2. 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?
3. 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.
4. 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.
5. 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.
6. 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.
7. 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.
8. 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.
9. 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.
10. 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.
11. 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.
14. 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.
15. 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.
16. 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.
17. 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.
18. 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.
19. 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.
20. 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.
21. 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?
22. 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?
24. 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.
25. Current position of cpo Safe To Conclude CPO Is Increasingly Popular In Canada
26. 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.
28. 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.
32. 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 Vehicle Creates waste – USES ENeRGY Car 2 - USED VEHICLE SUSTAINABLE
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34. Focus on retail, creating customers, converting assets to money.