With millions of off-lease vehicles returning to the market this year, CPO leasing may keep your inventory moving
If a customer walked into your dealership tomorrow to buy a used car, you’d be able to help him out immediately. Likewise, if another individual were hoping to lease a new vehicle, that would naturally be something right up your alley. But what would you do if a potential buyer came through your door and asked about CPO leasing? Would you also be quick to assist, or would you look at her like she had three heads?
What is CPO leasing?
CPO leasing is just what it sounds like — it’s leasing a certified pre-owned vehicle. A used car lease follows the same basic format as a new car lease and applies to certified pre-owned vehicles that are usually no more than four years old or have more than 48,000 miles on them.
While most dealerships are familiar with leasing new cars on a regular basis, CPO leasing hasn’t been widely opted across the country yet. Customers looking for a used car to lease will sometimes have to shop around before encountering a dealership that’s willing to talk.
As the public becomes more aware of the option, though, more dealerships are beginning to step up and offer CPO leasing. If your dealership isn’t on board with used car leasing yet, it’s time to consider it because there’s a strong possibility its popularity is going to continue to grow — and you want to be there to capitalize on it.
The pros and cons of offering CPO leasing at your auto dealership
Your customers want to lease cars. Edmunds reported that there were over 2.2 million leased vehicles in the first half of 2016; that’s double the volume in 2011 and up 13 percent from the first half of 2015. The leasing options you provide, however, will depend on how your dealership weighs the pros and cons of CPO leasing.
CPO leasing: the pros
Lower monthly payments
Sometimes it can be a struggle to get a customer into a new or used vehicle because their monthly payment limit is just too low, but CPO leasing may be a realistic option for those individuals. Depreciation is the largest cost when you lease a new car. With a used car, the monthly payment is usually lower because most of that depreciation happens in the first three years of a car’s life.
A boost in certified sales and customer retention
Someone looking into CPO leasing isn’t likely in a position to purchase a certified used car right now, but they may be in a place to take ownership by the end of their lease. CPO leasing just provides an alternate avenue for eventually making the sale. If someone decides not to keep their car after the lease is up, hopefully, they are pleased enough with the service and will jump into a new CPO lease with you, ensuring excellent customer retention.
Helps move inventory
Data from J.D. Power Information Network shows that a huge number of off-lease vehicles will return to the market this year — a 33 percent increase from 2015. More inventory means more opportunity for your dealership to cash in, but it also means pre-owned vehicle prices are going to drop overall. CPO leasing helps you keep that inventory moving.
CPO leasing: the cons
Customer credit issues
Speaking with Auto Remarketing, Maria Williams, CPO retail support manager for Kia, said, “Some of the customers are looking for a lower price point because their credit can’t carry a higher price point. And in order to lease, you have to have a better credit score than if you’re just going to buy — at least the majority of the time, depending on what programs the OEMs have.”
Setting the residual value can be challenging when you’re trying to figure out the lease terms for a certified pre-owned vehicle. How can you be sure about the car’s value when it’s six or seven years old? A wrong estimate could ultimately cost your dealership money.
Toyota launches CPO leasing program
If you work for a Toyota dealership, you’ve probably heard about CPO leasing, which Toyota started rolling out in January 2016. They launched in the Northeast markets first, so if they haven’t gotten to you yet — don’t worry, they will. With the national rollout, they are training dealers on CPO leasing so they’ll be ready when a large number of off-lease vehicles start coming in. Toyota Financial Services is helping too, by setting residual values and helping with training.
Toyota Division general manager Bill Fay mentions that, “We’ve got a record number of off-lease returns this year — about 275,000 — and I think the industry also does. It’s important for all of the industry to have a plan to absorb those lease returns and have a good process to reintegrate them back into the marketplace.”
Fay believes the addition of CPO leasing will help Toyota Division to push certified sales about eight percent higher this year.
Overall, CPO leasing isn’t poised to make up a huge chunk of any dealership’s profit. It does, however, provide an alternative solution for making sales and keeping customers happy.