Rising Used Vehicle Prices: Trends and Strategies for Success

2. Selling ‘Em While They Were Hot During 2014 • Although the 35.91 million used vehicles sold in the US during 2014 was not a record, the 20.8% that were certified pre-owned (CPO) franchised used vehicles was. • This trend is likely to continue for 2015, as 6.2 million new car sales during 2014 included a trade-in, the highest number since before 2005. Also, a new-car-lease penetration of 27% resulted in many lease returns, especially CPO vehicles. • The average used vehicle transaction price of $16,800 for 2014 was also a new record, increasing 6% from 2013’s $15,900 average price. Edmunds.com analysts think it may reach $17,000 for the first time ever during 2015.

3. Four Reasons Prices Are Rising • The first of four reasons used vehicle prices are the highest ever is that 19% of all 2014 sales were “near-new” vehicles versus 14% for 2013. The #2 reason is lower gas prices have led to more truck and SUV sales. • Cheap credit is reason #3. Interest rates have declined from approximately 11.5% during 2007 to 7.7% for 2014, as the average number of months for the loan term has increased. Consumers are paying a lower monthly payment for a better used car. • Reason #4 is the 39% of Millennials, 18–34, that are shopping for used cars, compared to 28 percent shopping for new cars, according to Edmund.com search statistics.

4. More of the Same for 2015 • The automotive industry was one of the bright spots in an otherwise weak general economy during Q1 2015; and used vehicles contributed with prices of vehicles as much as 8 years old increasing 2.3% for March, compared to February. • The increase in used car prices elevated the National Automobile Dealers Association’s (NADA) seasonally adjusted used vehicle price index to 124.3 for March 2015, compared to February’s 123.5 and March 2014’s higher index of 125.7. • All 13 used-vehicle segments registered wholesale price increases, comparing March 2015 to February. Mid-size utility vehicles were the highest, at 2.7%; followed by compact cars, compact utility, mid-size cars and mid-size vans, 2.5% each.

5. Short-Term vs. Long-Term Credit Conditions • Despite longer loan terms, the low interest rates since the Recession and during the recovery have only increased the average monthly payment of a used vehicle $8 from Q4 2010 through Q4 2014. • According to Experian, 55% of used vehicles were financed during Q4 2014 and 55% of these loans were for more than 60 months. Just 15% of used-vehicle loans were more than 72 months, compared to 26% of new-car loans. • A long-term concern is how student loans could adversely affect young adults’ used car purchases. Total student loan debt as of the end of 2014 is 21% more than all auto debt and almost 12% of student loan balances were 90-days or more delinquent, compared to just less than 4.0% for auto loans.

6. Streamlining the Buying Process • As often cited in THE MEDIACENTER’S AutoUpdate Reports, used car dealers (and dealers in general) are not responding as fast as the market is changing, especially technology, which has driven more consumers to expect a shorter buying process. • Many in the automotive industry are promoting the reduction of the process to one hour or less and dealers can affect this change by providing customers with a document of all the steps and an estimated buying-process time. • Other changes that would benefit consumers and used car dealers are an online credit application, an off-hour customer service representative available by phone or text and a Website video that explains the financing process and the documents customers should bring with them.

7. Seeking Success in Sub-Markets • The most successful used car dealers are those that concentrate their marketing dollars on a specific sub-market(s). For example, a dealer discovered that there were enough “Buy Here-Pay Here” dealers in his market, so he targeted an audience that wanted “quality at a fair price.” • By sponsoring community athletic teams and events and paying his employees to be charitable organization volunteers, another used car dealer was able to attract customers who also participated in these events and charities. • The other major hurdle for many used car dealers is that their marketing messages are often just part of the cacophony of dealers shouting about today’s best deal instead of offering customers transportation solutions.

8. Advertising Strategies • The best method to earn the trust of local used car dealers is to help them determine an exact sub-market(s), and then how to best use TV and social media in a complementary manner to reach the largest percentage of the submarket and with the most frequency. • With the prices of used vehicles, 11 to 16 years of age, increasing the most, show used car dealers why TV, in general, and your station, in particular, is the best medium to reach lower-mid to middle-income consumers most likely to buy used vehicles in this age range. • For those dealers who have access to a larger number of the many certified pre-owned vehicles available from new car trade-ins and leases, recommend a targeted TV advertising schedule to reach higher middle-income consumers who are attracted to the more recent styling and features of CPO vehicles.

9. Advertising Strategies • Suggest the use of TV advertising to promote dealers’ low and very affordable interest rates on used vehicles to the broad range of adults of all ages and income levels who are loyal TV viewers. • Show dealers the specific television programs on your station that reach higher-income and high-credit-rating consumers who are the prime market for the increase in 1–3 year-old used vehicles available.

10. Social Media Strategies • Social media is the place for dealers to announce and promote the changes to shortening their buying process, with links to online forms, a video explaining car financing and the documents needed to close a deal, etc. • Used car dealers should create and upload content regularly that reveal them to be transportation problem solvers first and used car dealers second. Invite people to tell their transportation-challenge stories and how they affect their work and family, and then provide solutions that others are also seeking. • Testimonials on social media are especially beneficial for used car dealers, as they build trust. Record testimonials that reveal specifically how the dealer solved transportation problems for consumers and from repeat customers explaining why they return to the dealer for their next used vehicle.