CDK's purchase of Auto/Mate may create a major disruption in the dealer management system (DMS) industry. Here is our take. DOWNLOAD
In the largest buy back action in U.S. history, the National Highway Traffic Safety Administration (NHTSA) and Fiat-Chrysler America (FCA) have agreed that, in addition to paying a $105 million fine, FCA will offer to buy back 500,000 RAM pickup trucks from consumers. The value FCA has to pay consumers for their vehicles is extremely consumer friendly - the original purchase price plus 10 percent, minus depreciation. These values are likely more than the owner could get from a dealer in a standard trade-in valuation.
In looking at the models and years covered by this buyback, it seems that the ages of these vehicles eligible for buy backs range from 2008-2012. An example value provided by the Associated Press, is that “a 2010 Dodge Ram 1500… could fetch $20,000 in a dealer-trade-in, assuming the truck has 60,000 miles on it and is in ‘good condition.’” The article also states that if Chrysler had to buy back even a quarter of the trucks at issue, it could spend $2.5 billion.
There should be a flood of consumers hitting the market ready to take advantage of these terms and purchase new vehicles. The big question is, how many of these consumers will stay brand loyal, and how many will defect to other brands?
This is the biggest such action in history, and, with the severe penalties to the OEM and the mandatory buy back offers, it could cause consumers to consider switching brands. It will most certainly instill doubt in many consumer’s minds about the quality and safety of these vehicles.
The totality of these events creates the “perfect storm” of opportunity for off-brand dealers. There are 500,000 possible car/truck buyers out there for enterprising dealers to conquest. These consumers should be very willing to entertain and investigate other brands. The key is to recognize that this opportunity is on the horizon. Begin efforts to reach out to vehicle owners affected by this buy back offer with compelling reasons why the consumer should consider switching to your brand. As part of the agreement, FCA has agreed to notify owners of eligible vehicles. A well-timed offer, with a solid value proposition, could result in better than normal response rates and conquest sales above the norm.
One thing is for certain -- every FCA dealership presented with a vehicle owner initiating a buy back will do everything within their power to sell these consumers a new vehicle, rather than simply cut them a check and watch them leave. So, stay ahead of your competition -- begin formulating a strategy to identify these consumers and craft a compelling offer for the consumer to bring their business to your dealership. Buy backs on this scale aren’t going to happen very often. Take advantage of the opportunity to gain some conquest sales. With a potential 500,000 of them waiting to happen, there is plenty to go around.