Used Car Sales: Understanding the Customer Process for Long-term Profitability and Loyalty
October 8, 2020
It’s no secret that new car sales around the world are down significantly due to the COVID-19 virus. In the US, as of August, Cox Automotive forecasted a third straight monthly drop in the SAAR (seasonally adjusted annual rate) for new vehicle sales to around 16.5 million, which when compared to 2019’s figure of 17.1 million, is substantial. Throughout 2020, many dealer showrooms around the world were forced to close for a period of time due to national/state/local government orders; all of this has led to weak global new vehicle sales for 2020.
A Dealer Lifeline
In many markets, an interesting trend has emerged – used vehicle sales haven’t declined nearly as dramatically as new vehicle sales. In terms of profit, dealers garner much of their annual profit from selling used vehicles because they provide higher margins than new vehicle sales. As the chart below shows, used vehicle sales in the US are almost back to pre-COVID levels and used vehicle prices are expected to level off as larger quantities of off-lease and off-rental vehicles enter the market.
In Europe, a similar picture can be seen. The graph below represents the first half-year sales volumes across the big 5 EU markets. While both New and Used vehicle sales were impacted by COVID, the decline in Used vehicle sales was lower than New.
Increased demand for used vehicles during periods of economic uncertainty is not unprecedented. New vehicle incentives, although still strong during the time, have not been compelling enough to bolster new vehicle sales. Despite automakers’ best efforts, many consumers who might have purchased a new vehicle are now more focused on purchasing used vehicles due to concerns about job security and overall economic instability.
Important to OEM’s
Although the primary focus of any automaker is to sell new vehicles, there are many reasons why used vehicle sales are important to them. A thriving dealer network is a prerequisite to the new and used vehicle market and automakers understand the need to support the network with profitable sales. Additionally, many vehicles come off lease and need to be sold through the OEM’s dealer network (often through the OEM’s own certified pre-owned vehicle program). Consumers expect that the same CX standards be applied to used vehicles they buy from OEM branded sales outlets. OEM brand and dealership perceptions/loyalty are at risk if dealers don’t treat consumers well. Used vehicle sales also make a significant contribution to service department revenues while also providing an opportunity to showcase new models that are available when vehicles return for service.
As a key component of any OEM’s retail strategy, used car sales have a lot of influence over what is purchased and from what channel. Understanding the customer process allows OEMs to recognize which areas provide the best opportunity to drive long-term profitability and loyalty.
Phoenix’s Used Vehicle Market Study is a detailed and thorough all-round approach to understanding the segment. Deep-diving into understanding the customer journey, the role of online and offline search, and influences on Brand and channel choice. We examine the influence of Brand, Product, previous experience, CX, and channel/Dealer on decision-making and satisfaction. A clear view of the landscape and purchase journey helps identify points of differentiation and how to improve customer loyalty.Back to Explore