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In our projects, our consultants, coaches, trainers, and all four partners often encounter operational questions that lead to a fundamental issue: the lack of a clear strategy. Whether it’s about determining the necessary team, identifying KPIs to track, or deciding the division in which used cars should be situated, the response invariably hinges on the company’s strategy. People frequently regard such questions as if they come from another planet, highlighting a fundamental problem. In many car manufacturers, National Sales Companies, or importers, there is often no clearly defined senior management objective for used vehicles. This absence leaves operations without a clear goal and road map, relying too much on senior management initiatives rather than a well-established, cross-functional agreed strategy.

While I could write about this for days, I’ll strive to be comprehensive yet specific. In this rapidly changing world, goals and objectives need to be meticulously thought through and highly specific to avoid juggling tasks that don’t align with company goals.

We primarily distinguish four key objectives, with overlapping activities, where one objective often supports another.

1. Supporting New Car Sales:

The most straightforward internal sell involves any link with selling new vehicles, where trade-ins and upsell capabilities have the most direct impact on today’s sales.

The trade-in plays a pivotal role in the overall process of selling a new vehicle. However, it often does not score well in mystery shops or coaching sessions and those immersed in the sector are well aware that maintaining a certain quality level in trade-ins is an ongoing battle. Achieving this involves continuous efforts, not only through training and coaching but also by refining and adopting effective internal processes.

Upselling potential buyers from used cars to new vehicles can significantly boost new car sales. While I can almost hear people nodding in agreement, there’s surprisingly little emphasis on supporting sales staff in this crucial aspect. In many cases, sales staff either make minimal efforts or none at all to assess the potential of prospects interested in used cars transitioning into new vehicles. Unfortunately, prospects are often dispatched when the desired used vehicle is unavailable in stock without any attempt to upsell.

Looking at mid-term, other factors contribute to new car sales such as creating a lower price point for the brand’s models. This, in turn, widens the customer base by offering a more affordable entry point. It’s noteworthy that many new car buyers initially entered the market through purchasing used cars. This approach allows us to establish a relationship with customers earlier in their journey and fosters loyalty to the brand.

2. Maximizing Residual Values:

Optimizing residual values (RVs) is critical for driving sales as the higher RVs translate to lower monthly rates and a reduced Total Cost of Ownership. I’ll refrain from entering into the details of non-used vehicle aspects influencing RVs. Indeed, starting from the early phases, considerations would include concept, design, quality, and connectivity, to the pre-launch phase, involving strategies around positioning, volume, specifications, trimlines, and marketing, and finally, the lifecycle phase, encompassing campaigns, discounts, and lifecycle actions.

The residual value dynamics specific to used vehicles puts the emphasis on actively controlling supply and demand. Recent years have demonstrated that a decrease in supply can trigger a direct surge in used vehicle prices. Today the situation has changed and in the current sellers’ market, effective management of used car flows is crucial.

This management begins with a comprehensive overview presented on a dashboard, encompassing current stock, future pipeline, and sales pace, allowing for forecasts of future stock. Various sources, including the company’s own inventory and vehicles from the captive lease company, should be considered. This proactive approach allows for early identification of upcoming issues, which can be addressed with appropriate countermeasures (similar to new vehicles), involving campaigns and incentivizing dealers to elevate their focus. In instances of weak national demand, cross-border interest can mitigate challenges and preserve values locally.

Tracking dealers’ sourcing activities from central stock is pivotal, especially in the context of electric vehicles. Alarming signals from the market indicate dealers’ reluctance to purchase or stock their own brand’s battery electric vehicles (BEVs). Without the support of our own dealers, the question arises: to whom do we entrust this market, and who then controls the Residual Values?

Another critical aspect is the market price of used vehicles. Presently, many dealers aspire to position themselves among the “cheaper” sellers on used car portals. This inclination exerts downward pressure on market prices and can initiate a spiral effect leading to lower forecasts over time. Therefore, actively tracking pricing is a prerequisite for effective RV management.

3. Reinforcing Dealer Viability:

With the gradual rise of electric vehicles in the workshop, the direct-to-consumer (D2C) approach, and the introduction of agency models, the second-hand vehicle business has become increasingly crucial as a primary contributor to profits.

Supporting dealers in this facet involves addressing various areas. At its foundation, we must ensure dealers can depend on cutting-edge brand attributes, encompassing systems, websites, search engines, lead generation programs, and marketing strategies. Additionally, through training, coaching, and best practice sharing, we actively contribute to the growth and efficiency of their operations.

We’ve gone as far as including used vehicle absorption rates as a key performance indicator (KPI). This metric unveils significant variations in dealers’ activities, offering valuable insights into their engagement with the second-hand vehicle business.

4. Used Vehicles as a Profit Centre:

Establishing a comprehensive used vehicle business unit is the fourth potential objective, however, this objective is relatively uncommon, with car manufacturers and their national sales companies seldom prioritizing it. It can be more frequently observed among private importers, sourcing vehicles across Europe to give some counterweight to established players like Auto1. Their sales channels often encompass direct online transactions or flagship stores, but the involvement of their own dealerships remains a prevalent practice.

Diverse levels of engagement in this area can be found within car manufacturers, exemplified by Stellantis, which has opted to dedicate a distinct business unit to pre-owned vehicles (“PROV”) with a global reach. Notably, car manufacturers like Stellantis have made investments or hold partial ownership in companies actively operating in this sector, such as Aramis or Autobiz. These strategic moves underscore a recognition of the potential and significance of the used vehicle market.

Managing Used Vehicles at OEMs:

Navigating the management of used vehicles within OEMs, involves various divisions that may play pivotal roles or lead internal initiatives based on the focus and objectives. Dealer development centres its attention on enhancing dealer viability and implementing certification at the dealership level, while sales endeavours to drive aspects related to the quality of sales.

Residual values present a more intricate challenge, requiring the involvement of multiple divisions, including product, fleet, sales planning, marketing, controlling, and used vehicles. While the product division often assumes a key role, fleet management is typically well-positioned to handle the intricacies and lead the governance process, because they directly benefit from favourable residual values, resulting in more affordable monthly rates.

Recognizing the absence of a one-size-fits-all approach and the divergence of strategies among car manufacturers is standard, especially with the ongoing evolution of distribution methods. Factors such as the introduction of the agency model, its scope, and maturity become crucial determinants, bringing additional operational responsibilities within the scope of OEMs. Some even contemplate retaining direct ownership of all young used vehicles, fundamentally altering the dynamics of the playing field.

In conclusion, developing a comprehensive strategy for used vehicles with well-defined objectives and roadmaps, actively embraced and driven by top management, is an indispensable starting point. Only with such a foundation can an optimal governance model, complete with roles, responsibilities, and key performance indicators (KPIs), be established.

We welcome your feedback and are open to engaging in discussions about the intricacies of the used vehicle business, so feel free to react or send a personal message at your convenience. As enthusiasts of this sector, we’d love to chat about any thoughts or queries on your mind.

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