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Untapped potential in a significantly transformed market.

USED CARS
FROM OUTSIDER TO
MARKET DRIVER.
A study initiated by In cooperation with
August 2009
CARFAX Europe GmbH, Lindwurmstrae 124, 80337 Munich
Musiol Munzinger Sasserath Gesellschaft fr umsetzungsorientierte Markenberatung
und Markenentwicklung mbH, Rosenstrae 18, 10178 Berlin
F.A.Z.-Institut fr Management-, Markt- und Medieninformationen GmbH
Mainzer Landstrae 199, 60326 Frankfurt am Main
We would like to express our thanks to A.T. Kearny for the friendly support they provided the CARFAX
study. We would also like to extend our special gratitude to Vocatus for its research support.
Eric Czotscher
rheingold Institut fr qualitative Markt- und Medienanalysen GmbH und Co. KG; Vocatus AG
Eric Czotscher, Thorsten Wrschinger
Christine Lambert
BAGGEN DESIGN GmbH
F.A.Z.-Institut fr Management-, Markt- und Medieninformationen GmbH
Boschen Offsetdruck GmbH, Frankfurt am Main
The information provided in this publication has been carefully researched and compiled. But the
authors and publishers take no responsibility for the correctness and completeness of the publication
as well as any changes that may have occurred after publication. All rights are reserved, including
those pertaining to photo-mechanical reproduction and storage in electronic media.
978-3-89981-733-1
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USED CARS | FROM OUTSIDER TO MARKET DRIVER.
Foreword 3
Executive summary 4
Automakers: more focus on need in Europe 6
Customers want future-proof cars 10
The car business must be completely redesigned 13
The customer sets the price 14
Growth market: used cars 16
Transparency + brand = trust 19
Market potential of 140 billion and more 27
An action plan for the automotive industry 29
The experts 30
TABLE OF CONTENTS
Chapter 1
Chapter 2
Chapter 3
Chapter 4
Chapter 5
Chapter 6
Chapter 7
In the European Union, more than 50 million vehicles are registered each year. The ratio between title transfers
and new registrations is roughly 3:1. Used cars generate a significant share of European car sales. In Germany,
they total 40 percent. While the new-car market is increasingly being shaped by commercial customers, more
and more private customers are tapping into the used-car market. Overall, used cars are newer and have better
technology today than they did in the 1980s. In terms of quality, young used cars, which once belonged to
car-rental agencies or served as company cars or demonstration vehicles, are very difficult to distinguish from
new cars. But they can be purchased at just a fraction of the sticker price. The overcapacities among manufac-
turers in Europe in recent years have flooded the commercial and private markets with discounted new cars.
However, as manufacturers plan their production targets, they fail to adequately factor in these overcapacities
as future used cars.
Automakers have not fully modified their production programs, their business processes and their sales and mar-
keting policies to meet the new market conditions. As a result, advertising aimed at private customers focuses on
new cars, while the used-car business often remains neglected or is seen as a selling tool for new cars. This must
change in the years ahead even if cash-for-clunker incentives in certain countries allow some breathing room
for the new-car business. But in 2010, the German automotive research organization, the German Institute for the
Automotive Industry (Institut fr Automobilwirtschaft) is predicting a dramatic drop in new-car sales.
Car dealers who have been under pressure for years from manufacturers demanding that they sell new cars
according to increasingly stricter guidelines, but at continuously shrinking margins are using the new-car busi-
ness as an interesting entrepreneurial playing field. Thanks to the Internet, todays car buyers are better informed
about market dynamics and prices, and they place high demands on quality and service also and particularly
for the used-car business. The image of used-car dealers as shady characters does not reflect the state of
todays business because the competition never sleeps. A host of best-practice examples demonstrates how
companies have successfully boosted their used-car sales even during the crisis. As our study shows, sales and
profitability in the used-car business can increase significantly when processes are improved and a few key fac-
tors for success are considered. These factors can be translated into the formula: Transparency + brand = trust.
Altogether, the used-car market boasts an economic potential of up to 140 billion.
Our discussions with managers and experts from the European automotive industry as well as our market
research conducted with new- and used-car sellers have identified a range of ways to optimize the European
used-car business. Our study also reveals that there is a strong interest for information about the used-car
market. We hope to address this need with our study. Above all, the CARFAX study seeks to provide insights
into the future of the automotive market and offer a specific course of action.
We hope you enjoy this study.
CARFAX Europe
Musiol Munzinger Sasserath
F.A.Z.-Institut
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USED CARS | FROM OUTSIDER TO MARKET DRIVER.
Foreword
1
|
The trend in residual value for used cars is
unsatisfactory. Three factors primarily con-
tribute to this: high rebates for new cars, the subsidiza-
tion of commercial leasing contracts and the overpro-
duction of relatively new used cars in the form of sin-
gle-day registrations by dealers, demonstration vehi-
cles, rental cars, company cars for employees and
managers as well as company cars generally sold to
automotive industry workers for one year and at special
rates. As a result of their overcapacities, automakers
have to introduce vehicle volumes into the market for
which insufficient demand exists in Europe at least
none at the official sticker price. Dealers are promoting
their new-car business by offering overvalued trade-ins
and robbing their used-car business of profitability in
the process. Higher residual values would serve as a
much more effective support for the new-car business
and would also eliminate the need for high rebates.
Conversely, higher net prices for new cars would
strengthen both residual values and the used-car
business.
The commercial-car business will continue to grow.
Most new-car registrations in many countries are done
today by fleet managers and businesses. For this rea-
son, automakers must direct their primary attention to
companies as their target customers. In the process,
though, they cannot neglect the future marketing of
returned vehicles. It is here that the differing needs of
private customers must be considered. This approach
includes a wider range of offerings to address individ-
ual requirements.
2
|
In their production, automakers must more
intensely focus on customer desires. Today,
customers are demanding partly due to EU regula-
tions environmentally friendly cars that are more fuel
efficient and generate fewer emissions. Ideally, they
should operate without any fossil fuels at all. Auto-
makers are working at full speed to develop alterna-
tive drive systems, with experts and drivers noting
that electric motors and hybrid drive trains offer the
best opportunities. The cars will not be available on the
market in sufficient numbers until several years from
now. By then, though, demand could have changed.
This is why automakers should integrate customers into
product development from the start. The used-car
market is not flexible. That is, the used cars on sale in
the market are a reflection of new-car sales with a lag
time of one year to two years.
3
|
The volume pressure being exerted by manu-
facturers has left its mark on European car
sales. The margins in particular have sharply declined
in recent years, even dipping into the red at times. Car
dealers are increasingly trying their luck in the used-
car business, where the margins are good and the sell-
ers have more freedom to conduct operations as they
see fit.
4
|
The high rebates for new cars in recent years
and the destruction of residual value by rela-
tively new used cars have destabilized the taxonomy
of car sales. The gross sticker price means little, and
the actual retail price no longer reflects the value of the
car. Through the limitation of supply and improved ori-
entation of production on demand, cost and value
could once again converge because supply and
demand would be brought into balance. The Internet
has significantly increased transparency in this respect.
5
|
Used cars represent an interesting, high-
potential future market for car dealers. As a
result of the high technical quality of todays vehicles
and the large supply of relatively new used cars from a
growing commercial business across Europe with the
exception of the current economic slump pre-owned
cars are becoming a real alternative to new cars for pri-
vate customers. But dealers are not exploiting their
opportunities to the greatest extent possible. More-
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USED CARS | FROM OUTSIDER TO MARKET DRIVER.
Executive summary
The used-car market in Europe offers tremendous potential for manufacturers and dealers
who exploit their opportunities more effectively and more efficiently. The greatest obstacles,
which simultaneously represent opportunities, are consumer wariness about the used-car market
and the negative direction of residual value. Trust can be restored by increasing transparency
and adding the support of strong brands.
over, they are neglecting the potentially lucrative seg-
ment of three- to eight-year-old used cars.
6
|
The greatest obstacle for used-car sales is cus-
tomers lack of trust in used-car dealers and in
the condition of individual cars. This can be remedied
only through increased transparency and the support
of strong brands.
Thanks to the Internet, transparency for used-car prices
has been largely achieved. But, in terms of the vehicles
history and condition, the buyer is dependent upon
the sellers information.
If this information is supplemented by an objective
report on the vehicles quality and history, a major
step could be taken in the direction of transparency
and trust. As a result of their strong brands, the used-
car programs developed by car manufacturers promote
greater trust and, as a result, increased customer will-
ingness to pay. A European initiative with manufactur-
er standards for used-car sales, like the certified pre-
owned (CPO) industry standards in the United States,
could add greater support to this. Various types of war-
ranties also improve customers inclination to buy as
long as costs remain reasonable. In many European
countries the mandatory two-year liability for defects
has increased the market share for professional dealers
against private sellers.
7
|
With more than 40 million title transfers annu-
ally, the European used-car market has a
potential of 340 billion. The reason: A seller can earn
an additional 31,000 with each car as a result of cus-
tomers who are willing to pay more for vehicles in
which they can place their trust, of more efficiently
managed used-car dealerships and of demand- and
value-focused production and sales policies among
automakers. This potential increases to the extent that
dealers can win over parts of the private market. Fur-
thermore, dealers can take advantage of cross-selling
potential for value-added services like insurance poli-
cies particularly those linked to the use of the dealers
service departments leasing and car loans. |
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USED CARS | FROM OUTSIDER TO MARKET DRIVER.
Market research methodology
Because information about the European used-car market is incomplete and because this study strives to be a pioneering
examination of the subject, the publishers developed a complex research design, consisting of desk research, personal inter-
views with automotive experts and managers across Europe as well as three end-consumer surveys in the most important
national markets. The results of this market research form the basis of the CARFAX study Used Cars From Outsider to Mar-
ket Driver.
The study covers all of Europe. Individual analyses focus on the five production countries of Germany, France, Italy, Swe-
den and Spain. Along with the UK and the Netherlands, these five countries form the heart of the European automotive and
used-car market. The UK occupies a unique position (right-hand-drive cars). As a result, it was not examined further. The
Netherlands is primarily important in its capacity as automotive suppliers.
Between April and July 2009, 32 experts and managers from the automotive sectors in Belgium, Germany, France, Austria,
Romania, Sweden and Spain were interviewed in person about their perspectives on the market. The interviewed experts
cover the entire range of the industry: from associations, manufacturers and car-rental agencies through independent and
authorized car dealers to Internet marketplaces, Web and print media and consulting firms. A list of the interviewed experts
is on pages 30 and 31.
As part of a baseline survey, the market-research institute rheingold carried out group discussions and deep-psychological
analyses of individuals interested in buying a used car, actual buyers as well as automotive dealers in Cologne, Ljubljana, Milan
and Stockholm (Study 1).
Two quantitative market studies conducted jointly with the market research and consulting firm Vocatus followed. The first
was carried out in early 2009 in Germany, Italy, Spain, Sweden and the Netherlands, using the method of computer-assisted
Web interviews (CAWI) of around 200 people in each country. A total of 991 consumers who have purchased used cars with-
in the past two years were surveyed (Study 2).
The second quantitative study was completed in June 2009. Encompassing Germany, France, Italy, Sweden and Spain, the
survey included interviews of around 500 people from each respective country who had purchased a new or used car in the
past two years. Altogether, 2,675 customers were surveyed using the CAWI method (Study 3).
The opinions of automotive experts were compared with the needs and opinions of automotive customers to gain a per-
spective on the automotive market for the future and, from that perspective, to identify specific courses of action.
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USED CARS | FROM OUTSIDER TO MARKET DRIVER.
The economic crisis has worsened the situation and
turned it into a headline-making story. But the problem
has actually been simmering for years: Automakers
have too much capacity in Europe. For this reason, they
are attempting to sell more vehicles than the market
needs. Production no longer meets customer require-
ments both in terms of quantity and quality. As a result,
capacity has climbed an estimated 20 percent above
European demand even without the impact of the cri-
sis. The real momentum in demand has shifted to the
BRIC countries.
In the wake of the current economic downturn, the
issue of overcapacities has taken on added significance.
One of the countries being hit hardest is Spain. Car
purchases there have plunged about 50 percent. Sales
difficulties have indeed been offset by cash-for-
clunker programs in some countries. But new-car sales
are expected to plummet once these programs expire
in 2010.
The European fleet business has also suffered. Fleet
managers are keeping their vehicles in service for
longer periods of time or are selecting smaller models.
In 2012 at the latest, commercial sales are expected to
markedly increase, experts forecast. One reason is the
large pent-up demand in southern Europe. For now,
dealers hopes rest on the used-car market, which
offers excellent mid- and long-range opportunities.
Years before the economic downturn, automakers
pressed their overstock into the market by offering
targeted purchasing incentives. For private customers,
they offered a range of rebates and low-interest loans
handed out by their own auto banks. The commercial
business received even more intensive support: special
leasing rates with high guaranteed residual values and
subsidized rental vehicles.
The steep increase in the fleet business was encouraged
by tax incentives in many countries. At one time, com-
pany cars were provided only to top executives and
members of the sales force. Now, they are used as an
incentive for mid-level managers. Dataforce informa-
tion shows that in 2008 about 60 percent of new-car
registrations were commercial. According to Deutsche
Bank, the B2B share is 86 percent in the premium seg-
ment.
At the same time, automakers are flooding their own
companies with business cars for executives and
employees. Dealers are supporting the sales offensive
with an inflationary use of demo cars and single-day
registrations that enable them to sell vehicles with large
rebates after the registration expires.
Out of sight, out of mind? The use of commercial reg-
istrations does enable a home to be found for large
numbers of passenger cars. A short time later, though,
the vehicles return to the market as relatively unused
pre-owned cars. In terms of their engineering, there is
little difference between such vehicles and new cars.
1 | Automakers: more focus on need in Europe
Automakers overcapacities in Europe tend to result in volume-oriented sales strategies.
The industry fuels the new-car business by offering targeted, short-term buying incentives but
often forgets that the vehicles will one day return to the market as used cars. Rebates and
oversupply have eaten away at residual value.
Sales have gone way overboard.
(a trade association spokesperson)
Normal demand for new cars in Sweden is
around 180,000 vehicles. In 2008, however,
230,000 were dumped on the market.
(a dealer)
We are in the middle of the crisis.
Production capacities are much too high.
The goal is to secure liquidity.
(a trade association spokesperson)
Leasing will bleed a little more. (an importer)
Automakers must carefully reduce their
capacities without damaging their brands and
without touching off a political firestorm.
At the same time, they must remain flexible
so that they can respond to market changes.
(an automotive journalist)
But they are sold at up to 40 percent below the gross
sticker price.
Real residual-value destruction is occurring particularly
in the premium segment, experts stressed in the sur-
vey. For private customers, it makes little sense to buy
a new car unless the new-car rebate is really high.
Who then can be surprised when the trend increasing-
ly shifts from private customers to used cars? The Ger-
man Institute for the Automotive Industry has deter-
mined that sales of used cars less than one year old
have risen 17 percent since 2004. At the same time,
the number of newly registered private cars fell by the
same amount.
Compared with the 1980s, a significant shift has
occurred in the car business: The key new-car cus-
tomers are now commercial customers, not private
individuals. New cars for private individuals have thus
become a niche market. But automakers sales struc-
tures and marketing efforts are still directed at private
individuals who buy new cars an outdated practice of
the 1980s. The private customer who comes into the
showroom, pays cash for a new car and drives home is
a species of consumer facing extinction. He or she will
either select a form of financing and profit from a big
rebate or select a (new) pre-owned vehicle. The steep
price trend makes it difficult for cash-paying private
customers to afford a new car at least in terms of the
gross sticker price. Our market research (Study 3)
shows that 46 percent of European new- and used-car
customers perceive a clear trend towards auto-financ-
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USED CARS | FROM OUTSIDER TO MARKET DRIVER.
Destruction of residual value
Propelled by government tax breaks for company cars and attractive automaker leasing offers, the new-car business has
increasingly focused on business customers in recent years. In the survey, experts pointed out that the residual values listed
in the leasing contracts were excessive, particularly in the premium segment. After all, big new-car rebates simultaneously
exert pressure on residual values. In the market, deeply discounted demo cars or other relatively new used cars are sometimes
less expensive than three-year-old leasing returns, at least when the calculated rest value is considered.
This discrepancy is not the result of the economic crisis. But the plunge in demand has accelerated the destruction of resid-
ual value. In Sweden, the real residual value of leasing vehicles has fallen about 20 percent from the contractually set level. In
Germany, experts speak of a depreciation need of 11,500 to 12,500 per vehicle. Experts report similar levels in other nation-
al markets. In the next one to two years, other depreciations will be required because many leasing vehicles with contracts
that have overly generous conditions remain on the roads. The residual-value trend is more stable in the inexpensive segment
as the example of Dacia shows. The rebates are much lower here. But here the strict fixed-price policy of Dacia is a contribu-
ting factor.
Automakers do indeed want to adjust their leasing conditions upward but given the market situation and low interest
rates, it is difficult to push such an increase through. Providers should also think more about the later marketing of their leas-
ing and rental vehicles as used cars. This includes a broader differentiation of models in order to offset the risks in the used-
car market and to be able to react better to shifts in demand. One of the surveyed automakers now has a rule under which
rental revenue should not exceed the private-customer business. The aim is to prevent return vehicles from competing against
demo cars and single-day registrations.
Today, it is the fleet manager, not the private
customer, who is deciding what new car to buy.
(a trade association spokesperson)
Residual value of used cars more stable
(residual value trends of leased vehicles)
1) Relatively new used cars (12 months old).
Sources: European marketing data from VB Leasing; CARFAX.
Single-day registration
premium
Trade-in bonus
Residual value support
Discount
Residual value
Gross list price
New cars Used cars
1
100
Passage of time in months
Vehicle value in %
80
60
40
20
0
0 12 24 36 48 60
75
65
62
48
48
37
37
29
29
25
25
21
100
8 |
USED CARS | FROM OUTSIDER TO MARKET DRIVER.
ing also involving loans and leasing. But auto experts
have identified a shift in the trend for new-car prices.
Prices have stabilized or are even falling.
If automakers fail to adjust their structures to market
conditions and fail to focus more closely on the cus-
tomer, their problems will worsen, even if the economy
does recover. Political leaders are supporting the auto-
motive industry because they want to protect jobs and
preserve tax revenue. These concerns are reflected in
the support programs introduced by many govern-
ments during the crisis. Automakers should use this
time of relative stability to reorient themselves and
exploit opportunities in the marketplace.
The tasks facing automakers are: increased focus on the
customer during production planning, refinement of
pricing systems (taxonomy) and restructuring of the
organization and communications in terms of the
altered market situation. The key points of this effort
are: Commercial buyers are the main customers in the
new-car business. Used-car production as a by-prod-
uct of the new-car business must be systematically
managed. And used cars for private customers should
be intensively monitored. Residual values can be sup-
ported by volume reductions.
Instead of coming up with new vehicles and then
drumming up demand by conducting expensive mar-
keting campaigns, automakers should think more
intensely about their customers and dealers during
product development. Our market research (Study 3)
shows that 28 percent of new- and used-car buyers in
Europe are dissatisfied because automakers fail to give
enough consideration to their needs when they design
their line of car models. And even the new head of
Toyota, Akio Toyoda, recently had this to say in an
interview with the German newsmagazine Stern: We
Jointly stimulating the new-car and used-car business
The new- and used-car businesses are closely interconnected. For many brands, 25 percent and more of registered new cars
(rentals, company cars, demo vehicles) enter the used-car market after six months of use. The high penetration of the leas-
ing business with vehicle returns after two to three years adds further remarketing volume. When the used-car market over-
flows, i.e., during weak outflow of returned vehicles or unfavorable return planning, residual values and used-car prices come
under pressure. This, in turn, negatively impacts new-car prices.
Professional used-car management facilitates a stable outflow of returned vehicles and stabilizes residual values in the
process. Higher residual values then support new-car prices because fewer rebates and less support in other areas are provid-
ed, including less support in leasing since depreciation during the contract term is lower because of higher residual values. As
a result, the new- and used-car business forms an integrated unit to be jointly managed. Undesirable developments in one or
several areas create an interaction that can quickly result in a downward spiral (lower residual value higher new-car rebates
needed lower residual values).
Sources: Booz & Company; iStockphoto.
Volume of trade-ins, returned vehicles
Impact on residual values
Margins,
new cars
Volume,
new cars
Volume,
used cars
Prices,
used cars
Prices,
new cars
New-car Used-car
business business
Impact on
prices
Impact on
volume
Impact on
margins
Higher residual values make lower
rebates necessary and strengthen
new-car prices in the process
A professional used-car business
stabilizes prices and bolsters
residual value
A professional used-car business
can absorb a rising volume of returned
vehicles
| 9
USED CARS | FROM OUTSIDER TO MARKET DRIVER.
have to ask ourselves whether we are making the cars
that customers really want.
Internet communities like Motor Talk offer a way for
automakers to gain an understanding of their cus-
tomers, though Managing Director Tom Kedor urges
the automotive industry to find a middle ground
between customer desires and their own developmen-
tal work. Without such developments, there can be no
innovations. Automakers should search for solutions to
typical customer requirements and initiate a discussion
with customers about their innovations. Given the
automotive industrys relatively long developmental
times, it will always lag somewhat behind demand. By
using adaptable modular design, though, automakers
can noticeably increase their flexibility. |
Are the cars on sale really the ones that customers
want to buy? Automakers are going through an
identity crisis because their vehicles do not meet
customer needs. A sea change is in the making.
Todays (auto) mobility concepts no longer cut it.
(an automotive journalist)
The automaker decides what I have to buy.
(an automotive journalist)
Thanks to Web 2.0, the customer has gained
a voice. (an automotive journalist)
Residual value management: balancing supply and demand
An effective form of used-car management must create a balance between used-car supply and demand. Automakers can
focus on both levels: in the production of used cars (through the rental and in-house company-car business) and in
demand. Various tools can be used in this work:
Have a positive impact on a vehicles residual value as early as the launch of new models by communicating with residual-
value agencies and leasing companies.O
Schedule returned vehicles throughout the year.
O
Consolidate volume in all channels, employ integrated management.O
Apply an optimized return-vehicle process; adjust return periods (including for rental cars) to cover peak periods.O
Ensure transparency in used-car flows, supply and demand.OCreate increased demand centricity by avoiding wholesale
steps.OEmploy active sales in various channels (a companys own sales organization, auction houses, professional used-
car dealers).O
Create a strong used-car brand by using a program that creates trust and stabilizes residual value in the process because
customers will pay more for certified used cars. OComplete a detailed analysis of customer needs in advance.O
Improve the used-car skills of dealers by utilizing a used-car program with process standards support dealers through
used-car sales force.O
Implement a management model that integrates the new-car, used-car, service and financing businesses.
Source: Booz & Company.
Supply
O Residual value management
Strengthen residual value
Optimize residual value factors
O
Supply management/
returned-vehicle management
Manage returned-vehicle
volume
Seasonally smooth out volume
O Supply consolidation
Control the used-car
wholesale business
O Trade-in process
Optimize the process
Modify fleet contracts
O Creation of a balance between-
supply and demand
Have transparency about
supply and demand volume
Distribute volume across
countries and sales channels
O Price management
in wholesale
Conduct customer-needs
analysis
Minimize dealer steps
O Active sales
Optimize the customer mix
Reduce dependency on major
customers
O Used-car brand program
Strengthen used-car prices
Offer product packages
O Customer segments
Conduct customer-needs
analysis
O Professionalization of dealers
Optimize dealer performance
Coach dealers
Resale/B2B Demand (private customers)
Improvement of the comprehensive management process
The structural changes in the car business are prompt-
ing people to raise fundamental questions about the
role of the automobile in the future. For instance, cli-
mate change and the traffic problems of major metro-
politan areas will require automakers and drivers to
come up with new answers to the question of mobili-
ty. In interviews, a majority of the experts said they
thought that the car did not play the same role today
that it played in the 1980s. Having a car is no longer
such an important status symbol. Today, young people
in Stockholm and Paris think that not getting a drivers
license is the cool thing to do. Not owning a car gen-
erates much more attention for a Swede than owning
a vehicle does. Our market research (Study 3) also
shows that only 18 percent of respondents view a car
as a status symbol. Half of respondents said they
viewed an automobile as a commodity. The situation is
somewhat different in southern and southeastern
Europe: A premium vehicle does indeed provide the
driver with a high amount of prestige. Unlike the gen-
eral trend, one of the surveyed experts anticipates that
the car could actually become a bigger status symbol
in the future, but from a different perspective: as a
green premium that represents a particular environ-
mental consciousness.
The market experts think car ownership in Europe will
lose its standing in the years ahead. Instead, drivers will
view a car as a means of transportation that will be
complemented by other mobility solutions. In general
terms, individual mobility needs are rather likely to rise
for instance, because employees are expected to be
more flexible in geographic terms when they search for
jobs. The automotive industry will indeed continue to
make a significant contribution to European economies
in the future, but to a reduced extent.
Today, demand for low-emission and small vehicles is
growing among private and commercial customers.
The EUs decision to severely cut CO
2
emissions for new
cars beginning in 2012, high fuel prices and emission-
linked vehicle taxes are the driving forces behind this
trend. Passenger vehicles are indeed responsible for
just about 12 percent of CO
2
emissions in the EU, but
have come under the scrutiny of environmental politi-
cians. Our market research (Study 3) confirms that driv-
ers understand their part in climate change. Thirty-
eight percent of new- and used-car buyers in Europe
said that the car was significantly contributing to glob-
al warming. But most of the respondents (82 percent)
rejected the idea of giving up their drivers licenses as a
result.
Automakers are fervently searching for new technical
solutions: more fuel-efficient internal combustion
engines and new drive technologies. Climate change
has given new life to innovative activities the age-old
technology of the internal combustion engine is being
intensely scrutinized. Experts remain unsure about
what will be the drive system of the future. After all, the
range of possibilities is broad: from renewable fuels for
internal combustion engines through hybrid and elec-
tric drive systems to fuel cells, compressed-air engines
and magnet motors.
The market experts consider the gradual electrification
of the automobile to be the most probable scenario
carried out in cooperation with energy companies. By
2011, a line of series electric vehicles will be introduced
to the European market, various automakers have
announced. But it will take decades for such vehicles to
10 |
USED CARS | FROM OUTSIDER TO MARKET DRIVER.
2 | Customers want future-proof cars
No one doubts that the car has a future. But experts do expect significant improvements to be
made in the technical design and the use of passenger cars. Alternative drive systems, particular-
ly electric motors, are becoming increasingly popular. Over the long term, new mobility concepts
are expected to be worked out in cooperation with non-industry providers.
The car is no longer a member of the family
and is no longer a symbol of freedom
and independence. (an automotive journalist)
We have to keep our R&D spending high
and create a green premium.
(a trade association spokesperson)
None of the new drive technologies will be near
serial production in the foreseeable future.
(a consultant)
make their presence felt among all cars, according to a
new study by Deutsche Bank. The study adds that in 10
years, 90 percent of newly registered passenger vehi-
cles will still use fossil fuels. But relatively new used cars
like demo vehicles or rental cars could be systematical-
ly utilized to accelerate structural change. Matthias
Gleichmann of TV Nord expects that the electric car
will establish itself at an earlier point, at least if renew-
able electricity production can be assured. Right now,
though, the problem regarding higher energy-storage
costs must be solved. One of the surveyed automakers
said the required replacement of the battery packs after
seven years of service would cost about 115,000.
Even if technical developments will still require a little
more time todays customers want to buy future-
proof cars. Consumers apparently expect bigger
changes than the automotive industry does, according
to the new survey BEST CARS 2009 conducted by
the magazine auto motor und sport. Thirty-nine percent
of readers said they expected electric drive systems to
establish themselves. In the survey conducted a year
earlier, the total was only 13 percent. In our market
research (Study 3), hybrid engines lead as possible
alternative drive systems just like in the research done
by auto motor und sport. They are followed by LPG and
natural gas. In Italy, LPG clearly ranks first as an alterna-
tive to gasoline and diesel.
A key factor in a purchasing decision is the expected
residual value of vehicles with traditional drive technol-
ogy if the new systems establish themselves or regula-
tors toughen emission standards. With its CO
2
regula-
tions, the EU did indeed create more planning security.
Now, however, automakers are being called on to cre-
ate greater trust in their products among customers.
| 11
USED CARS | FROM OUTSIDER TO MARKET DRIVER.
The customer wants to buy a future-proof car.
Many potential buyers are taking a wait-and-see
approach right now. (an automotive journalist)
Climate change is having no direct effect on the
used-car market. But its structures are similar
to those of the new-car market with a lag time
of two to four years.
(a key player in an online marketplace)
Electric cars will not be a big story
in the next 15 years. (an automaker)
Drivers think the electric-car trend is gaining speed
(car technologies that will become established;
in % of respondents
1
)
1) More than 90,000 readers of auto motor und sport responded at the
beginning of 2009 and in 2008 (survey has been conducted since 1991).
Source: BEST CARS 2009 (auto motor und sport).
Hybrid drive
systems
Electric drive
systems
Clean diesel Biofuels
52
43
39
13
23
31
10
19
2008 2009
A preference for owning a vehicle
(agreement with statements; in % of surveyed buyers of new and used cars
1
)
1) A total of 2,675 people from Germany, France, Italy, Sweden and Spain who bought a new or used car within the past two years; remainder of responses to
reach a total of 100%: undecided.
Source: CARFAX (June 2009).
My mobility would be severely restricted if I did not have my own car
I cant imagine life without a car
I try to avoid using the car for short trips
I think a car is a commodity
I will do without my own car only when I can no longer afford it
A cars main job is transportation; its appearance is secondary
The car is an important status symbol
Mobility concepts are an equally appealing alternative to the automobile
39
31
16
18
73
57
50
49
8
15
17
15
22
29
40
46
Disagree Agree
On the other hand, automakers are working on com-
pletely new mobility concepts, as our interviews
showed. The reason: Some European cities are facing
total gridlock. In Belgium, traffic is expected to increase
30 percent by 2013 the Brussels-Antwerp autobahn is
already practically impassable during rush hour. For
this reason, public transportation is to be expanded.
Additional regulatory restrictions on city traffic like
the environmental sticker in Germany or the conges-
tion charge in London are possible. Paris, for
instance, is considering a city toll. The problem of
affordable parking spaces is another particularly acute
problem in the French capital. Virtually no parking
places are now being approved for new commercial
real estate, one of the French experts noted.
The surveyed specialists disagree on whether car shar-
ing and forms of renting have a future or whether
automakers will offer combinations of various vehicles
an electric car for the city and an SUV for a vacation
trip. The search for sensible mobility solutions with sus-
tainable business models will probably take some time.
As a realistic possibility, various concepts could exist
side by side just as drive systems do, the market experts
said. In designing such concepts, automakers are open
to partnerships with non-industry mobility providers.
But it will take some years, if not decades, to imple-
ment such changes.
The new mobility concepts cannot be developed with-
out vehicle ownership, our market research (Study 3)
shows. Seventy-three percent of surveyed new- and
used-car buyers (in Germany 88 percent) said that giv-
ing up their own car would curb their own mobility,
and 57 percent said they could not imagine life with-
out a car. In designing mobility and future vehicles,
automakers should not lose sight of the actual needs of
customers in spite of ambitious environmental protec-
tion goals. |
12 |
USED CARS | FROM OUTSIDER TO MARKET DRIVER.
The car will remain extremely important.
(a trade association spokesperson)
We are no longer in a battle between the car and
public transportation. The network must work!
(a trade association spokesperson)
Partnerships are essential for electric vehicles.
(a dealer)
Outside metropolitan areas, there is no
alternative to the car. (an automaker)
Germany
Largest new- and used-car market in
continental Europe. Higher share of
relatively new pre-owned vehicles
(up to one year old) for retail
sale. Strong use of online market-
places. In 2009, market distortion
created by the governments
cash-for-clunkers program: large
increase in private new-car sales.
Registrations of new cars in 2008: 3.09 million
Car-title transfers in 2008: 6.42 million
Three years old or less: 27 percent
Older than nine years: 43 percent
Number of passenger cars in 2008: 41.32 million
Source: R. L. Polk & Co.
France
Third-largest European
used-car market.
Relatively high share
of used-car sales in car
business (ratio to new cars:
2.6:1). Increase of new-car
sales as a result of a
cash-for-clunker program.
Registrations of new cars in 2008: 2.05 million
Car-title transfers in 2008: 5.39 million
Three years old or less: 23 percent
Older than nine years: 42 percent
Number of passenger cars in 2008: 30.98 million
Source: R. L. Polk & Co.
| 13
USED CARS | FROM OUTSIDER TO MARKET DRIVER.
Automakers rely on dealers when their new-car volume
has to be added to the market. But the relatively rigid
and costly sales requirements and facility standards
give many dealers little leeway to carry out their own
sales initiatives. Highlighting this situation, some of the
surveyed experts noted that the dealers business inter-
ests are ignored. Since the 1980s, margins have consid-
erably fallen and are frequently negative today. A
return on sales of 2 percent to 3 percent should be
common, Christof Gerhard of CGP noted. But Euro-
pean dealers can only dream of such numbers except
the Dacia dealers in Romania, where 3 percent is still
common. Given their restricted liquidity coverage,
dealers cannot afford to make mistakes. They earn their
money only in aftersales and with additional services
or in the used-car business, as long as it is professional-
ly operated.
Local authorized dealers once were highly respected by
customers and residents of the areas where they did
business. Today, their standing in the community and
security are threatened. A contract termination can
turn up at any point. For this reason, dealers do not put
much effort into the new-car business, one of the sur-
veyed car dealers noted. The dealers are discouraged
and avoid taking risks. This is triggering rigidity in the
market. In family-owned companies, the upcoming
generation has little interest in taking over their par-
ents businesses. In difficult times, though, it is family-
owned businesses that stabilize the dealer network,
one importer from Belgium said.
The economic crisis has eaten away at the thin layer of
reserves maintained by many auto dealers. The Euro-
pean companies are fighting for their lives and not
just in Spain, where the situation is considered to be
extremely critical. The destruction of residual value is
creating an extra burden on the sector. The German
car expert Willi Diez expects that about 5,000 of the
11,000 auto dealerships in Germany will have closed
their doors by 2015. Because automakers are depend-
ent on their dealers, some of them are now expressing
a willingness to inject liquidity directly into the net-
work.
The auto-sales business model should be reworked and
the responsibilities of dealers and manufacturers should
be redefined, the surveyed market specialists said. An
amendment to the EU Commissions Block-Exemption
Regulation that expires in 2010 and may be extended
for three years could act as a catalyst for this change. In
the future, dealers could gain more influence over the
car business and automakers by taking such steps as
forming multibrand dealership groups. In contrast, one
of the surveyed automakers suggested that a two-tier
sales network with middlemen be created. In any case,
experts said dealers should professionalize their man-
agement, particularly in the promising used-car seg-
ment. After all, the continued thinning and consolida-
tion of the sales networks is inevitable.
The human aspects that have gotten lost in the new-
car business remain a vital part of the used-car busi-
ness. Here, the focus is on the relationship between
customer and dealer. In business terms, used cars are
much more appealing to many dealers than new cars
are. In the used-car business, dealers can put their cre-
ative sales skills to work and take advantage of oppor-
tunities. This is the future of auto dealers. |
3 | The car business must be completely redesigned
The volume pressure being exerted by automakers has left its mark on European car dealers.
As a result, margins have fallen considerably in recent years and even slipped into the red.
Dealers are increasingly shifting their focus to the used-car business because it offers good
margins and more entrepreneurial freedom.
With their rebates, automakers are
driving dealers into the ground. (a dealer)
Something is wrong with the system.
The business model for auto dealerships
must be overhauled. (an automaker)
The automakers are applying increasing
pressure to us in the new-car business.
Used cars, on the other hand, represent
entrepreneurial freedom to us. (a dealer)
14 |
USED CARS | FROM OUTSIDER TO MARKET DRIVER.
There is an urgent need to change car pricing. The tax-
onomy of the auto business has gotten out of balance.
In recent years, the gap between a cars value and its
price has expanded further. While manufacturers gross
sticker prices went in only one direction up compli-
cated systems of rebates have continuously driven
down the price paid by the end customer. The sticker
price has degenerated into nothing more than a dubi-
ous marketing instrument.
A simple visit to the showroom can result in a 20 per-
cent rebate for the potential customer, test sales show.
Rebates are given by automakers and dealers alike.
There are rebates for particular customer groups as well
as flexible rebates for skillful negotiators. The practice
becomes even more complicated when rebates for var-
ious groups of relatively new used cars and nearly new
vehicles are considered: single-day registrations, demo
cars, manufacturer rental vehicles, employee cars,
company cars for executives and former rental cars
come with a range of price cuts. In the end, customers
know little about the criteria used to grant a rebate and
whether they could have gotten an even better deal.
This creates uncertainty and dissatisfaction, erodes cus-
tomer loyalty and hurts auto sales.
Our market research (Study 3) clearly shows just how
dissatisfied customers are with the current taxonomy.
Eighty-three percent of surveyed new- and used-car
buyers in Europe stated that a new car loses its value
too quickly. On the other hand, 54 percent of respon-
dents said they had a stronger negotiating position
when purchasing a new car. The question about
whether high new-car rebates made the purchase of a
used car unappealing elicited similar levels of respons-
es. Thirty-two percent agreed with the statement, and
28 percent disagreed. Agreement was more prevalent
in Italy, and disagreement in Spain. Dealers are dissat-
isfied as well: The customer keeps haggling even when
the sales representative has given him or her a break on
the trade-in. For this reason, trade-ins should always be
realistic, i.e., calculated in a market-focused manner.
None of the surveyed market specialists expects that
the rebate clock can be turned back. Only a significant
reduction in capacities could stabilize prices and value
equity. Dacia has now demonstrated that fixed prices
can indeed be achieved at least in the lower price
segment.
The conditions in the used-car market are more clear.
Here, online marketplaces for used cars create high
price transparency. But this does not mean that prices
for comparable models settle at a certain level. A range
4 | The customer sets the price
The new-car rebates given in recent years and the residual-value destruction among relatively
new used cars have upset the balance in the taxonomy of the auto business. The gross sticker
price is obsolete. The sales price does not reflect the true value of the vehicle. Through demand-
focused production and limitations on supply, the balance could be restored.
The current taxonomy does not reflect
the real value. (a dealer)
Rebates really hurt in the premium segment.
(an automaker)
The Internet has changed buyer behavior.
The customers comparison shop.
The buyer determines the price.
(a trade association spokesperson)
Internet creates price transparency
(information sources for used-car prices;
in % of surveyed used-car buyers
1
)
1) A total of 1,363 people from Germany, France, Italy, Sweden and Spain
who bought a used car within the past two years; multiple responses
possible.
Source: CARFAX (June 2009).
Price comparison using online marketplaces
Price comparison at dealers
Recommendations of someone who knows a lot about it
Institutional offers
Research in specialist magazines
Self-directed research: sticker price minus a certain percentage
Own expertise
23
23
15
60
51
38
28
| 15
USED CARS | FROM OUTSIDER TO MARKET DRIVER.
of 15 percent above and below the average price is
typical. Apparently, buyers can be found throughout
the price range.
The market survey (Study 3) showed that 60 percent of
the surveyed buyers of used cars identified the Internet
as their most important source of information, followed
by 51 percent who cited their personal price compar-
isons at dealerships. The Internet was even more pop-
ular among Swedish and German used-car customers.
In terms of general car prices (new and used cars),
price shopping at dealerships was rated ahead of the
Internet (60 percent of surveyed buyers of new and
used cars vs. 52 percent, respectively).
The most transparent form of price setting that brings
supply and demand into balance is the Internet auc-
tion. But these auctions have not established them-
selves among new or used cars. Because the financial
strength of automakers is significantly weakened at the
moment, auctions create a cost-efficient sales channel,
one of the surveyed financial service providers noted.
The successful Swedish model KVD demonstrates that a
good auction concept can generate profitable growth
even during the crisis. |
Best practice: customer trust ensures sales of used company vehicles at KVD
The Internet auction house KVD-Kvarndammen Bilauktioner AB is a leading sales platform for used company vehicles in Swe-
den. The firm is producing double-digit growth even during the crisis. Transparency, neutrality and efficient processes have
turned KVD into one of the most successful companies in Sweden. At KVD, end customers bid on used cars that they usually
have not seen before in person. The platform describes the vehicles in great detail, provides compelling pictures, delivers
proactive research on the vehicles history and has earned a solid reputation.
KVD generally auctions relatively new used cars from leasing companies, banks, fleet operators bankruptcy administrators,
insurance companies and government agencies. Dealers and private sellers are not permitted to provide vehicles. They are
the most important customers.
Acting as a middleman, KVD works with two customer groups: the sellers and the providers of used vehicles. Or as Hans
Johnson, an accredited appraiser at KVD, says: We are one of the most important vehicle sources and one of the strongest
competitors on the used-car market. The company is particularly interested in maintaining its independence from auto deal-
ers and manufacturers. In addition to the auction portal bilauktioner.se, KVD operates an online price search engine that has
become the main source of information for used-car valuations in Sweden: bilpriser.se.
In 2008, 15,200 used cars were auctioned at bilauktioner.se, 50 percent more than the previous year. The goal for this year
is an increase to 17,500 used cars despite the crisis. In 2009, KVD broadcast its first television ads. When a vehicle is offered
for auction at bilauktioner.se, the chances are good that it will find a buyer. Up to now, more than 80 percent of the listed cars
have been auctioned. KVD intends to increase the success rate to 90 percent this year.
All vehicles being auctioned are checked by appraisers. Their reports appear on bilauktioner.se along with a sticker price
that corresponds to the average dealer price. The site also contains information about vehicle defects as well as the condition
of key components like tires, brakes and the transmission. Nearly all vehicles have a service history as well. KVD strives to pro-
vide the most precise descriptions possible in order to avoid raising false expectations. Disappointed customers are really
painful to us, Johnson says. Bidders can ask questions about the vehicles by e-mail or telephone and have a look for them-
selves at one of five locations in Sweden.
Each auction lasts one week, and all vehicles being put up for auction have a minimum price. If this price is not reached,
the seller can decide whether he or she wants to accept the highest bid. The winning bidder is notified within 24 hours and
then has 24 hours to confirm the bid. Afterward, the buyer has to make a payment to prevent the purchase option from expir-
ing. He or she has a week to pick up the vehicle. It is only at this point that KVD presents a purchase contract to the customer
for signature. An auction fee of about 1240 is then charged. In addition, KVD receives a commission from the seller that is
linked to the auction price. But a previously set limit applies to the commission (between 16,000 and 17,000 depending on
the provider) to assure the neutrality of KVD.
The handling of vehicles at KVD is done with predefined processes that are continuously optimized. We dont have any
problems with turnover times on our lots, Johnson says. In 25 days at the most, a vehicle is out the door. This efficiency
speaks for KVD, particularly among leasing companies. KVD creates added value by reconditioning the vehicles jointly with
service partners. Such reconditioned used cars regularly generate higher bids and increased customer satisfaction. KVD
receives a handling fee for the reconditioning.
The European used-car market is becoming an increas-
ingly important part of the passenger-car business. The
market has discovered the opportunities presented in
the used-car business among both customers and sell-
ers even in Spain, where a buyer would have consid-
ered only a new car 10 years ago. Today, a used car is
no longer just an alternative for customers with small
budgets or people who have recently gotten their dri-
vers licenses. The quality of vehicles is now so good
that used-car customers can expect to enjoy a long
average service life. In addition, a large selection of rel-
atively new used cars is available today.
Generally speaking, the rule for the automotive market
is: no used cars without new cars. Conversely, the new
car business cannot exist without used-car sales. The
trade-in is a key purchase incentive for most new-car
customers and an important component of the financ-
ing package. Automakers who lose sight of the used-
car business or destroy residual value are creating a
threat to their entire business, one of the surveyed
importers noted. For this reason, they should develop
a used-car strategy that underpins their business
model. Errors in vehicle production (recalls) or in new-
car sales (rebates) also put a strain on the used-car busi-
ness.
Used-car sales can offset cyclical swings in the new-car
business as well. One of the interviewed experts even
described it as a commodity futures exchange. In the
examined markets, the number of title transfers in
2008 fell at a lower rate than among new-car sales. As
a result, the market share of used cars has grown. This
is the case in Sweden. Last year, the lots of used-car
dealers there were packed. Today, somewhat of a vehi-
cle shortage exists. According to the Swedish associa-
tion for motor retail trades and repairs MRF the number
of vehicles fell from 50,000 in December 2008 to
37,000 in April 2009.
In terms of engineering, there is little that separates rel-
atively new used cars from new vehicles. As a result,
there should be no fundamental difference for private
customers in the choice they make between the two,
auto experts say. Frequently, though, emotional factors
and the ability to individually configure a drivers
dream car are the decisive factors leading to the pur-
chase of a new car. In our market research (Study 3), 61
percent of surveyed new- and used-car customers stat-
ed that they wanted to pick out the equipment for
their cars themselves. Thanks to the Internet, the used-
5 | Growth market: used cars
The European used-car business is a growth market. Given the quality of the vehicles and the
huge supply of relatively new cars from commercial businesses, used cars are a true alternative to
new cars. Dealers are slowly taking advantage of their opportunities but losing sight of middle-
aged vehicles that are three to eight years old.
The used-car market is an extremely important
part of the auto market. (a consultant)
The manufacturers have a strategic interest
in the used-car market because they must
protect their brand equity.
(a trade association spokesperson)
Dealers who upgrade their used-car
business enhance their new-car sales.
(a consultant)
16 |
USED CARS | FROM OUTSIDER TO MARKET DRIVER.
When does a new car become a used car?
For cars, the line between new and used is blurred. Many
of the surveyed experts do spontaneously draw the line at
the first registration of the vehicle. But, when pressed fur-
ther, they also classify single-day registrations as new cars.
Most of them consider demo cars to be new, and these
vehicles are also sold as such. Increasingly, the previous
owner of a vehicle is a dealer or another company and not
an individual driver. For this reason, one of the surveyed
media representatives defines a used car this way: A car
that had a previous owner who actually drove the vehicle.
Generally speaking, used cars can be broken down in the
following way: Young used cars are no older than 12
months. The rest are considered to be normal used cars.
For the used-car customer and the market price, the criti-
cal factor is how many people and what type of drivers
drove the vehicle for what length of time. If the vehicle had
one previous owner, the loss of value is lower. If it had sev-
eral, it is higher. If it is a rental car, the loss is higher. And if
it was an executives company car, it is lower.
| 17
USED CARS | FROM OUTSIDER TO MARKET DRIVER.
car customer now has many configuration options as
well. Forty-one percent of new- and used-car buyers
are interested in having the latest technology and this
technology is offered to them only by a new car or a
relatively new used car. Two-thirds of respondents gave
environmental arguments as reasons for a new car. On
the other hand, they rated the emissions from new-car
production as less problematic, even though the Wup-
pertal Institute has determined that for a midsized car
(10 years of service life, 150,000 kilometers), 20 per-
cent of emissions can be traced to the cars production.
From the customers point of view, the difference
between new cars and used cars remains real. Indeed,
used cars are no longer considered to be second-class
vehicles only 17 percent reject pre-owned vehicles as
a matter of principle. But used-car dealers still have to
contend with a negative image, our baseline psycho-
logical study (Study 1) shows. During group discus-
sions, participants conjured up images of a dense, trap-
filled jungle. Buying a used car is frequently considered
to be an unpleasant experience or is even associated
with a risky gamble, given the markets lack of trans-
parency and consumers wariness. The flip side of the
coin: Qualitative research also reveals that opportuni-
ties are connected to the risks. In this scenario, buying
a used car is an adventure for the customer in which he
or she can end up getting a great deal by shrewdly tak-
ing advantage of the markets freedom. By contrast,
buying a new car is viewed as a rather dry, choreo-
graphed process.
For automakers who have to utilize their capacities,
there is indeed a difference between the sale of a new
or used car, even if economic considerations point
toward a used-car purchase. After all, automakers can
sell their product for a second time in such transac-
tions. In the survey of European buyers of new and
used cars, every third respondent said automakers
could earn more money by selling used cars.
And what about dealers? If they do not specialize in
used cars, they must create a good balance between
their new-car and used-car businesses. In working with
customers who are unable to afford a new car or do
not want one, they can play up the benefits of used-car
ownership. Thanks to the much lower price of the used
car, the smart buyer can acquire a higher-quality
brand or a higher-level model class. In dealing with
customers who have large budgets, the dealers will
instead tout the benefits of new-car ownership. After
all, two-thirds of the surveyed new- and used-car cus-
tomers stated that they would definitely buy a new car
if they had a big enough budget.
All surveyed auto experts agreed that used cars will
play a prominent role in the auto market of the future.
A new study by the magazine AUTOHAUS showed that
more than 60 percent of independent and authorized
auto dealers said they expected the significance of the
used-car business would expand greatly in the future.
Drivers, too, are noticing the growing importance of
the used-car market and the potential awaiting dealers
in our survey (Study 3), 49 percent of surveyed new-
and used-car customers and even 60 percent in Spain.
The used-car market is evolving into a central private-
individual market to the same extent that the commer-
cial new-car business is growing. Authorized dealers are
currently focusing on used cars that are up to three
years old. But one of the surveyed consultants pointed
to the high level of untapped potential offered by vehi-
Used-car sales in Europe are three times as high as
new-car sales
The number of car-title transfers in Europe is about three
times as high as first registrations, with an average number
of 40 million vehicles changing hands (latest data from
2007). The importance of the used-car business is reflect-
ed in the fact that it generates 40 percent of car sales vol-
ume in Germany alone.
The registrations of new cars in Europe have been hurt
by the worlds economic and financial crisis. This year, they
will hit a long-time low of about 12.6 million units. Within
two years, demand for cars has fallen about 15 percent.
The pull-in effect being exerted by government support
programs this year is likely to have the opposite impact
next year. As a result, registrations of new cars in western
Europe could fall to 11 million units the lowest level since
1985. Beginning in 2011, the market can be expected to
recover as economic conditions improve.
The number of passenger cars in Europe has been con-
stantly growing for years. The level of 240 million cars
could be reached this year in spite of the crisis. This trend
is being fueled both by the increasing purchases of a sec-
ond car and the need for a first vehicle in the markets of
eastern and southeastern Europe. In the saturated markets
of Europe, vehicle totals are holding up well amid the sales
crisis because newly registered cars primarily serve as
replacement vehicles and the first-time need for a new
automobile plays a subordinate role.
Source: R. L. Polk & Co.
The used-car market is increasingly turning into
the most important private-customer market.
(an automaker)
18 |
USED CARS | FROM OUTSIDER TO MARKET DRIVER.
cles that are three to eight years old. Given the relative
stability in value here, the inventory risk is lower than it
is for relatively new used cars. Thanks to todays high
vehicle quality, liability for car defects is unproblemat-
ic, the consultant said.
Our market research (Study 2) also showed that 40
percent of European used-car owners acquired their
vehicles from authorized dealerships, 26 percent from
independent dealers and the rest from private individ-
uals. The private market is particularly widespread in
Spain and Sweden. The study found additional evi-
dence of the trend in which used cars tend to be
increasingly sold by independent dealers and private
individuals as they grow older and their price falls.
The leasing of used cars in Europe is just getting start-
ed. Such companies as VB Leasing have already begun
tapping into this growing business. The benefit for the
financing companies: a slower and more consistent loss
of value than for new cars and a lower level of unse-
cured risk. The average share of noncollateralized
receivables for used cars is 15 percent compared with
40 percent for new cars. Forty-six percent of the sur-
veyed new- and used-car customers in our market
research (Study 3) said they assumed that financing
and leasing would increasingly replace cash purchases
of cars including used vehicles.
In the future, large, specialized used-car dealers with
strong brands could take market share away from
authorized dealers. Every second dealer in the
AUTOHAUS study does indeed think that authorized
dealers selling the automakers own used-car brands
will gain market share. But every third respondent pre-
dicted a good future for the used-car business conduct-
ed in conjunction with a dealers own brand. Even
today, dealers are facing competition from leasing
companies like LeasePlan and rental firms that market
their used cars themselves. In Spain, a European leasing
company, ALD Automotive, has already made a name
for itself as a used-car dealer with its own quality cer-
tificate. In addition to the domestic market, used-car
exports could gain significance. Demand is growing
particularly in eastern Europe. |
Used-car sales among authorized dealerships
have mutated into a business with relatively new
used cars out of pure laziness. Sixty percent to
70 percent of vehicles pass dealers by.
(a consultant)
Used-car buyers prefer authorized dealers
(source of a purchased used car; in % of used-car
customers
1
)
1) A total of 991 people from Germany, Italy, Spain, Sweden and the
Netherlands who bought a used car within the past two years.
Source: CARFAX (March 2009).
Large authorized dealer
Small authorized
dealer
Large independent
dealer
Small independent dealer
Private individual
34
27
13
20 6
Italy
Second-largest new-car mar-
ket in Europe with a large
number of relatively new
cars (only one-third are older
than 10 years). Relatively weak
used-car business with high
potential. Share of used cars
in the car business is compar-
atively low (ratio to new cars:
1.3:1). High share of relatively new used
cars, few old used cars on the market.
Registrations of new cars in 2008: 2.18 million
Car-title transfers in 2008: 2.82 million
Three years old or less: 27 percent
Older than nine years: 29 percent
Number of passenger cars in 2008: 31.72 million
Source: R. L. Polk & Co.
| 19
USED CARS | FROM OUTSIDER TO MARKET DRIVER.
Companies that intend to profit from the growth
opportunities offered by the used-car market should
refine their management tools and increase their cus-
tomers trust in them. The surveyed auto experts agree
that used-car dealers can tap huge reserves of profits if
they optimize business processes and emphasize cus-
tomer benefits. Through more external transparency
about the used cars being sold and the support of
strong brands, dealers can gain customers trust. Cus-
tomers who have confidence in the sellers dependabil-
ity show a willingness to pay a higher price for a used
car. Trust strengthens customer loyalty, encourages rec-
ommendations to potential customers and promotes
cross-selling of value-added services like financing,
insurance policies and service packages. Through
shorter turnover times or a higher transition factor in
vehicle inventories, dealers raise their gross yield.
Trust is the key success factor in the used-car business.
As a result of the asymmetrical distribution of informa-
tion the seller knows more about the vehicle than the
buyer customers must be assured that no negative
information is being withheld from them. For this rea-
son, dealers must have broad transparency in their
business, disclose all defects or repair them and cover
all potential problems by offering warranties. After all,
77 percent of surveyed new- and used-car customers
noted in our market research (Study 3) that hidden
defects were one of the main risks associated with the
purchase of a used car. And 80 percent stated that dur-
ing Internet searches they considered only those offers
containing detailed information and photos of the
vehicle. Every other respondent noted, however, that
these expectations are not being met. For this reason,
the motto of the Swedish auction portal KVD is: Its
better to have too much information than not
enough.
But how does the customer know that the dealer is
honest and transparent? Trust develops over time
through personal experience and through the credibil-
ity of a strong brand, including that of the automaker
or an independent vehicle inspector.
In contrast to quality transparency, price transparency
is relatively high in the used-car market. Thanks to
online marketplaces, customers and dealers can check
the current prices of various cars and configurations
backed up by photos, videos and detailed specifica-
tions. Fifty percent of new- and used-car customers
(Study 3) check car prices in online marketplaces, and
60 percent compare the prices of individual dealers.
Most experts welcome the high level of price trans-
parency. They say it promotes the used-car business by
increasing trust. One of the interviewed manufacturers
also recommends that potential customers supplement
the information obtained on the Internet with price
lists from traditional providers of used-car data because
statements made online cannot always be taken at face
value (a come-on offer).
6 | Transparency + brand = trust
The biggest barrier facing the used-car business is customers lack of confidence in it.
This situation can be improved by increasing transparency and gaining the support from strong
brands. In terms of prices, transparency is relatively high thanks to the Internet. But in terms of
the vehicles condition and history, reports by independent vehicle inspectors are needed.
We need more transparency. Customers still
have little faith in used-car dealers. (a dealer)
Offers on online marketplaces need improvement
(rating of online offers for passenger cars;
in % of surveyed users of online marketplaces
1
)
1) A total of 1,846 people from Germany, France, Italy, Sweden and Spain
who have bought a new or used car within the past two years and use
online marketplaces; multiple responses possible.
Source: CARFAX (June 2009).
Only those offers that describe the vehicle in detail are relevant to me.
Meaningful, high-quality photos are crucial for an offer.
The pictures of a vehicle are often meaningless.
Offers frequently contain not enough detailed information.
81
80
55
53
An ideal solution would be something like
computer tomography for used cars. (a consultant)
Transparency is a blessing for the
used-car business. (a consultant)
20 |
USED CARS | FROM OUTSIDER TO MARKET DRIVER.
Most automakers support their authorized dealerships
by offering special used-car programs frequently fur-
nishing a manufacturers certificate, its own brand and
the corresponding marketing to gain customers trust
and increase the willingness to accept prices. The stan-
dards for the brand certificates generally cover specific
inspection processes and inspection areas for vehicles.
Each automaker applies different criteria. From the cus-
tomers point of view, a model like that used in the
United States would be more transparent: Automakers
there have agreed on standards for the Certified Pre-
Owned (CPO) program. As supplementary added-
value services, automakers offer (mobility) guarantees
as well as financing and insurance policies. In practice,
these programs apply only to used cars that are no
more than five years old. Most vehicles are not this old.
The automakers also provide dealers with relatively
new used cars from their own fleets or their commer-
cial business in order to complement their trade-in
vehicles with attractive cars. A few companies have set
up used-car databases that dealers can use to meet the
needs of customers and avoid price markdowns as a
result. Some automakers also centrally manage the
Lemons profit from the lack of transparency
In a market with information asymmetry like the used-car
market, customers willingness to pay is generally lower
than in a transparent market in which sellers and cus-
tomers have the same information. After all, the used-car
buyer runs the risk of ending up with a lemon, a vehicle
with hidden defects. For this reason, he or she will at best
be willing to pay a price that corresponds to an average-
quality vehicle. In turn, the relatively low willingness of
potential buyers to pay scares off sellers of high-quality
vehicles. But if such vehicles are not being offered in the
market, the average quality level of the vehicles for sale
falls, the U.S. economist and Nobel Prize laureate George
A. Akerlof writes in an essay titled The Market for
Lemons. Recommended ways out of this dilemma include
signaling, screening and a balance of interests. Signal-
ing means that the seller of the vehicle provides the cus-
tomer with documents that will raise the customers confi-
dence in the vehicles quality. This could include the seal of
an independent inspector. In screening, customers check
on the vehicles condition themselves by doing such things
as researching the vehicles history and taking a test drive.
Finally, a used-car warranty creates a balance of interests
between the buyer and seller. Regulatory actions can also
offset information asymmetry. As a result, the two-year lia-
bility for defects laid down by EU law provides customers
with more security. But many used-car dealers in Europe
work out a reduction of the time period to one year with
their customers.
Lack of transparency unsettles used-car buyers
(agreement with individual statements; in % of surveyed new- and used-car buyers
1
)
1) A total of 2,675 people from Germany, France, Italy, Sweden and Spain who have purchased a new or used car within the past two years;
remainder of responses to total 100%: undecided.
Source: CARFAX (June 2009).
Hidden or unmentioned faults are a major risk when buying a used car.
When buying a used car, customers can be quickly taken for a ride.
You are likelier to consider a used car if there is independent and credible information about the car and its history.
The used-car market has no organization that stands for transparency and reliability.
The hunt to find a good used car is disproportionately time-consuming.
The used-car market is not a transparent market.
I am willing to pay a certain premium for more reliability when buying a used car.
I only trust in those used-car certificates issued by an independent organization.
53
42
33
41
77
68
60
56
Thanks to the Internet, used-car margins have
climbed. Customers are willing to pay more for
increased transparency. (an importer)
The automakers brand name is even
more critical in the used-car business
than with new-car sales. (an automaker)
| 21
USED CARS | FROM OUTSIDER TO MARKET DRIVER.
reconditioning of used cars so that dealers can increas-
ingly use their service departments for the profitable
end-customer repair business. Furthermore, they offer
training and consultation aimed at improving and
accelerating processes and controlling throughout the
used-car business: vehicle appraisal, reconditioning,
inventory management and dynamic pricing.
All of the surveyed experts rated the credibility of the
automakers certificates as very high. After all, cus-
tomers have considerable confidence in the automak-
ers brands. In such countries as Sweden, though, deal-
er brands sometimes carry more weight than automak-
ers brands do. But the strength of the dealers brands
does not reach that of companies like CarMax or Auto-
Nation that dominate the U.S. used-car business with
their customer-centric business models. They offer set
prices, a 125-point inspection, excellent recondition-
Automakers lend a helping hand to dealers: used-car programs from A to M
Alfa Romeo Audi BMW Fiat Ford Hyundai Jaguar Lexus Mercedes Mitsubishi
Autoexpert Plus Premium Auto- A1 Gechecked First Select Junge Diamant
Selection expert & perfekt Class Sterne
Maximum kilometer total 100,000 150,000 120,000 NA 100,000 195,000 Unlimited 160,000 120,000 NA
Maximum age (years) 7 6 5 NA 7 15 Unlimited 5 6 9
Warranty (years) 1 1 2 1 2 1 2 3 2 1
Inspection program (points) 160 110 72 160 NA 67 140 125 NA NA
Test drive
- - - - - - - - - -
Trade-in
- - - - - - - - - -
Loan/leasing options
- - - - - - - - - -
Mobility guarantee 1 year
- - -
No 1 year NA
- -
No
Right of return (days) No 10 5 NA No
-
No NA No No
Exchange right (days) 14 10 30 NA No
-
14 NA 10 10
Participating dealerships NA 200/38% 600/95% NA 198/64% 160/34% 50/85% NA NA 150
Entry charge for dealers NA 15,000 NA NA No charge 13,000 11,000 NA NA 11,500
Sources: CARFAX and automakers
Used-car programs from O to V
Opel Peugeot Porsche Renault Skoda Seat Toyota VW Volvo
G2 Qualitts- Approved 7 Sterne 1+ eSeat Geprfte First Quality 1
Gebrauchtwagen Qualitt Gebrauchtwagen
Maximum kilometer total 150,000 150,000 200,000 125,000 NA 50,000 150,000 100,000 150,000
Maximum age (years) NA 7 9 4 NA 2 NA 4 7
Warranty (years) 1 1 1 2 1 1 2 1 1
Inspection program (points) NA NA 103 96 NA NA 100 195 NA
Test drive
- - - - - - - - -
Trade-in
- - - - -
No
- - -
Loan/leasing options
- - - - - - - - -
Mobility guarantee
- - - -
No No No
-
NA
Right of return (days) No No No No No No
-
No No
Exchange right (days) 7 14 NA 15 NA No 30 10 7
Participating dealerships 350 75% NA 244/65% 187/35% Not any 441/68% 191/15% NA
Entry charge for dealers NA Individual NA 11,000 NA No charge 14,000 Individual Individual
Sources: CARFAX and automakers (some programs are only available in Germany).
Used-car dealers should not just keep an eye on
their own lot. What I have in mind is a type of
broker who will do such things as search the Inter-
net to find the right vehicle for his customers.
(an automotive journalist)
The automakers brand name is really
important and produces strong customer loyalty.
Marketing budgets are invested well here.
(a financial service provider)
The automakers brand name is even
more important in the used-car business
than in the new-car business. (an automaker)
ing, a guarantee for free repairs, a right of return, a free
vehicle history and financing plans. In Europe some
leasing companies now offer vehicles with their own
used-car certificate. The credibility of an automakers or
a dealers certificate can be increased by providing an
independent technical inspection report about the
vehicles condition, the surveyed experts noted. In
countries like Sweden, an independently issued certifi-
cate is ranked even higher than an automakers certifi-
cate. In our market research (Study 3), one-third of sur-
veyed new- and used-car buyers said they put their
trust in only those certificates issued by independent
inspectors.
Because many customers have doubts and not com-
pletely without justification about the vehicles
mileage and possible past damage, it is recommended
that the customer receive a vehicle history prepared by
an independent provider. Our baseline psychological
study (Study 1) showed that customers first ask a sales
representative or dealer about a vehicles mileage, acci-
dent history, condition and previous owners. The idea
22 |
USED CARS | FROM OUTSIDER TO MARKET DRIVER.
Best practice: BMW Group Belux grows with used-car program
The BMW regional branch for Belgium and Luxembourg has achieved tremendous success with the automaker used-car pro-
gram called BMW Premium Selection. In four years, local BMW dealers have quintupled sales volume for certified used BMWs.
Today, they are even selling more used cars than they did before the economic crisis hit, and their market share in the BMW
used-car market in the Belux region has jumped from 16 percent to 42 percent.
BMW Belux has been working with the group-wide used-car program for five years. All certified used cars are subjected to
a 72-point inspection. The cars also have warranties, a Europe-wide mobility guarantee and an exchange right. The old vehi-
cle can also be traded in, and financing is available from BMW Financial Services. Certification is given only to BMWs that are
less than five years old and have fewer than 120,000 kilometers on their odometers. As a result of the transparency and brand
strength, customers in Belgium are now buying 40 percent of the premium-selection vehicles without even having taken a
look at them in person.
The formula for success at BMW Belux is efficient business processes and a close relationship with the dealers. You have to
have a grip on the processes from start to finish, and you have to do it jointly with the dealers. They have to do their part,
says Jan Horemans, used-car manager at BMW Belux. In the business with title changes, BMW relies on the dealers because
they have an edge in know-how, Horemans says. From the automakers point of view, used cars support new-car sales. Half
of used-car sales in the Belux region involve conquests of competitors. In this effort, BMW Premium Selection appeals to cus-
tomer groups who could not afford a BMW.
Thanks to the groups own information network, potential customers can quickly find the used car they are looking for,
from the Belgium dealer or directly from BMW Germany and BMW Financial Services. Thanks to the large selection, the dealer
does not have to give the customer a rebate, and the vehicle can be delivered from Germany on relatively short notice as a
result of efficient logistics systems. The Belgian dealer pays a wholesale price for a delivered used car. The suggested price for
the sale to the customer is nonbinding, enabling the dealer to set his or her own margin.
BMW spells out the steps in the used-car transaction for its dealers in order to continuously optimize efficiency, speed and
quality of the processes. An Internet-based pricing tool has been developed, and it monitors electronic marketplaces in real
time. It generates the average price and a price forecast for the next few months to facilitate dynamic price adjustment in
stock management. Cost tables listing all costs associated with the used car help the dealer identify savings potential.
Vehicle reconditioning is centralized. The various service departments will recondition used cars only when they do not have
any customer jobs to perform. BMW Belux uses coaches to support the used-car sales force.
This program is complemented by a change management process in order to introduce new procedures in an employee-
conducive manner.
Automaker certificate:
a benefit in the premium segment in particular
(price premium paid for used cars in automakers
programs in the United States; in U.S. dollars)
Sources: CNW Marketing/Research; ADT Automotive; Booz & Company.
Luxury class
SUVs, off-road vehicle
Upper midsized
Minivan
Midsized
Compact
Sports car
Small car
Mini
900
690
400
640
350
1,700
1,190
990
980
Average paid
price premium:
4.8 percent
| 23
USED CARS | FROM OUTSIDER TO MARKET DRIVER.
of a tabular vehicle history (resume, patients
records) was exceptionally well received among peo-
ple interested in buying a used car. Our market
research (Study 2) showed that more than half of Euro-
pean used-car buyers would like to have detailed infor-
mation about accidents, previous damage, repairs and
model-specific problems for their next purchase. And
60 percent of the surveyed new- and used-car buyers
said (Study 3) they would rather buy a used car that
had independent information and a vehicle history. At
the same time, 56 percent complained that the market
lacks independent organizations that could create
additional transparency (see the graphic on page 20).
Used-car dealers would also benefit from such firms.
In addition to certificates, specific commitments con-
cerning damage claims lead to increased customer
confidence: Warranties that extend beyond liability for
defects, free repairs, mobility guarantees, right of
return after the purchase and a return requirement
regarding a later trade-in are ways to promote sales,
experts say. Our customer survey (Study 3) also
showed that the majority of used-car buyers think war-
ranties, free repairs and a right of return offer added
value for used-car customers. For every other used-car
buyer (Study 2), a warranty was the factor that sealed
the deal. It is no wonder because more than one-third
of used-car buyers stated that they had such vehicle
problems as hidden damage, necessary repairs or faulty
information.
One of the surveyed automakers estimated that 30 per-
cent of authorized dealers did not run their used-car
business in a professional, i.e., value-optimizing,
manner and that they gave away potential as a result.
The first areas requiring improvement are purchasing
and trade-ins. A profitable business deal can be created
only if the prices are calculated realistically. In making
the calculation, a realistic price from which expected
costs are deducted should be applied. For instance, this
price can be determined by using the average price
obtained in an Internet search. In addition to trade-ins,
one dealer recommended that dealers should also
make external purchases, particularly at used-car auc-
tions. A best-practice example of real-time price calcu-
lation is vAuto in the United States. The company pro-
vides an Internet-based tool with which used-car deal-
ers can optimize trade-ins, price calculations and inven-
tory management in real time for their individual
Even though a car has been inspected, it can
still have defects hidden previous damage
or a manipulated odometer. (a consultant)
The concept of a car resume makes
perfect sense to me. (a consultant)
A car resume we need something like
that in Spain. (an Internet marketplace member)
Additional information about accidents
and damage wanted
(supplementary information desired before the next
vehicle purchase; in % of surveyed used-car buyers
1
)
1) A total of 991 people from Germany, Italy, Spain, Sweden and the
Netherlands who bought a used car within the last two years; NA not
considered.
Source: CARFAX (March 2009).
Accident history
Previous damage
Information about model-specific problems
Service history
Information about theft of vehicle
Report of the most recent vehicle inspection
Recalls of the model
Information about previous owner (private/commercial)
30
30
25
27
54
54
44
31
A right of return costs little and boosts sales.
(a trade association spokesperson)
Warranties and other added services are important
at purchase time
(important criteria and additional services during
a used-car purchase; in % of used-car buyers
1
)
1) A total of 1,363 people from Germany, France Italy, Sweden and Spain
who have bought a used car within the past two years; multiple respons-
es possible.
2) For particular periods.
Source: CARFAX (June 2009).
Comprehensive warranty from the dealer
Free repairs
2
Right of return for hidden defects
2
Evidence of the vehicles history and quality from an independent certificate
Dealers good reputation
Particularly reliable vehicle
33
31
69
69
52
40
feeder areas. Other improvements must be made in
procurement logistics.
Ideally, deliveries involving external purchases will be
based on needs. In calculating the sales price, the deal-
er must keep an eye on the current market situation
and residual-value trends. But the dealer can operate
within a relatively large price range, Internet research
shows. Generally, prices move in a range of 15 percent
above and below the average price. The key factor is
that the dealer adjusts prices that reflect current rev-
enue potential. The term dynamic pricing describes
a form of revenue management that maximizes overall
revenue by making gradual price adjustments. The
principle is indeed known within the used-car business.
But it is systematically applied by only a few dealers.
Many providers try to gain a high ranking in online
marketplaces by offering the lowest prices. Instead,
they should start out somewhat higher because half of
used cars are sold within the first 30 days! Instead of
remaining tough and waiting until some customer
ventures along, dealers should lower their prices as a
vehicles time on the lot grows and even accept losses
after the vehicle has been on the lot for at least 90
days. Even if a customer does pay the original price
after the car has spent months on the lot, the total loss
has already climbed considerably as a result of the
accumulated costs related to tied-up capital, site rental
and maintenance. As a result of the delay, the dealer
also loses the opportunity to put a more profitable
vehicle on the same place in the lot. As our survey
shows, many dealers underestimate the losses caused
by dust collectors because they do not have solid
controlling data. In many countries, turnover times
have even climbed to more than 120 days.
The focus of conversations with customers should
extend beyond price arguments and extend to the
strengths of the individual vehicle. To underscore the
value of the used car, an excellent presentation is cru-
cial. This applies to online marketplaces as well. Sever-
al of the surveyed dealers are even putting high-quali-
ty used cars in premium spots in the showroom and are
celebrating the handover of the vehicle as they would
a new car.
In the interviews, the sales force was frequently men-
tioned as an area that particularly needs to be
improved. In comparison to a new-car sales represen-
tative, who can concentrate on the configuration of his
or her product, the used-car specialist has to work
harder to position himself or herself with the customer.
The surveyed auto dealers stressed that during the end
phase of the buying-decision process trust in the car
sales representative was the critical deal-closing factor.
Other aspects play only a small role.
But used-car sales representatives frequently lack the
motivation, drive and full-service attitude, the auto
experts stressed. This results from dealers human-
resources policies and the lack of incentives. Good spe-
cialists and managers have tended to be assigned to
the new-car business both at the dealership and in
the automakers organization. The used-car depart-
ment has a lower status in the company and offers
fewer promotion opportunities and lower salaries.
Today, there is a lack of good used-car specialists. Cus-
tomers notice this, too. In our survey (Study 3) 49 per-
cent of new- and used-car buyers reported that new-
car customers receive better treatment than used-car
customers. For this reason, automakers and dealers are
increasingly using coaches and consultants to eliminate
this shortcoming. |
24 |
USED CARS | FROM OUTSIDER TO MARKET DRIVER.
The profits lie in purchasing. (a dealer)
The truth is out on the lot.
(an automotive journalist)
Recommended reading
Dale Pollak: Velocity From the Front Line to the Bottom
Line. New Year Publishing, 2007. The author promotes a
strictly investment-oriented approach to inventory man-
agement and the calculation of trade-ins and sale prices.
Instead of relying on a gut feeling, dealers should focus
on real market data. His practical recommendations are in
line with the CARFAX study. He also provides some other
valuable tips. For instance, he advocates a fixed-price strat-
egy. In taking this approach, the seller increases trans-
parency and promotes customer confidence. Dale Pollak is
the founder of vAuto, a U.S. software provider for used-car
companies.
Friendliness is an important hygiene factor.
(an automotive journalist)
| 25
USED CARS | FROM OUTSIDER TO MARKET DRIVER.
Best practice: CGP improves earnings of used-car dealers through coaching
Christof Gerhard & Partner (CGP) advises automakers, dealerships and importers in the used-car business across Europe. With
the 6P strategy (profit, products, personnel, processes, presentation and promotion), the company helps used-car dealers
increase their gross yields. By professionally determining procurement prices, all direct and indirect costs and the sales prices,
all costs can be lowered and earnings increased. Christof Gerhard promotes the use of dynamic pricing as a part of profes-
sional inventory management that methodically reduces the number of slow sellers. The other processes in the auto dealer-
ship are systematically optimized as well. Employee training facilitates sales just as a good presentation of the vehicle and cost-
efficient advertising do. The example of a German dealership of premium cars shows the earnings reserves unleashed by
dynamic pricing alone (money amounts in euros).
1. Analysis and simulation
1.1 Analysis of current price strategy for 100 vehicles
Turnover time category Purchase price Repair costs Sales price Units Gross revenue
030 days 10,051 2 11,160 18 20,137
3160 days 11,855 4 11,824 16 550
6190 days 15,967 3 16,058 11 932
91120 days 18,522 18,074 4 1,929
More than 120 days 19,703 16,343 51 172,038
All categories 16,265 1 14,731 100 153,448
average 1,534
1.2 Simulation of the dynamic price strategy for 100 vehicles
Turnover time category Purchase price Repair costs Sales price Units Gross revenue Price
change
030 days 10,051 2 11,460 20 28,151 300
3160 days 11,855 4 12,024 20 3,304 200
6190 days 15,967 3 16,058 15 1,328 0
91120 days 18,522 17,574 5 4,740 500
More than 120 days 19,703 16,343 40 134,415 0
All categories 16,265 1 15,201 100 106,373
average 1,064
Potential profit per vehicle 471
Potential profit for all sold vehicles 53,666
2. Test in the dealership: revenue trends after the introduction of CGP price tools in March 2009
January 2009
Turnover time category Units Turnover time/unit Gross revenue/unit GR
1
in % Gross revenue
030 days 41 10 1,161 7.2 47,612
3160 days 32 41 317 2.8 0,130
6190 days 16 76 584 4.4 9,336
91120 days 10 105 132 0.6 1,317
More than 120 days 60 251 2,511 12.3 150,687
All categories 159 120 518 3.1 82,292
March 2009
Turnover time category Units Turnover time/unit Gross revenue/unit GR
1
in % Gross revenue
030 days 56 12 1,641 8.6 91,877
3160 days 19 40 633 3.5 12,021
6190 days 11 75 751 3.8 8,263
91120 days 14 105 1,019 5.8 14,271
More than 120 days 47 216 1,791 9.3 84,157
All categories 147 94 93 0.49 13,733
1) GR = gross revenue Source: CGP.
26 |
USED CARS | FROM OUTSIDER TO MARKET DRIVER.
Spain
Share of used cars in
total auto sales is rela-
tively small (ratio to new
cars: 1.6:1). A young
used-car market with fast
growth. A trade associa-
tion expects used-car ratio
to reach 2:1 in two to three
years.
Registrations of new cars in 2008: 1.07 million
Car-title transfers in 2008: 1.72 million
Three years old or less: 22 percent
Older than nine years: 42 percent
Number of passenger cars in 2008: 22.31 million
Source: R. L. Polk & Co.
Sweden
Relatively high number of old cars (43 percent
older than 10 years) and high share of used
cars in the car business (ratio to new cars:
4.6:1). Many old vehicles in the used-car
business. Strong position of private
used-car market as a result of online
exchanges. Auction model successful for
relatively new used cars. Strong used-
car exports. CARFAX offer launched.
Registrations of new cars in 2008: 0.25 million
Car-title transfers in 2008: 1.16 million
Three years old or less: 14 percent
Older than nine years: 53 percent
Number of passenger cars in 2008: 4.25 million
Source: R. L. Polk & Co.
| 27
USED CARS | FROM OUTSIDER TO MARKET DRIVER.
If the used-car business succeeds in gaining customers
trust and improving its business processes in accor-
dance with automakers, then an economic potential of
up to 140 billion can be created in Europe. This figure
was also confirmed by our survey. Furthermore, rev-
enue opportunities can be exploited through the cross-
selling of added-value services.
We asked all auto experts about the current revenue
and earnings potential of the European used-car mar-
ket. In the process, we drew a distinction between the
potential on the customers side and the sellers side.
How much more would used-car buyers be willing to
pay for a vehicle if they had faith in the dealer and the
vehicle for sale? And how large are the efficiency
reserves that could be tapped by improving the organ-
ization of the used-car business? This also includes pro-
viding better protection to residual value by using
demand-driven new-car policies and increased support
of used-car sales by automakers.
According to our customer survey (Study 3), 41 per-
cent of surveyed new- and used-car buyers are pre-
pared to pay more money for a used car if all informa-
tion about the vehicle is accurate and no hidden
defects are expected to be uncovered. A survey by the
Swedish trade association MRF found that customers
would pay up to 10 percent more for a used car if it
came with a comprehensive warranty.
In terms of customers, our experts estimated the
potential at about 5 percent of the used-car price. This
amounts to about 1500 for a used-car price of around
110,000. One point to be considered here is that war-
ranties and inspection reports do generate additional
costs (about 19 to 125). But they also generate addi-
tional earnings and utilization.
For dealers and automakers, the surveyed experts iden-
tified earnings potential of at least 5 percent, or 1500.
Many experts estimated the figure even higher. The
key factor is good inventory management with dynam-
ic pricing. For each day a vehicle spends on the lot, the
surveyed experts calculated costs of about 115 per
vehicle arising from lost value, financing, facility man-
agement and maintenance. Once a vehicle has spent
7 | Market potential of 140 billion and more
The European used-car market has a potential of an estimated 240 billion. On average,
21,000 more can be earned on each vehicle through customers increased willingness to pay
for reliable vehicles offered by a transparent auto business as well as through more efficient
management in the car market.
The used-car market huge potential
and immense margins. (a financial services provider)
We must better position ourselves in the market.
Right now, authorized dealers are the lowest-price
sellers in todays used-car market. Interestingly,
the most expensive ones are private sellers.
(an importer)
Adjust service and supplies to the new-car
business! (an automaker)
More value creation through value-added services
Just like the new-car business, the used-car business offers
dealers the opportunity to increase revenue by offering
value-added services. The sale of additional warranties,
mobility guarantees, insurance and loans is effective and
easy. Car insurance creates revenue opportunities for deal-
ers in aftersales when the policy has a service-department
clause in it. Based on the experience of an automotive-
business consultant, every insurance policy generates an
average of 11,800 in accident and body repairs in three
years.
At the moment, lending conditions for used cars are
generally worse than for new cars, which is partially the
result of the fact that used-car buyers pay less attention to
financing costs than new-car customers do. But one of the
surveyed automakers recommended that service packages,
insurance and loans for used cars be made just as attractive
as they are for new cars in order to improve the competi-
tive position. Dealers who can rely on automakers own
banks have an edge. Experts disagree about whether bun-
dled products are advisable for the used-car business.
Offered as a complete price, a package is more of an
impediment as a result of customers high price sensitivity.
On the other hand, a monthly used-car flat rate similar
to full-service leasing could be attractive.
90 days on the lot, the costs have climbed well above
11,000.
With about 40 million title changes occurring in Europe
(including Great Britain) annually and with a potential
of 1500 on the customers side and 1500 on the sellers
side, economic potential of 140 billion arises. This
volume can be tapped by taking strategically opti-
mized steps. The CARFAX study identifies the areas for
action. |
28 |
USED CARS | FROM OUTSIDER TO MARKET DRIVER.
Components for more earnings from used cars
(earnings opportunities in the European used-car business; shares not in proportion)
1) For instance, through the networking of dealers with automakers used-car databases or through needs-based purchases.
Source: CARFAX.
Customer: an increased willingness to pay of about 3500
Seller: about 3500 in savings potential
Meaningful information
Vehicle history
Technical inspection report
Automaker certificate
Warranty, exchange right
Excellent reconditioning, presentation
Needs-focused assistance, flexible configuration
1
Efficient processes
Market-driven purchasing
Realistic cost forecasts
Market-driven sales prices
Turnover-time optimization
Dynamic pricing
Higher earnings
Savings
With 40 million title
changes, overall
European potential is:
340 billion
| 29
USED CARS | FROM OUTSIDER TO MARKET DRIVER.
An action plan for the automotive industry
1
|
Systematically calibrate car production with demand. Consider trends like climate change
and new mobility concepts, but more importantly: Increasingly integrate the customer into
product development!
2
|
Consider the marketing of vehicle returns (new used cars and leasing vehicles) and trade-ins
during central volume planning.
3
|
Sharpen the focus on the customer and put together suitable service and financing packages
for used cars, too. Offer individual and user-oriented customer assistance with well-trained
sales representatives.
4
|
Design a transparent and consistent rebate system.
5
|
Increase transparency and honesty in the used-car business: Demonstrate the vehicles con-
dition and history by using strict inspection standards and independently issued certifications.
Intensify customer confidence by drawing on trusted partnerships with strong brands.
6
|
Reduce the purchase risk in used-cars transactions by offering additional services:
warranties, mobility, guarantees, right of return or exchange.
7
|
Organization and employee development in the used-car business: Promote and refine
used-car functions and specialists.
8
|
Optimize business processes at used-car operations, particularly in terms of vehicle receipts,
stock management, dynamic pricing and presentation. Take an investment- and market-oriented
approach.
9
|
Pay increased attention to middle-aged used cars (from three to eight years old) and add
shares of the private market in the process.
10
|
Strengthen customer loyalty through customer satisfaction, additional services, aftersales
contacts and loyalty-facilitating measures. The used-car business is part of brand loyalty.
30 |
USED CARS | FROM OUTSIDER TO MARKET DRIVER.
The experts
We would like to thank the decision makers and experts from the European automotive industry
who shared their knowledge with us in extensive discussions at their home markets.
Dr. Florian Bauer
Member of the Board
of Vocatus AG
(Germany)
Mikael Bjurek
Head of Marketing
at Byt Bil Nordic AB
(Sweden)
Gerardo Cabaas
Director General
at Autoscout24.es
(Spain)
Dr. Martin Endlein
Senior Editor
of GW-trends at
Springer Transport
Media GmbH
(Germany)
Christof Gerhard
Managing Director of
CGP Christof Gerhard &
Partner GmbH & Co. KG
(Germany)
Dan Bennman
CEO of
Byt Bil Nordic AB
(Sweden)
Holger Bhme
Member of the
Board of Directors,
Head of Sales of
Renault Germany AG
(Germany)
Fabrice Cambolive
Directeur Commercial
at Dacia-Renault-
Nissan Roumanie
(Romania)
Eladio Fernndez
Head of Used Cars
at Ibericar Mapfre
Multicentro Automvil
S.A. (Spain)
Matthias Gleichmann
Project Manager
Research & Analysis
at TV NORD AG
Institute for Automotive
Technology and
Mobility (Germany)
Dr. Udo Birkner
Managing Director
of VB Leasing
Finanzierungs-
gesellschaft mbH
(Austria)
Dr. Volker Borkowski
CEO of
AVAG Holding AG
(Germany)
Dr. Joachim Deinlein
Principal at
Booz & Company
(Germany)
Claude Fournis
Managing Director
at Groupe Claude
Fournis Automobiles
SA (France)
Jan Horemans
Pre-Owned Business
Manager at BMW
Belgium Luxembourg
NV/SA (Belgium)
Herv Martin
Director of Used Cars
(through June 2009),
PSA Peugeot Socit
Anonyme
(France)
Stefan N. Quary
Managing Director
of DRKOP GmbH
(Germany)
Peter F. Schmid
CEO of
mobile.international
GmbH/mobile.de
(Germany)
Martin Verrelli
Head of Group
Remarketing at
Volkswagen AG
(Germany)
Toms Herrera Ricoy
Director General
of GANVAM Asociacin
Nacional de Vendedores
de Vehculos a Motor
(Spain)
Dr. Michael
Trautmann
Managing Director
and Co-Founder of
kempertrautmann
GmbH
(Germany)
Alexander von
Waldenburg-Dresel
Manager of Sales
Network Analysis &
Concepts at Audi AG
(Germany)
Janis Zarins
Marketing Manager
at Upplands Motor
Uppsala AB
(Sweden)
Matthias Wissmann
President of the
German Association of
the Automotive Industry
(VDA) and former
German Minister of
Transportation
(Germany)
Sylvain Massardier
Secretary General
of Conseil National
des Professions de
lAutomobile CNPA
(France)
Jrg Plathner
Member of the Board
at Motor Presse Stutt-
gart GmbH & Co. KG
(Germany)
Hans Johnson
Frordnad
vrderingsman
(certified appraiser)
at KVD-Kvarndammen-
Bilauktioner AB
(Sweden)
Tom Kedor
Managing Director
of MOTOR-TALK GmbH
(Germany)
Jan Lv
Deputy Director
of Upplands Motor
Uppsala AB
(Sweden)
Csar Rivero
Sales Manager
of Commercial
Mercedes-Benz S.A.
(Spain)
Tomas Ulander
Manager Car Division
at Motorbranschens
Riksfrbund MRF
(Sweden)
Thomas Werthmann
Managing Director
at MAHAG Automobil-
handel und Service
GmbH & Co. KG
(Germany)
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CARFAX Europe
CARFAX Europe was founded in 2007 together with Christian Schmitz and Frank Brggink, who are the managing
directors of the Munich-based company. CARFAX Europe was the rst company in Europe to provide vehicle history
information for used cars in the form of online reports an independent tool that makes buying and selling used
cars more efcient, reliable and transparent across Europe.
Taking a neutral and objective approach, CARFAX Europe combines a wide range of vehicle-related data to provide
customers with the most comprehensive vehicle information possible. CARFAX vehicle histories also offer sub-
stantial advantages to private sellers of vehicles, commercial used-car dealers, vehicle manufacturers, government
agencies and insurers. Consumer protection, road safety and the prevention of vehicle-related crime are enhanced
over the long term.
In Europe, the service is continuing to expand in cooperation with public partners, trade associations and companies
in the automotive industry. In the United States, CARFAX Inc. has been the market leader in vehicle histories for
over 20 years.
Musiol Munzinger Sasserath
Musiol Munzinger Sasserath is a leading independent implementation-oriented brand consultancy.
The rm helps to develop sustainable value for their clients brands. Based on exceptional brand knowledge and
brand management expertise, Musiol Munzinger Sasserath collaborates with companies to successfully manage
their brands and to develop organizations. Brand ideas are then effectively and efciently communicated through
leveraging powerful signals to all relevant channels.
Musiol Munzinger Sasseraths business expertise covers automotive/mobility, consumer goods, nancial services,
retail, service industries, utilities, IT/telecommunications, industrial goods and technology, media and entertainment,
pharmaceuticals and healthcare and organizations.
F.A.Z.-Institut fr Management-, Markt- und Medieninformationen
The F.A.Z.-Institut fr Management-, Markt- und Medieninformationen is a key information and service partner for
businesses, associations and organizations with a comprehensive range of specialist magazines, analyses, events
and consulting services. As a fully owned subsidiary of the Frankfurter Allgemeine Zeitung GmbH, the F.A.Z.-Institut
is committed to the high quality standards of one of Europes leading media companies.
Four editorial areas provide journalistic expertise and customized print and online publications in German and
English. The F.A.Z.-Institut fr Management-, Markt- und Medieninformationen prepares studies (often drawing
from management surveys), guidebooks, magazines and newsletters on behalf of companies that focus on the
areas of management, industries, nance markets, PR/communication and foreign economies.