IMPROVE ONLINE AUCTIONS P8
SOME DEALERS SKEPTICAL ABOUT VALUE OF CPO PROGRAMS P9
Vehicle remarketers brace for flood of lease returns P4
* In each Q4 month (October, November and December) every time your dealership purchases a car at auction, a portion of that price will be donated to the selected charities.
Everyone is busy, wrapped up in day-to-day business, so much so that we sometimes forget about those people we can affect with an act of kindness or charity. Besides helping you with your business, Santander Consumer USA can give you a chance to show heart – especially during the holiday season – and to make a difference.
SCUSA will be:• Donating $3 for every
SCUSA vehicle purchased*• Matched by a minimum $3
from auction company
Three charitable organizations each will receive a cumulative donation:
October November
December
10
Let’s Get Started
GreenLight Remarketing is published by Royal Media on behalf of Santander Consumer USA Inc. For more information about Santander Consumer USA or RoadLoans™ call 888.540.5626 or visit www.santanderconsumerusa.com. Royal Media can be found at www.royalmedia.com. ©2014 Santander Consumer USA Inc. Special Photo Credits: Manheim (p8) General Motors (p10), Toyota (P11).
The future has arrived sooner than expected.
Chrysler products have begun funneling through the auction lanes around the country, bringing with them the Chrysler Capital name and a new name in vehicle certification – Chrysler Capital Certified.
You already should see announcement banners and vehicle stickers introducing both to auction buyers at many of the same places Santander reconditioned vehicles currently are sold.
And you even may have bid on a Chrysler product offered at the auction by Chrysler Capital.
For those to whom this still is new, Chrysler Capital is the private-label, full-service lending program managed by Santander Consumer USA Inc. (SCUSA) and Chrysler Group LLC that finances purchases and leases of Chrysler products – Chrysler, Jeep, Dodge, Ram, Fiat and SRT – under a 10-year agreement.
Planning for the Chrysler Capital remarketing program, which got underway more than a year ago at SCUSA and Chrysler Capital, has been led by Steve Solomon, vice president of asset remarketing for both organizations and a former regional sales manager at Chrysler.
But don’t be confused by the SCUSA-Chrysler Capital connection. Chrysler Capital remarketing and the certification program stand on their own, focused on preparing and selling Chrysler products at auction.
Creating a separate program represents a big change for us at Santander, but one that we embrace.
And yet, Chrysler Capital Certified brings to the auction the same high standards of quality, price, value, selection, performance, service and satisfaction to which customers of Santander have become accustomed through the Santander 7 vehicle certification program.
“It’s the new wave in reconditioned vehicles with the same exacting standards you’ve come to expect from Santander,” promises our advertisement in this publication.
It’s a promise that we take seriously at both Chrysler Capital and Santander. So look for Chrysler Capital and Chrysler Capital Certified vehicles, and we’ll look for you at the auction.
Brent HuismanSVP, Asset RemarketingSantander Consumer USA Inc.
Active Auctions Buy Santander Consumer USA vehicles at auctions nationwide
SEEING IS BELIEVING: Two innovations from Manheim to improve online vehicle auctions
Divided Opinions Physical auctions, midsize cars top dealers’ choices; some express doubts about CPO
Ebb and Flow Still-strong values softened again in July as trade-ins and lease returns boosted inventory
IN FRONT
CONTENTSLEADERSHIP
6
As Good as New CPO programs continue to be popular with customers, and a powerful retail tool
4
9
8
11
The Deluge A monsoon of lease returns is coming, but values are expected to remain relatively stable
3
OFF-LEASE
Vehicle remarketers brace for a monsoon of lease returns, but values are likely to remain stableBY CODY LYON
EVERYONE IN THE REMARKETING INDUSTRY is bracing for the tidal wave of vehicles coming off lease starting this fall and expected to continue for the next sev-
eral years. Rising supply from lease returns in 2014 will contribute to higher depreciation, and put pres-sure on residual values, according to a July report from Black Book and Fitch Ratings. While that in-crease is not expected to pose a material threat to the overall asset performance of used vehicles, what does the future hold when lease returns rise even higher in 2015 and 2016? What the Great Lease Return holds for used-car values is unclear. Industry players have considered
the question of whether the market will be able to absorb the rise in volume of used vehicle for some time now, without reaching a clear consensus. Larry Dixon, senior manager of market intel-ligence at the National Automobile Dealers Asso-ciation’s Used Car Guide, says that under normal circumstances, the volume coming back to market would be expected to apply significant downward pressure to used-vehicle prices. But the market is still in a period where both consumer and dealer appetite for new and used cars continues to grow, he says. “Because of that,” says Dixon, “we’re not go-ing to see used car prices fall off the face of the Earth.” Dixon points to an economy that for all in-tents and purposes is still in recovery mode. That has led to a lending environment that has allowed
a large number of people to become car buyers. Some of these consumers entering the market may not qualify for the financing necessary to buy a new car, according to Dixon, so they’ll look to buy used or perhaps the intermediate class of cer-tified pre-owned vehicles. Many lease returns end up as CPO vehicles. “There’s no reason to believe that CPOs won’t grow by double digits again this year,” he says.Dealers have started to recognize the value that used sales add to their dealership’s bottom line, says Dixon. Profits on used vehicles typically hover around 12% to 13%, roughly three times as much as they are on new vehicles. Dixon says there are a number of dealer groups with standalone stores that want to increase their number of used vehicles for sale. Those dealer
THE COMING DELUGE
OFF-LEASE
groups are going to be competing for the off-lease supply, and are anxious to get ahold of those low-er-mileage, newer cars. NADA expects that the increased supply will lead to somewhat lower prices. In 2015, Dixon says, prices could slip as much as 3%, with anoth-er 3% reduction in 2016. Ally Financial Inc., in its second-quarter earnings call, estimated the price falloff for its dealers at 5% for 2015, and another 5% for 2016. Much depends on the age of the car and how many of its peers are on the market at the same time. Supply of two- to four-year-old cars, for ex-ample, is expected to be high, and therefore the price will be pushed lower. Rarer vehicles will be less affected. On the other hand, Cars.com Chief Analyst Jes-se Toprak tells GreenLight Remarketing that a more simplistic view of the near future shows that used -car supply will increase and, in turn, will decrease prices. And while that should be good news for consumers, it’s not bad for dealers, either. Toprak says the flood, if there is one, shouldn’t impact profitability much, since dealers are focused on margin. In fact, he believes the in-crease in volume could be welcome news from the dealer perspective, because it could mean a lift in overall sales.
TRADE-IN STRATEGIES But Toprak warned that consumers looking to maximize trade-in value will want to pay closer at-tention in the new environment. “If you’re thinking about [buying] a new car, and trading in your used car,” Toprak says, “it’s not just how much money you get for your trade, it’s how much you’ll have to pay for a new car.” In other words, if a consumer is going to wait a year to trade in a car, he should expect to get a little less for the trade and pay a little more for a new car. Toprak says that from the buyer’s perspective, if he has a late-model car to trade, now is most likely as good as it will get for some time. His advice for dealers is to pay close attention to the mix of vehicles on the car lot. “It’s not just about having 50 used cars on a lot, it’s about hav-ing the right 50 cars in their inventory,” Toprak says.
Bob Graham, vice president of vehicle remar-keting for Mount Laurel, N.J., based Automotive Resources International (ARI), tells GreenLight Remarketing that on the commercial side of the market, price dynamics probably won’t be deeply impacted by the coming flood.
“I don’t think it changes the price dynamic too much, because we have a completely different product,” Graham says. “The off-lease vehicles are the ones that are typically between 24 and 36 months old, [and] they’re going to be lower mile-age, meaning the 20,000 to 60,000 range. But my typical vehicle is probably five years old and a 100,000 miles.”
NORMALIZING SUPPLY Graham says the market has seen a shortage of vehicles since early 2008 and it’s only now get-ting back to a normal supply. If the influx of new vehicles and the prices for the top vehicles that go to the franchise dealerships fall just a bit, the impact will be minimal to independent dealers, the buyers of ARI’s fleet vehicles. Those buyers, in some cases, have buy-here, pay-here lots, selling older, higher-mileage cars at lower price points. “Normal economics begs that you ask, ‘Will this influx push down my prices anyway?’” Gra-ham says. “Probably yes, but not in any abnormal ways that I’m very concerned about.” Meanwhile, Alec Gutierrez, senior market ana-lyst of automotive insights at Kelley Blue Book, says that there is an expectation that rising off-lease volumes will increase at auction in the next couple years, placing downward pressure on late-model used cars. But Gutierrez is quick to add that pricing is still strong across the industry. “If we have this conver-sation in a year, we might see values at a 1% to 3% decline in price,” he says. It’s a cyclical pattern, to some extent at least.
Leasing was a big part of the market in the late 1990s, and then again in the early 2000s, Gutier-rez says. The market saw an early influx of off-lease vehicles come back at that point, which im-pacted pricing. That particular cycle in the early 2000s was almost more overstated because the residuals were high, which drove a lot of leases that never made sense in the first place. “My guess is it won’t be as pronounced as it was in the past,” Gutierrez says.
THE CPO SOLUTION CPOs have served as a solid outlet for leased vehicles, Gutierrez says. Consumers have been more willing to look at late-model used cars as a viable alternative to a new car because of the inclusion of factory-backed warranties and the at-tractive finance terms that accompany cars that are certified. For the short term, dealers shouldn’t expect to see significant declines in wholesale auction values. If they need inventory, get out there and purchase it, Gutierrez says, because Kelley Blue Book is not expecting any pronounced short-term declines in values. A year or two from now, however, KBB expects to see values come down. That said, there will likely be greater opportunities for used-vehicle acquisition at auction in the next year or two, and some of the high prices seen to-day will subside. “You might be able to get more attention on your used-car lot by lower transaction values,” Gutierrez says. “And a decrease in the availability of leasing could make new-car sales a bit more challenging.”
5
THE APPROACHING TIDEAccording to Manheim, the volume of off-lease vehicles will increase in the next two years to levels unseen since the middle of the last decade. However, volume is not expected to climb to the peak levels of the post-1990s off-lease surge — 3.4 million vehicles in 2002.
0.00.51.01.5
*ProjectedSource: Manheim
2.02.53.03.54.0
2009
2010
2011
2012
2013
2014*
2015*
2016*
LEA
SE R
ETU
RN
S (I
N M
ILLI
ON
S)
AUCTIONS
ACTIVE AUCTIONS
ADESA DallasThursdays
Manheim Kansas CityWednesdays
ADESA Golden GateTuesdays
ADESA New JerseyThursdays
Manheim New YorkWednesdays
ADESA CharlotteThursdays
Manheim LouisvilleThursdaysABC Bowling
GreenFridays
Brasher’s IdahoThursdays
Brasher’s Salt Lake CityTuesdays
ADESA TampaMondays
Manheim HawaiiWednesdays*
Manheim Denver
Manheim Southern CaliforniaThursdays
ADESA HoustonWednesdays
ABC BirminghamWednesday specialty
ADESA BirminghamWednesdays
ADESA AtlantaWednesdays
ADESA Los AngelesFridays
Manheim Dallas Wednesdays
ADESA CincinnatiTuesdays
ADESA PhoenixWednesdays
DAAOklahoma CityThursdays
ManheimSan AntonioWednesdays
ABC LancasterWednesdays
Manheim New JerseyWednesdays
Bel Air Auto AuctionTuesday specialty; Thursday Auto
ADESA ConcordWednesdays
Manheim GeorgiaTuesdays
Manheim TampaThursdays
Manheim Central FloridaWednesdays
Brasher’s RenoWednesdays
Americas Auto Auction - ChicagoWednesdays
Manheim ArenaTuesdays
Manheim NorthStar MinnesotaThursdays
Manheim North CarolinaMondays
Dealers AAof AlaskaWednesdays
Manheim DetroitThursdays
Brasher’s IdahoThursdays
Manheim OhioTuesdays
Manheim Nashville Tuesdays
ABC St. LouisThursdays
Manheim Baltimore-WashingtonTuesdays
ADESA San DiegoThursdays
Brasher’s Northwest*
Brasher’s Salt Lake CityTuesdays
Americas AA - Greenville
Brasher’s Sacramento
Manheim DFW
Manheim Lakeland
Manheim Tucson
Americas Auto AuctionTuesdays
Auto Auction
RV Auction (please contact auction for dates)
Boat Auction (please contact auction for dates)
Manheim MississippiThursdays
ABC Baton RougeThursdays
ADESA Colorado Springs
6
AUCTIONS
ACTIVE AUCTIONS
Weekly weekend online events are available through OVE and ADESA Dealer Block. Contact your favorite auction or go online to ADESA.com, Manheim.com or OVE.com for listings. Copart and IAAI auction sites are available across the country. Please visit www.copart.com and www.iaai.com for details.
*Contact auction for exact sale date
ADESA DallasThursdays
Manheim Kansas CityWednesdays
ADESA Golden GateTuesdays
ADESA New JerseyThursdays
Manheim New YorkWednesdays
ADESA CharlotteThursdays
Manheim LouisvilleThursdaysABC Bowling
GreenFridays
Brasher’s IdahoThursdays
Brasher’s Salt Lake CityTuesdays
ADESA TampaMondays
Manheim HawaiiWednesdays*
Manheim Denver
Manheim Southern CaliforniaThursdays
ADESA HoustonWednesdays
ABC BirminghamWednesday specialty
ADESA BirminghamWednesdays
ADESA AtlantaWednesdays
ADESA Los AngelesFridays
Manheim Dallas Wednesdays
ADESA CincinnatiTuesdays
ADESA PhoenixWednesdays
DAAOklahoma CityThursdays
ManheimSan AntonioWednesdays
ABC LancasterWednesdays
Manheim New JerseyWednesdays
Bel Air Auto AuctionTuesday specialty; Thursday Auto
ADESA ConcordWednesdays
Manheim GeorgiaTuesdays
Manheim TampaThursdays
Manheim Central FloridaWednesdays
Brasher’s RenoWednesdays
Americas Auto Auction - ChicagoWednesdays
Manheim ArenaTuesdays
Manheim NorthStar MinnesotaThursdays
Manheim North CarolinaMondays
Dealers AAof AlaskaWednesdays
Manheim DetroitThursdays
Brasher’s IdahoThursdays
Manheim OhioTuesdays
Manheim Nashville Tuesdays
ABC St. LouisThursdays
Manheim Baltimore-WashingtonTuesdays
ADESA San DiegoThursdays
Brasher’s Northwest*
Brasher’s Salt Lake CityTuesdays
Americas AA - Greenville
Brasher’s Sacramento
Manheim DFW
Manheim Lakeland
Manheim Tucson
Americas Auto AuctionTuesdays
Auto Auction
RV Auction (please contact auction for dates)
Boat Auction (please contact auction for dates)
Manheim MississippiThursdays
ABC Baton RougeThursdays
ADESA Colorado Springs
7
SEEING IS BELIEVINGCONDITION REPORTING
New technology is improving condition reports and making the online car-buying process a saf-er and better experience. Gone are the days of a few low-resolution images being the prospective buyer’s only indication of the appearance of the vehicle for sale.
Two new technologies launched in June by Manheim Inc. are giving buyers a privileged view — inside and out — of cars at auction. Both features are designed to solve a customer pain point: lack of information about vehicles for sale when a customer may be many miles away.
First is the company’s enhanced imaging suite, which provides sellers with high-reso-lution retail-ready images with pan and zoom capabilities. Vehicles are photographed by Man-heim’s team of photographers and stored on and served by Manheim servers.
“Providing more tangible information about vehicles increases confidence and trust,” says Bonnie Hensler, vice president of product de-velopment at Manheim. “More than in person, seeing is believing, and these pictures are a huge part of that.”
UP CLOSE AND PERSONALThe service provides a standard set of 15 im-
ages, with three optional pictures for add-ons. The pictures are zoomable and provide a high level of detail. Previously, seven lower-resolu-tion photos were the only image offering from Manheim.
All images are stored in the cloud, creating the need for Manheim to increase storage and pro-cessing speeds of its servers, in order to deliver images efficiently across the Internet.
Toyota Financial Services is one notable client
BY PHIL RYAN
Two new technologies from Manheim give online buyers a closer look at cars for sale
that has purchased the enhanced imaging suite for use across its dealer network.
The photographs represent a new service for Manheim, and one that involved an unusual change in staffing. “We hired a full-time team of professional photographers,” Hensler says. IT spending was also ramped up to improve per-formance with delivery of the images.
The other product Maheim introduced this summer is called the “heat map,” a color-coded depiction of damage to vehicles. Areas of the ve-hicle with more damage show up darker on the heat map. Both internal and external damage is brought to the attention of potential buyers in a generic vehicle diagram.
There has been some concern in the industry recently about the reliability and lack of stan-dardization in vehicle condition reports, so these products are clearly intended to fill any perceived gap between those reports and reality.
Indeed, Hensler referred to the heat map as “an electronic condition report,” and the product is positioned as part of a premium package sellers can employ. “Our research found it was something that users would be willing to pay for,” she says.
The imaging and heat map products are sold at the account level, meaning all cars on a cus-tomer’s account receive the services, rather than
just a particular car here or there. Both services started testing in January, and
were officially rolled out at the end of June. They are now up and running at 20 locations, with plans to make them available to all Manheim customers by year end.
“We’ve started monitoring results, which is something we haven’t always been good with in the past,” Hensler says. “We’ve found a 5% increase in sales online [with the two products used together] and an increase in sales price, too. Arbitrations are going down.”
Manheim is looking to increase its offering to dealers offline, as well. The company plans to considerably increase its reconditioning fa-cilities, citing an increased demand for them stemming from a decline in dealer investment in body shops.
But it is in the online channel where the largest improvements can be seen, and indeed, where the future of wholesale selling lies.
“The digital channel will be a focus for us,” Hensler says. “It will be super easy to do busi-ness with us in 2015.”
Joe Spina, director of remarketing for Edmunds.com, sees the new services as part of the evolution of condition report writing, rather than a revolution. “This [heat map] has been talked about for a long time,” Spina says. “It’s a better representation of the level of damage. But it’s still subjective to the point of view of the CR writer.” Training, both of report writers and auction executives, will be critical for getting the new reports off the ground, Spina says.
“As we move toward more online selling with-out visually seeing the car, and with a lack of a standardized condition provider, this [heat map] would seem to give more confidence to a buyer,” says Jonathan Banks, executive automotive ana-lyst for the National Automobile Dealers Asso-ciation.
Banks believes services like this, while valu-able, point to the lack of a clear industrywide standard condition report. “I understand the complexities of a car, but it seems to me our in-dustry should have a standard service to report condition, much like they do for diamonds, and even comic books.”
Manheim staffers are seen here learning a standardized method of capturing high-quality images quickly. As any eBay Motors retailer will tell you, high-resolution photos are a strong selling point. Like consumers, dealers and retailers want to know as much as possible about what they are getting.
8
DEALER PREFERENCE
Physical auctions and midsize cars top dealer preferences, but some express doubts about popular CPO programs
DIVIDED OPINIONS
The first quarter of 2014 has been kind to deal-ers, lifting average sales to 132 vehicles per dealer, from 121 vehicles per dealer this time last year, according to the second annual deal-er survey from Santander Consumer USA and GreenLight Remarketing.
In the survey, dealers were asked to offer their thoughts on many topics — what cars they think have the most value, where they prefer to buy their stock, which lenders they buy from most often, and what support programs they find valuable.
Dealers saw a better first quarter of the year in sales in 2014 compared with last year. First- quarter sales totaled 6,333 units from 48 re-spondents, up from 5,584 units sold from 46 respondents during the same period last year.
To begin with, dealers listed their preferred sources for buying vehicles at auction. SCU-SA was ranked first by 31.5% of respondents, up from 23.8% in 2013’s survey. Ally came in at 9.8%, down from 19.1% in 2013. Ally was tied for second place with Wells Fargo Dealer Services.
Specifically, 83.3% of respondents opt to buy vehicles at physical auctions, compared with 16.7% who typically choose the digital route.
Still, digital auctions are growing in impor-tance, and when the vehicle is too far away to kick the tires, information about that vehicle be-comes critical. The most important information needed from an internet condition report was split evenly, with photos and grade both earn-ing 30.4% of the responses. Suggested cost of repairs came in next, with 18.8% of responses.
Midsize cars now hold the best resale value, according to the survey results, earning 38.7% of responses, compared to last year when mid-size models were in second place with 25.4% of the respons es. Full-size pickups, last year’s first choice, fell to the No. 2 spot this year with 23.9% of responses, com pared with 27% in 2013.
Compact CUVs, luxury SUVs, and mini SUVs were at the low end of the spectrum, each with 1.4% of this year’s responses. However, of 71 respondents, not one expressed confidence in the resale value for mid/full-size CUVs, full-size vans, or sporty cars, all of which came in with 0% of the responses.
CERTIFICATION UNCERTAINTYThe discussion surrounding the growth in cer-tification programs has gotten louder lately (see “As Good as New,” P.10) but it seems dealers still have reservations about their value.
Among respondents, 63.7% answered that they found value in a certification program of some kind, and 54.4% claimed that a cer-tification program enhanced their decision process. But only 24.6% said the demand for CPO vehicles was stronger this year, and a mere 6.2% described demand as “much stronger”
BY LARISSA PADDEN
than in 2013. Almost 27.7% of respondents re-ported no change.
This year’s number of participants reporting stronger interest in CPO programs (24.6%) is down from 2013, when 30.7% of survey respon-dents claimed there was stronger CPO demand.
The 36.2% of participants that claimed to find no value in a certification program may have been in the minority for the second year in a row — 43.9% answered negatively in 2013 — but they did have strong opinions on the topic.
“Professional dealers see through this and can sell a car and buy a car without it,” one re-spondent wrote. “It’s a new-car store retailing tool, period.”
“I have had certified cars with sludge,” another respondent wrote. “When I had a problem [the answer was], ‘We don’t have to announce that.’”
The resounding trend in the comments sec-tion of the survey results was a desire for more vehicle reconditioning before the cars hit the auction block, but at the same time, many par-ticipants expressed confidence in the quality of vehicles sold.
9
MIDSIZE CARS REMAIN THE SAFE BETResale values remain largely unchanged in terms of model popularity, with midsize cars and full-size pickups, traditional stalwarts, leading the way again this year, according to the second annual survey of dealer preferences conducted by Santander Consumer USA and Greenlight Remarketing. Segments like small cars and sporty cars got no endorsements.
00 0
5%10%15%
MidsizeCars
Full-sizePickups
MidsizeSUVs
CompactSUVs
LuxurySUVs
Small SUVs/CUVs
20%25%30%35%40%
20142013
% P
REFE
REN
CE
O
F RE
SPO
ND
ENTS
CERTIFIED PRE-OWNED
AS GOOD AS NEWCertified pre-owned programs win over OEMs, dealers and buyers
The certified pre-owned market is on a tear, and is poised to grow more during the final months of 2014.
According to the latest numbers from the Manheim Index, CPO sales are up 8% so far this year — following a 15% increase in 2013 — and are expected to double in the next three to five years. In January alone, CPO sales increased 11%, according to the index.
Tom Webb, chief economist at Manheim, says dealer CPO programs have been “tremendously successful from all vantage points,” including manufacturer, dealer and end consumer. The recovering economy and new-vehicle sales are also boosting the CPO market, whose pipeline grows as consumers upgrade to new cars.
EXPANDING THE PROGRAMS In the past couple years, manufacturers have tweaked their CPO programs to allow older and higher-mileage vehicles into their plans. Many have also extended their warranties to entice buy-ers who would otherwise choose new vehicles.
“There was a time when people were jittery about buying CPOs and about the maintenance headaches and shorter warranty periods,” says Shadi Saweris, co-owner at Jersey Auto Lease LLC, in Bayonne, N.J. “Now that some of the larger manufacturers are honoring CPOs as their own [product], we’re seeing more consumers leaning in that direction.”
Using BMW as an example, Saweris says that, for some, the choice between a $60,000 new car and a $30,000, 2- to 3-year-old vehicle (coupled with a manufacturer’s warranty) is a no-brainer. “If they know they are getting a good deal and solid support, they’ll definitely consider a CPO.”
So how is this CPO market growth impacting traditional pre-owned sales? According to Webb, the effects have been minimal. “CPO growth isn’t hurting the non-certified cars,” Webb says,
these two factors and the environment becomes ripe for even more CPO market growth. Add fa-vorable finance rates to the equation, he says, and the balance tips even further. “Consumers can get financing support for CPOs from dealers,” says Gutierrez. “That’s something you wouldn’t neces-sarily find in a pre-owned car.”
MEASURING THE IMPACT Like Webb, Gutierrez hasn’t seen much impact on traditional pre-owned car sales as a result of the growing CPO market. “At the end of the day, if a consumer can afford it, he or she will likely gravitate to the CPO over a non-certified unit — all else being equal,” he points out. “There’s been some shifting of eggs from one basket to another, but no adverse impact on traditional pre-owned sales.”
In terms of the volume of CPO units, Gutierrez expects supply to continue growing, due in part to the increase in new-vehicle leasing activity. About 25% of all new vehicles sold this year have been leased, compared with 22% in 2013 and 20% in 2012, and new-vehicle sales have also been on the rebound. “Those two factors will create more CPO-eligible vehicles,” says Gutier-rez. “That will help boost CPO sales, which will experience more growth this year and even into both 2015 and 2016.”
Looking ahead, Webb expects CPO sales for the rest of 2014 to mimic the first half of the year. “I expect that 8% to hold through the rest of the year,” he says. “The market will continue to grow in coming years, albeit at a slower percentage rate overall.”
noting that there are independent dealers in all corners of the market that are successfully sell-ing non-CPO used vehicles. From the franchise perspective, however, he says “the bulk of the units being sold right now are indeed CPOs.”
From his vantage point at Kelley Blue Book in Irvine, Calif., senior analyst Alec Gutierrez says the volume of CPO sales correlates directly with the fact that consumers are recognizing the value in such vehicles. In general, he says, CPO programs provide an extended, factory-backed warranty that is similar to the warranty that comes with a new car.
The policy typically covers roadside assistance, major powertrain and all the electrical compo-nents on the vehicle. “It will also have similar terms that you find in a new car,” says Gutierrez. “For example, three years, 36,000 miles from the time of purchase or five years, 60,000 miles.”
Auto manufacturers’ efforts to draw in more CPO buyers with extended warranties are work-ing well, according to Gutierrez. “Consumers are definitely willing to take a look at a used vehicle as an alternative to a new car, but there is some hesitation there because of the lack of a war-ranty,” he says. “The CPO kind of fills the gap between a used car and a new car, because the owner saves money on the cost of the car itself and also gets niceties like roadside assistance and extended warranties.”
With more consumers returning to the market-place and exploring their purchase options, Guti-errez says demand for CPOs will continue to grow. He’s also observed a growth in supply. Combine
BY BRIDGET MCCRAE
Cadillac’s CPO program includes years of roadside assistance, courtesy transport, satellite radio, and a six-year, 70,000-mile full warranty — essentially longer than many new-car warranties — all at a substantially lower cost than a new car.
– Alec Gutierrez, Senior Analyst, Kelley Blue Book
“At the end of the day, if a consumer can afford it, he or she will likely
gravitate to the CPO over a non-certified unit – all
else being equal.”
10
WHOLESALE USED-VEHICLE PRICE TRENDS
Total Trucks $10,318 $10,502 $9,441 -1.8% 9.3%
Mini Van $6,375 $6,761 $5,949 -5.7% 7.2%
Fullsize Van $10,967 $11,206 $9,434 -2.1% 16.3%
Mini SUV $12,143 $12,626 $11,733 -3.8% 3.5%
Midsize SUV $7,376 $7,456 $6,758 -1.1% 9.1%
Fullsize SUV $10,221 $10,542 $9,921 -3.0% 3.0%
Luxury SUV $19,295 $19,478 $18,308 -0.9% 5.4%
Compact Pickup $7,445 $7,539 $7,255 -1.2% 2.6%
Fullsize Pickup $12,966 $13,116 $11,856 -1.1% 9.4%
LAST MONTH Vs.
Prior Mo. Prior Yr.
AVERAGE PRICES ($/UNIT)
Total All Vehicles $9,743 $9,958 $9,435 -2.2% 3.3%
Total Cars $8,642 $8,901 $8,509 -2.9% 1.6%
Compact Car $6,708 $6,861 $6,605 -2.2% 1.6%
Midsize Car $7,864 $8,116 $7,701 -3.1% 2.1%
Fullsize Car $6,854 $7,114 $6,691 -3.7% 2.4%
Luxury Car $12,117 $12,397 $11,768 -2.3% 3.0%
Sporty Car $12,578 $12,931 $12,718 -2.7% -1.1%
Total Crossovers $12,154 $12,323 $12,543 -1.4% -3.1%
Compact CUV $10,924 $11,293 $11,265 -3.3% -3.0%
Mid/Fullsize CUV $13,409 $13,408 $13,871 0.0% -3.3%
Source: ADESA Analytical Services
LAST MONTH Vs.
Prior Mo. Prior Yr.AVERAGE PRICES ($/UNIT)
July 14 June 14 July 13
1This analysis is based on nearly seven million annual sales transactions from more than 170 of the largest U.S. wholesale auto auctions, including those of ADESA, as well as other auc-tion companies. ADESA Analytical Services segregates these transactions using the J.D. Power and Associates Vehicle Segmentation Guide to study trends by model class.
The views and analysis provided herein relate to the vehicle remarketing industry as a whole and may not relate directly to KAR Auction Services Inc. The views and analysis are not the views of KAR Auction Services, its management or its subsidiaries, and their accuracy is not warranted. The statements contained in this report and statements that the company may make orally in connection with this report that are not historical facts are forward-looking statements. Words such as “should,” “may,” “will,” “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “bode”, “promises”, “likely to” and similar expressions identify forward-looking statements. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from the results projected, expressed or implied by the forward-looking statements. Factors that could cause or contribute to such differences include those matters disclosed in the company’s Securities and Exchange Commission filings. The company does not undertake any obligation to update any forward-looking statements.
July 14 June 14 July 13
TRENDS
The softening trend in wholesale prices continued in July, as retail used vehicle sales were down on a year-over-year basis (though up month-over-month). Supply also grew as more off-lease and off-rental units entered the online upstream and physical auction channels, and as dealers took more trades from strong new vehicle sales. Growing auction inventories
are also exerting downward pressure on whole-sale prices.
According to ADESA Analytical Services’ monthly analysis of Wholesale Used Vehicle Prices by Vehicle Model Class1, wholesale used vehicle prices in July averaged $9,743 — down 2.2% compared to June, and up 3.3% relative to July 2013. Prices declined between June and July for virtually all model classes. Minivans and Mini SUVs were particularly hard-hit, with month-over-month price declines of 5.7% and 3.8% respectively. Prices for used vehicles remarketed by manufacturers were down 1.9% month-over-month and down 4.7% year-over-year, indi-cating weaker demand for high off-rental pro-gram vehicle inventories. Prices for fleet/lease consignors were down 0.9% sequentially but up 2.2% annually, though prices for off-rental “risk” units within this segment were down sig-
Wholesale prices soften slightly as trade-ins, off-lease units fill auction inventories
nificantly. Dealer consignors saw a 2.9% average price decrease versus June, and their prices were flat relative to July 2013. Based on data from CNW Marketing/Re-search, retail used vehicle sales in July were up 1.2% month-over-month but down 5.2% year-over-year. Sales of certified pre-owned (CPO) ve-hicles were down 10.4% versus June, though they were up 9.4% from the prior year, based on fig-ures from Autodata.
BY TOM KONTOS
EBB AND FLOW
Minivans, now being supplanted by crossovers for many buyers, were hit hard in July, continuing a long term trend of weakness in the sector.
Tom Kontos
11
As the country’s automotive remarketer, we offer the right vehicles in the right places with the promise of the Santander 7 certification.
Setting the standard on vehicle makeovers is all about going the extra yard to help dealers put points on the board.
BIG PLAY
Quality • Price Value • Selection
Performance Service
Satisfaction
