Lexus is flexing its CPO muscles

As sales grow, luxury brand ups game

As sales grow, luxury brand ups game

An ad campaign aims to introduce Lexus’ L/Certified to consumers.

Lexus, one of the pioneers in aggressively promoting certified used-vehicle sales, is raising its game.

The brand rebadged its Lexus Certified program as L/Certified about two months ago, General Manager Jeff Bracken said. The program also got a new logo and supporting ad campaign.

The move reflects the growing volume and importance of certified vehicles on dealership lots across the industry. Growth is expected to accelerate this year with a rise in off-lease vehicles, the bread and butter of luxury brands’ certified programs.

Although final sales figures were not available by press time for this issue, certified-vehicle sales set a record in 2015. Through November, U.S. industrywide CPO sales totaled 2,326,372 units, up 8.7 percent from the year-earlier period and less than 16,000 units shy of the 2,341,596 certified units sold in 2014, which was the fifth straight record year for CPO sales.

Growth has been fueled in part by a rising supply of off-lease vehicles, a trend that will accelerate in 2016.

J.D. Power and Associates estimates that final numbers for 2015 will show that the number of vehicles coming off-lease grew by 4 percent, or nearly 95,000 units, to 2.3 million. The tally will increase almost 800,000 units in 2016 and then 285,000 more in 2017, J.D. Power forecasts.

Lexus, its mass-market brand sibling Toyota and both brands’ dealers are preparing for their share of the onslaught of off-lease vehicles.

The luxury brand expects a record-breaking 119,562 off-lease units to return to the market in 2016, up from an estimated 88,518 this year.

Likewise, Toyota, which has a separate certified used-vehicle program, expects to handle a record 290,000 off-lease vehicles in 2016. That’s about double the number it expects will have returned to the market in 2015, said Bill Fay, Toyota Division general manager.

Lexus and Toyota dealers are ready to handle the additional volume, Fay and Bracken agreed.

But a little extra effort should help. Renaming Lexus’ CPO program as L/Certified is a way to create excitement and bring attention to Lexus used cars and light trucks, Bracken said.

“Even though the volume is greater, it is good profit,” he said. “Dealers see it as a profit opportunity as opposed to a problem.”

Fay said the increased number of Toyota off-lease vehicles “should push our certified sales past or close to 400,000 next year,” which would be a first for the brand.

Toyota Motor Sales U.S.A.’s dealerships — which sell Toyota, Lexus and Scion vehicles — buy about 65 percent of the automaker’s off-lease volume in online and physical auctions that are open only to those dealers, a company spokesman said.

Because some dealers buy off-lease vehicles outright without registering them through Toyota Financial Services Inc., the actual number is higher but hard to track, the spokesman said.

The captive finance company has programs to accept vehicles at the end of a lease and then, if the grounding dealership that took physical delivery of the vehicle doesn’t want to buy it, to offer them for sale first to dealerships selling that same brand, then to the broader community of Toyota and Lexus stores before auctioning the vehicle to dealerships selling other brands. It is a common practice in the luxury segment, where brand managers are loath to see their vehicles sold alongside econoboxes at other brands’ dealerships.

Fay said the elevated number of Toyota Division off-lease returns, coupled with its ToyotaCare 2-year/24,000-mile, factory-scheduled and factory-paid maintenance plan, ultimately gives the company the opportunity to sell more new vehicles by attracting shoppers to the brand.

“We think it’s going to be a great retention opportunity for us,” Fay said.

Bracken said the Lexus certified program’s new name is derived from the company’s “L” logo. L/Certified is being introduced to consumers using TV commercials and in online banner ads. TV spots will run from time to time, especially during the summer when a disproportionate number of off-lease vehicles will return to the market. Newspaper print ads are ready if dealers want to run them.

The timing and placement of those commercials and advertisements will depend in part on the needs of Lexus dealer advertising associations in individual markets, Bracken said. “L/Certified will never be a big part of Lexus national advertising,” he added.

Online ads for Lexus certified used vehicles on sites such as autotrader.com and cars.com tout L/Certified with a hint of elegance. One online ad reads: “Hand-selected. Meticulously inspected.”

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