I am writing this homebound, the way most Americans are working these days, and, like everyone, I am worried about how long and how protracted this COVID-19 health and financial crisis will last.
In particular, the forecast for the automotive industry in general, OEMs, dealers, remarketers is particular distressing. Well-seasoned (a nice way of saying old), I’ve lived through at least four major downturns and panics in this business of ours, but this one is very unique. In all the others, there was a prescient lack of buyers.
In this one, dealers for the most part, can’t sell in the usual way with an open showroom, only with “remote” digital sales, and most are not equipped to do a purchase transaction without interaction.
It’s not just a question of the right technology platform, but in most states, there are legal restrictions on making the transaction completely “touchless” and no one to my knowledge has really mastered things like online F&I.
Most importantly, right now, in this time of financial distress and uncertainty, consumers, particularly for used vehicles, are really not conditioned to buy in this way (no selection of test drives, etc.), and, more critical, most are understandably deferring any purchase that requires a lot of cash or any long term financial commitment, such as a long term car loan or lease.
So, it is probably understandable why JPMorgan Chase predicts that the flow and pipeline for used car sales will stay “gummed up” for quite a while.
As the Conference of Automotive Remarketing (CAR) 2020 was set to explore in March, there are new strategies and tactics that remarketers can use to enhance resale value, and while untried in volume in mainstream channels, what time better than in current conditions to explore options?
When the only alternative is selling off-lease vehicles at a tremendous loss, or parking them betting on a quick recovery, trying new techniques seem particularly appropriate - limited downside, and, if successful, the upside could lay the foundation for a permanent new value enhancing channel.
I don’t think its by accident that some of the best new innovations, and start-ups for that matter, were born out of necessity during dire economic downturns. It is true that crisis promotes creativity for survival, and invention is born out of necessity.
Innovitive Remarketing Tools
The panel that I was slated to moderate at CAR 2020 focused entirely on a strategy for remarketers and the needs of consumers and car dealers, all through technological innovation not available even a few years ago.
Ironic, in that not only would information on this strategy, being practiced by innovators, be particularly timely during this crisis and residual value melt down, but the very nature of this particular down turn, lends itself to now more potential consumer “buyers” for used off-fleet vehicles, than during normal business times.
Specifically, the panel was created to address how savvy remarketers could create a new channel for any vehicle that is underwater, where the actual cash value is significantly below book value, by offering it up, through dealers, as a rental unit with an option to buy, where some of each rental payment is put towards the purchase price (established in advance), should the renter chose to buy the vehicle.
A totally in-app rental experience all done on a smartphone, this was originally designed to tap the vast subprime market of buyers, who lacked the down payment, or credit rating to buy a car immediately, but naturally desired the ease of buying in-app, with choice and transparency, that all car buyers crave, marked by the popularity of new high growth car retailers like Carvana.
On the panel topic, we highlighted that ride-share drivers and subprime buyers represented a perfect, very large market for folks who rented vehicles out of necessity, but really wanted to buy. Indeed, this was the “low hanging fruit” when we introduced it to the market over a year ago now.
However, in these very stressful times, the market for a “touchless” all in-app rental with an option to purchase, appears to have broadened out exponentially, as would be vehicle buyers show a major apprehension for both their physical and financial health.
First, a completely remote “touchless” transaction is the requirement in most “at home” states during the coronavirus now. Car showrooms are closed to the public all over the country, so an online or better yet, in-app all digital approach is a necessity.
Second, everyone, regardless of credit score or current employment status, is nervous about buying anything right now that requires either a lot of cash or a long-term financial commitment such as a car loan or lease.
Yet replacement transportation is required (leases come due, vehicles are totaled or break down), and the prospect of a traditional rental, where all money is paid in with nothing to show for it, seems a less worthwhile experience for “deferred” buyers who intend for a sales transactions when things return to normal.
One additional benefit to the remarketer, the longer this type of rental continues, the more certainty there is that the renter is a “captive” customer of the dealer, with the intent to purchase the vehicle – who would walk away from a few thousand dollars equity built up over time, especially now. So this will keep the remarketed unit completely out of wholesale channels, which raises the value of those remaining at auctions.
The alternative to the consumer purchase isn’t bad either, as, at worst, you get a vehicle written down dramatically lower than it was when it entered long term rental – note: you set all the parameters as to the rental, purchase option sale price, amount of the rental payment accruing towards the sale price, allowable miles, etc. – who better to know how to best set the terms to write down the vehicle at a profit, than the original financier or fleet management company.
So, whether you call it a monthly rental with an option to buy (with some of the paid in cash going towards the preestablished purchase price), or a monthly lease with a buy out option, its good business for everyone – remarketers, dealers, consumers.
The platform and technology is in place, operating, available today, for remarketers to test this out immediately with retailers. All it takes are used vehicles that need to be remarketed, which, if what I read is true, there may be quite a few coming down the road.
About the author: John F. Possumato is founder of DriveItAway, which creates platforms and applications enabling automotive remaketers to offer new mobility options, including remote rental and rent-to-purchase options, through automotive retailers