Certified Pre-Owned (CPO) programs are no doubt beneficial to consumers as they help mitigate some financial risk when buying a used car. But why would a dealer principal want to implement a CPO program at their dealership?
1. Competitive advantage
Having a CPO program makes a dealership more competitive than one without. Automotive consumers tend to opt for the more risk averse option when shopping for a used vehicle, so if your dealership sales staff can guarantee that a used car has gone through extensive safety and quality assurance checks, the vehicle becomes more appealing to the customer than purchasing a non-CPO vehicle from somewhere else.
Your dealership’s used car inventory then benefits from three key factors to differentiate your inventory from independent dealer inventories:
- An OEM grade inspection done on the used vehicle.
- An OEM extended warranty is included with the vehicle.
- An OEM subvention available with better interest rates.
2. Resale impacts help sell new cars
Having a CPO program at your dealership will in turn help you sell more new cars. Let’s break down how this works.
A CPO program allows you to sell used cars above the market price due to the guaranteed quality and safety assurance. With a consistent program in place, the overall market value for used cars will increase in the medium term. Such an increase will impact the residual value of your leased cars which will also be trending up.
Down the road, a higher residual value on used cars means that new models will depreciate at a slower pace. The main benefit of a high residual value will be that lease cost for future lease customers will go down. With lower payments, your lease offer will become more attractive and will be affordable for a larger pool of prospective customers.
In times when consumers have lower budgets, such as periods of inflation, being able to offer more attractive prices will be instrumental in making more sales.
3. Build future inventory
As a result of having reduced lease payments, CPO helps build a dealership’s lease portfolio. A larger lease portfolio means that the dealership has more cars they can buy back at the end of their lease term, resulting in an increased future used car inventory. Especially when there is a shortage of new vehicles to be sold, having a steady lease portfolio is key to maintaining a healthy inventory of vehicles from your brand.
A large inventory also attracts more customers to your dealership because of the larger variety of models, model years, colors, and odometer readings you’ll have in stock. For example, if a customer is looking for a particular model of vehicle, and they know that dealership A has 13 models in stock whereas dealership B only has 2 models in stock, chances are the customer will shop at dealership A because the likelihood of finding the right vehicle is higher there.
4. Service department profit
CPO programs bring profit through other departments in the dealership as well, particularly the service department. When reconditioning a CPO vehicle, the dealership will supply any parts that the vehicle needs – which helps increase their volume of OEM parts (bonus!). The service department then gets to work on the repair, which allows the dealership to earn profit on the vehicle’s reconditioning.
Now that the vehicle has been reconditioned the dealership can justify the labour exuded in the service department because the car’s value has gone up (CPO certified) and is more attractive to customers, resulting in more sales above market price.
Additionally, due to the lower number of vehicle sales following the COVID-19 pandemic and the chip shortage, service departments will also be seeing less customers in the years to come. However, not only does the CPO program bring revenue to the service department during the vehicle’s initial reconditioning, but it also builds retention and more consistent work for the service department as the customer returns for maintenance with their CPO warranty.
5. Build retention
CPO really is a win-win situation for both the dealership and the customer. The key is to help customers understand how they benefit from buying a CPO vehicle vs any other used car.
Once they understand the careful inspection and reconditioning process that the vehicle went through, they will feel much more confident to drive this vehicle home. They will also gain peace of mind knowing that this used vehicle comes with a warranty that is backed by the manufacturer. This really goes a long way towards building trust with the consumer and will build loyalty and retention.
Learn how to implement a CPO program
LGM Financial Services’ (LGM) Dealer Development Managers (DDM) are trained specialists in implementing CPO programs at dealerships.
To get started with LGM’s Certified Pre-Owned (CPO) program at your dealership, please reach out to your local LGM DDM.
