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2018 NADA chairman talks opportunities, challenges in used-car market

March 23, 2018
Wes Lutz, the 2018 chairman of the National Automobile Dealers Association, said dealers in the coming year will be challenged by the number of off-lease vehicles landing on dealer lots.
"The return of a record number of off-lease vehicles will be one of the biggest challenges dealers will face, but it’s also one of the biggest opportunities," said Lutz.
"Obviously, the number of lease returns will put a lot of pressure on new-car sales, and used-car sales will likely increase because of the influx of late-model, lower-priced trade-ins returning to the market," Lutz said.
"But there’s also a great opportunity because we are a little over capacity on the new side right now. The key for dealers will be properly managing their inventories."
And inventory, it will be plentiful.
Cox Automotive is anticipating 3.89 million off-lease units in 2018, which would be up from 3.59 million in 2017. While that’s more than an 8 percent hike, the growth in off-lease volume is slowing down a bit.
Off-lease volume in 2017 was up more than 16 percent, following a more than 22 percent gain in 2016, according to data in a Cox Automotive presentation. Still, 2018 is expected to be a record year for lease returns, according to Edmunds.
It could also be another record year for certified pre-owned sales, helped in good part by that off-lease volume, which tends to be the bread-and-butter of CPO inventory.
In January, Cox Automotive economists said they were expecting about 2.7 million CPO sales in 2018. If that comes to fruition, it will be the eighth straight year of record CPO sales. According to Autodata Corp., there was an estimated 2,645,718 CPO vehicles sold in 2017, compared to 2,642,986 sold in 2016.
That’s a gain of just 0.1 percent, but it was enough to bump certified sales to their best year on record.
"One of the biggest industry trends right now is lease returns, which will likely result in the eighth consecutive year of sales increases (for CPO). CPO sales are driven by the influx of late-model used cars coming off lease," Lutz said. "I’m confident that we’re going to have another strong year for used-car sales."
Lutz is the president of Extreme Chrysler-Dodge-Jeep-RAM in Jackson, Mich. Asked how top dealerships, including his, have handled increases in off-lease volume, Lutz points to CPO.
"The rise in off-lease volume and subsequent CPO sales is an opportunity for both dealers and car shoppers," Lutz said. "There’s a substantial price difference between a new vehicle and an off-lease vehicle.
"The manufacturer-backed CPO programs offered at new-car dealerships provide consumers with numerous options for an affordable, late-model and low-mileage vehicle under factory warranty along with competitive financing rates and other perks," he said.