As originally appeared in Autosphere on November 23, 2022
Leverage the power of CPO to bolster dealers’ used car business
Certified Pre-Owned vehicles have proven highly popular with both dealers and customers. Offering many of the benefits that come with a new vehicle, such as a manufacturer-approved warranty and a very detailed safety and inspection process to be deemed “certified,” consumers also love the fact that traditionally, CPO vehicles cost less than their brand-new equivalents.
Revenue and prestige
For many years, CPO programs have been both a source of solid revenue and prestige for dealers, until the COVID-19 pandemic came along and turned the market on its ear. New vehicle inventory shortages, driven by production slowdowns and then a big surge in demand for vehicles, put pressure on used vehicles. Customers who traditionally gravitated toward new cars were forced to look elsewhere, namely at CPO vehicles. This resulted in significant price increases in used vehicles and impacted dealers’ traditional approach to CPO programs.
“Due to the demand we’ve seen [for used cars in general] over the last 18 months, and the increase in values over that time, CPO programs have not been as highly utilized as they were in the past because the opportunity to sell a vehicle quickly, in general, has been so common, certification programs weren’t required in many cases,” explains Daniel Ross, Senior Automotive Analyst, Vehicle Valuations & Residuals, at Canadian Black Book.
Yet while such hot demand and resulting high profits have been a boon for dealers, nothing lasts forever. As new vehicle inventories slowly normalize, it will reduce pressure on the used market, in fact, we’ve already seen prices cooling as inflation and interest rates start to bite, which means dealers will need to look at other strategies for bolstering their used car business.
A key one, of course, is CPO. Jake Stacey, Vice President of Sales & Training at LGM Financial Services, says that dealers who take advantage of CPO programs “effectively ensure retention to their service department because of the warranties these programs include.”
Better service retention
She notes that not only have dealers witnessed a decline in new vehicle sales over the last 18-24 months, but also fewer service visits. “We know that fixed ops are where dealers tend to really make their money,” she explains. CPO vehicles can prove to be an excellent service retention tool, due to the warranty the dealer offers on these programs, encouraging customers who purchase such a vehicle to return to the selling dealership for warranty and maintenance work.
Trevor Henderson, Chief Operating Officer at KAR Global, notes that, as new vehicle inventory levels stabilize, he expects more off-lease vehicles (prime for CPO) to flow into wholesale channels. This benefits both dealers and consumers on the used car side, and—along with growing numbers of off-lease corporate and rental vehicles hitting the market,—will provide more opportunities for dealers to put consumers into Certified Pre-Owned late-model used vehicles, backed by manufacturer warranties and other F&I products that offer these buyers peace of mind and many advantages of a new vehicle.
Greater emphasis on value
Additionally, as Jake Stacey notes, as we enter a recession and higher interest rates and inflation force consumers to tighten their belts, more and more will be looking at value when it comes to their next vehicle. She says that due to the surge in leasing we’ve seen during 2022, savvy dealers can really leverage this demand to bolster business long-term. “The management of lease portfolios becomes critical for dealers, because that portfolio, in terms of how it is turned over and remarketed, is the future of their used car inventory.” And, she says, it is the quality of the CPO programs that dealers can offer, which will really be the linchpin in ensuring the long-term success of their used car operations.
