By Scott Penn, VP Business Development, APCO Holdings

Used vehicle sales have always been very important to any dealer’s overall profit model. The current and future challenges to new vehicle volume and service opportunity based on less new cars in the pipeline and lower maintenance EV models will make having a strong used car strategy even more relevant going forward.

One way to maximize profitability on the used car side is to participate in certified pre-owned (CPO) programs. CPO has become an industry standard, and most dealers realize the benefits, including higher profit margins, higher attachment rates for vehicle service contracts, and increased customer loyalty.

Factory-certified programs have enjoyed great success. Dealers differ on how much more price a certified vehicle demands, but most have accepted these programs as a value add. Some dealers only participate to enjoy other benefits tied to the overall manufacturer relationship such as incentives or inventory considerations. With more factory partners looking to extend these programs into other makes and models, a dealer must ask themselves if this is the right direction for their operations with these current trends.

There are benefits to the option of a dealer-owned certified program that should be explored before making the decision to partner completely with a factory partner in this traditionally independent part of your operation. Here are a few factors to consider.

Benefits of Manufacturer CPO Programs

Many dealers choose to participate in the factory-certified program to offer a factory-branded coverage and, in some cases, special rates. This allows the dealer to enhance their franchise exposure and offer an enhanced option that non-brand dealers cannot duplicate. Some have ties to dealer incentives or inventory, but they have traditionally been up to the dealer.

Some manufacturers have introduced new program offers including increased online listings and the ability to certify other make and model vehicles under the dealer’s franchise to add credibility. These are interesting as a new approach, but most demand the dealer only offer this program and there are some disadvantages to the dealer and their independent business model in their pre-owned operations.

While these programs expand the dealer’s options with the factory program, they also limit the dealer’s ability to build a more exclusive offer and maximize their profit model. Factory partners are seeking a more direct-to-consumer model with new vehicle ordering and delivery. This is becoming a reality for new car operations but is that the right partner for the traditionally independent used car strategy for a dealer?

Benefits of Third-Party CPO Programs

A strong third-party certification offer can allow the dealer to accomplish the same goals with better overall control, less up-front cost, a unique value proposition, and better overall financial benefit to their operations.

Some dealers worry that the customer will not see the same value in a dealer-branded program as they would in a factory-branded option. However, there are other make and model options with a strong third-party brand that can be considered, such as MotorTrend Certified Vehicles.

The benefits of these programs include the following:

1) Ability to certify more vehicles

Pre-owned sales have seen a surge in higher mileage vehicles being offered as a standard option in most dealers’ inventory mix. Other make and model programs can offer a way to build a certified option with deeper eligibility in both age and mileage for these vehicles. A dealer can even gain a consistent message with a certified and dealer guaranteed approach that highlights the very expensive reconditioning efforts that most dealers employ to sell a reliable product. Are you currently getting the proper credit for this considerable investment?

2) Lower certification costs

In most cases, another make and model certification strategy can considerably lower the cost for the dealer in the initial certification expense related to complimentary mechanical coverage that is offered with the sale of the vehicle. The initial investment can cost half of a factory option. There are even lower options possible based on the set up of the program.

The dealer can opt to build in additional benefits and services to display a more robust dealer guarantee with certification as the anchor of this larger value proposition as opposed to the factory certification being the only focus. How many other benefits and services can be highlighted when the dealer has their own strategy?

3) Better profit model

The dealer usually has a reinsurance option with another make and model partner that includes an option for participation in limited warranty production as well as the sale of service contracts. Some of these certified limited warranties are shorter-term coverages that can help with the availability of these investments sooner to “supercharge” the dealer’s current program.

4) More digital retail sales

Most people agree that the trend of customers completing the entire transaction online will continue to grow. Even in the current state of digital sales, more customers are making the vehicle selection decision before reaching the dealer’s point of sale environment.

The ability to specialize your certified offer into a larger overall value package will be more critical than ever as customers consider their choices online. A dealer strategy that defines the certified program as an anchor to a larger total dealer value proposition can help set this important part of a dealer’s operation apart.

Most dealers have a bigger story to tell that includes their reconditioning investment and other considerations that greatly benefit the customer. Your program should tell that entire story, even if the customer is in front of a computer screen instead of a salesperson when this critical stage is happening.

Execution of the Strategy

Used vehicle listings and views are very important. But when every vehicle has a similar value proposition, price becomes the main differentiator. Your entire staff must be able to deliver the message, why buy here…why buy this vehicle…why buy now? This must occur during every customer interaction on-site, online, and over the phone.

Your listing and your staff must be able to provide the story of how your vehicle was inspected, how your vehicle has been enhanced, and how your vehicle will be backed to maximize your pre-owned marketing strategy. The manufacturer typically bases their training support entirely on the “what,” as in, “What does this vehicle come with?”

The right partner for a certified program can help train the why; “Why this vehicle and why this dealer?” And the how; “How does this dealer stand behind their vehicle before and after the sale?” The right strategy should have the right partner and needs to be executed the right way.

About the Author

Scott Penn leads APCO Holding’s sales and finance training initiatives for its retail customers. Penn has more than 25 years of experience in the automotive sales, finance and insurance industries.

Author: Christine Corkran

Digital Dealer