How to Prepare Used Inventory for Dramatic Increase in Leasing

August 27, 2015

Without a doubt, leasing has sky rocketed since the great recession. In Q1 of 2015 the share of leases increased to 26.7% of total new-vehicle volume sales in the US versus 19.8% in Q1 of 2012. For further context, in 2009, the leasing market bottomed at a dismal 10.6%. With that said, location does become a factor. Outside of California and Florida, the Northeast dominates in lease penetration with the most, with New York, New Jersey, and Michigan having 40-48% penetration. This means that though the impact of off-lease vehicles will be greater in the Northeast it will without a doubt affect values across the country.

Given the tremendous drop in leasing during the worst days of the recession (10.6%), the overall trend for used values remained strong for years as supply of like-new pre-owned vehicles was low and demand was on the uprise. We are now entering into a pre-recession cycle of off-lease vehicles having a greater impact on the wholesale and in turn retail market. As dealers, managers, retailers and sales people in the industry, we may have forgotten the old days of used cars because the past 4 years have been ever strengthening market.

So what can be done to prepare for the inevitable impact that this leasing increase will have on our daily lives at a dealership? Don’t forget that first and foremost is to keep your pre-owned inventory moving and CLEAN UP ANY AGING NOW! Traditional smart inventory management practices that have been taught and implemented for years are now more important than ever. Second is to acknowledge that it is coming and begin to discuss it now. Whom should we talk with about this at the store? Anyone who interacts with the customer in the retail sales environment should be apprised of this information.

So let’s start with management but remember that the sales team must not be forgotten in this conversation. Management teams in every dealership
must break free of the everyday tasks that dominate life and leave at least a little room for understanding challenges, both current and potential. I would suggest that as a management team you allocate a 30 minute meeting at least once or preferably twice a month. For each meeting, assign one manager the task of researching and presenting their findings to the group (have them stay within their particular discipline within the store and give them a week or two to prepare). Anyone who takes this seriously will need to allocate some time to reading and researching for the meeting. Then make the meeting into an open discussion where ideas can flow between departments and no idea is a stupid idea. The key is to have ALL management involved so everyone can learn. Finally, each manager should go back to their respective teams and give a high level overview, and take the opportunity to dive deeper into the content that applies to the success of their team.

As an example, your pre-owned manager may already know that soon you will have a glut of off-lease vehicles hitting the lot. In some cases dealers will be required to purchase up to 85-90% of these units and in other cases there will be few to none purchasing requirements. Having this discussion with other members of management will also allow for proper planning when the units arrive so they do not clog your service department.

Next as a management team you must discuss how to create a plan that empowers your sales team with this knowledge and make it actionable in the sales process. What other techniques can be used by sales to turn the “informed customer” into an informed buyer? How do we use this knowledge in the appraisal process moving forward? How do we as a management team use this in the TO process when combatting the trade value?

In my next post, I’ll tackle these questions and give a glimpse into a few current trends in the new car market that are impacting values of similar pre-owned vehicles today.