The Impending CPO Drought
The amount of lease returns coming in over the next few years will be down substantially, which means that the amount of highly profitable Certified Pre-Owned vehicles available will also be down, which means if you haven’t started exercising that inventory sourcing muscle, there’s no better time to start than now.
Just like that summertime cold that seems to last 3 weeks and you just can’t shake, the impact of fewer lease returns is going to keep perpetuating that pandemic hangover a few more years. Here’s what happened.
Inventory shortages, coupled with rising rates, fewer incentives, and customers with more cash in their pockets made leasing a lot less attractive. Fast forward a few years later to right now and what used to be millions of leased vehicles returned every quarter plummets down to the 500,000s. Automotive News is the source here, and a wealth of information for this data.
Three year old off-lease vehicles are wicked profitable for dealerships. They’ve got great margins, sell fast, and result in service revenue from inspection and recondition. They make up the foundation of the used car market, and a massive chunk of them no longer exist. Like Keyser Soze from the movie Usual Suspsects…poof…they’re gone.
My hypothesis is that the consumers that loved getting that new car every three years still love getting that new car every 3 years. That consumer behavior, that mentality, hasn’t really changed.
With this impending CPO drought comes a phenomenal opportunity for those who can see it and seek it out: Get really, really good at sourcing those 2,3,4 year old vehicles back from your previous customers.
Market to your customers, repeatedly, to let them know that you’re still eager to acquire their car, and know that you can make trading in their vehicle for a new simple, easy, efficient, and pleasant, so that they can get back into that new ride, just like they’re used to.