Porsche, Luxury Rivals Push Used Cars

For a couple of reasons, used cars are a growing priority for luxury-brand automakers like Porsche. First, many people who buy high-end, expensive cars tend to graduate from a used car to a new one. Second, used cars are an important profit center for dealers, especially when new-car sales are slow. Finally, as leasing has become common, it’s important for car companies to protect used-car values.

In leasing, the customer effectively borrows the difference between the upfront cost of a vehicle and what it’s projected to be worth at the end of the lease. The more a used car is worth at the end of a lease, the less the leasing customer has to borrow, which in turn lowers monthly payments.

Luxury auto brands are also promoting the sale of off-lease cars and trade-ins as “certified pre-owned” cars, or CPO for short. Unlike most used cars, CPO cars are inspected and refurbished by the dealer, and come with a warranty. That can add $1,500 or more to the price of a luxury car, but many customers feel the additional comfort level is worth it.

In all, the luxury brands are trying to get their new-car dealers to sell more used, off-lease vehicles. That keeps them out of the hands of independent used-car dealers who can give the brand a bad name, and away from wholesale auctions where prices are rock-bottom. If the actual market price of a vehicle coming off lease is lower than the automaker and its finance company expected, the automaker can incur a loss.

I spoke in New York on May 28 with Mick Pallardy, vice president for the eastern region for Porsche Cars North America. Pallardy, based in Herndon, Va., is responsible for Northeast markets from Virginia to Maine. The following are edited excerpts:

BNET: Do people really move up from used cars, or is there a used-car mindset that says, “I’ll only buy used, let somebody else take the hit on depreciation”? (According to Automotive Lease Guide, the average new car depreciates 40 percent as soon as it’s purchased, or 55 percent after three years.)

Mick Pallardy: It’s (Porsche is) really an aspirational brand. Certified pre-owned is how a lot of people first gain access to the brand. About 60 percent of CPO customers go on to buy a new Porsche. If you include all used cars, not just certified pre-owned, it’s 70 percent.

BNET: How much is an average car worth after a certain amount of time? Is there a rule of thumb?

MP: It’s hard to say specifically, because we have so many different models and so many different trim and equipment levels. For the 911 (model), especially, we have people scouring the country for a specific model, or a specific feature, or a specific color. They look all over the country, they have all these online tools, they look all over, and when they find what they’re looking for, they’ll either come get it, or pay somebody to ship it to them.

BNET: I read that Porsche had record sales for CPO (691 cars in April 2008, versus 548 in the year-ago month; 6,581 in 2007, versus 6,114 in 2006).

MP: Just about every month is a record.

BNET: Are you pushing that program?

MP: We have programs in place (to encourage the dealers to buy CPO vehicles and sell them at retail). For the next fiscal year we will also be enhancing the CPO warranty, to something that’s in keeping with the brand. You don’t want it to go to the independent (used-car) dealers, because of the customer handling. You want the customer handling to be in keeping with the brand.

SourceBNET.com