Brian Benstock was at a Honda meeting in the late 1990s when he went to a small breakout session attended by only about 15 of the 1,000 dealers at the event.

What he learned that day hooked him into the certified pre-owned market.

“The guy who was giving the seminar talked about this concept: the franchise within a franchise. To me, it just resonated because I was a young general manager and wanted to be a dealer. And I realized the incredible costs involved in being a dealer: from working capital to blue sky to facility,” he told Auto Remarketing.

“I would really like to shake his hand, and I don’t know who it was, to be honest with you,” he said of the breakout session leader. “But he talked about, ‘There’s no capital investment required. What you’re going to do is you’re going to streamline and provide a consistent product for your customers. And by doing that, you’re going to have a franchise within your franchise.’

“So as a relatively young guy, a GM, I thought, ‘Wow this is great. No investment needed.’ I had no money in my pocket at the time, so ‘no money’ spoke to me,” explained Benstock, who is now the minority owner of Paragon Honda and the vice president and general manager of Paragon Acura in Queens, N.Y.

“You didn’t need factory approval, so there wasn’t this long laborious process of getting approved, and you could pretty much start right then and there,” he continued. “And I would say that’s exactly what we did.

“We went back to the dealership and started right then and there,” he added. “And we’ve been on a great acceleration ever since.”

And so has the CPO industry.

About a decade-and-a-half later, Paragon Honda has been the automaker’s top-selling CPO dealer every year since 2007 and is on track to claim that title again this year.

As for the certified industry itself, it has blossomed into a powerful market segment that has posted annual sales of more than 1.5 million units each year since 2003.

As Auto Remarketing celebrates its 20th anniversary, we take a look at how the certified pre-owned industry has taken form during this time frame and shed some light on its evolution.

Early Days of CPO

Marv Ingram — credited as one of the certified program pioneers from his days at Lexus — can attest that it wasn’t easy for the certified industry to get off the ground.

Ingram — who retired from the OEM this spring but now serves as vice president at Carcannon — said that during his experience with Lexus, there was some push-back from dealers who didn’t exactly jump feet first into CPO. Granted, some dealers came right aboard, but the bulk “were slow to come around.”

“In the beginning, they didn’t see the value. We had to sell them on the value. And then they had to sell the value to consumers. It took a long time,” Ingram said. “Dealers would be in and out of the certified program. At one time you’d have 100-percent, and then you’d go back and have half your dealers doing it.

“And so it was just constant education of the dealers, but it also came from the manufacturer,” he continued. “We really supported this, and we were fortunate that our dealers  made a lot of money, and so when we introduced the program and showed them how they could make more money, they kind of took our word for it.

“It was just a steady process. I don’t think anything was the triggering point, it just took a lot of effort, a lot of repeat effort,” Ingram added.

Ingram said it took “a lot of time and  a lot of effort” to prove to dealers that it was worth the additional costs to certify a vehicle.

“But most of all, I think what they saw once they started selling certified vehicles is that their grosses improved, obviously,” he stated. “But we didn’t stop there, we did CPO sales consultant training. And once we trained the sales consultants, then they helped us train the consumers.”

Ingram said it took “probably five years” for CPO to catch momentum at Lexus after the automaker officially launched its program in 1993.

“It’s now become a norm. Customers will go in and ask for a certified vehicle, where before they knew nothing about it,” he noted.

Larry Pryg — national manager of GM Certified Pre-Owned Operations — was not with General Motors when it launched its certified offering in 1997, but he said the automaker experienced similar challenges in its early days of CPO.

It took several years for momentum to build, he said.

It was 2002 when CPO sales really took off, eclipsing the 325,000 mark that year, according to Autodata Corp.

GM would go on to sell more than 420,000 certified vehicles each year between 2004 and 2008, before dipping down to 303,541 certified sales in 2009 and 297,791 sales last year.

Through September of this year, certified sales for all GM vehicles — its four core brands plus the discontinued Pontiac, Saturn and Hummer brands — have totaled 231,952 units, which is 1.6-percent stronger than the first nine months of 2010, Autodata indicated.

“The key thing was customer awareness — what the program was, because no one really knew. And then dealer support,” Pryg said of GM’s growth in CPO. “Those were the two key things that everybody had to overcome, whether it was GM or anybody else.”

Speaking on how GM got its dealers involved, Pryg said: “It was the same formula in terms of success as it is now,” meaning the automaker had to communicate with dealers as to how the program benefited them and ensure that dealers, in turn, explained to the customer the value that comes from paying more and getting a car certified.

“And then on the dealer end, they had to be profitable with it, and they were. And they had to then also have an opportunity to sell additional service and parts,” Pryg added. “So the formula hasn’t changed too much. I think we did a decent job at communicating with dealers through the sales organization and through our huge dealer network … and building the value of the program.

“But it took several years before the sales results where what I would call significant,” he stated.

‘Educating the Masses’    

The key to overcoming the dealer push-back was education, Ingram said.

As he puts it, “educating the masses was a never-ending battle,” and it started with Lexus using traditional advertising to promote its certified program. By 2003, however, the brand had put into motion steps to switch from traditional advertising to utilizing Cars.com and AutoTrader.com.

These sites added CPO as an additional category beyond new and used and offered informational pages, Ingram said.

“That really helped a lot. People would go to their websites, and they would find certified as a category. You could find out about our program initially, and then all the other manufacturers joined in,” he explained. “That’s what helped. People aren’t going to buy something unless they know what it is, and at one point, they really didn’t’ know what it was.”

In fact, Ingram suggested consumers believed CPO to simply be a warranty. Shoppers had to be educated on the full spectrum of benefits that a certified vehicle could offer.

“They really thought it was just a warranty. Well it’s much more than a warranty. You have all these elements in your program, and so the customer finds out all these other benefits they get. And so then it became popular to buy a certified car,” Ingram said.

Sales Leap

That popularity translated into big-time sales.

According to data from 2000–2009 from Autodata Corp., certified sales picked up some steam in the early-to-mid 2000s.

Autodata emphasized that its data from 2000 and 2001 is not complete; however, for the first full year of complete data, which was 2002, there were 1.29 million certified units sold.

The following year, CPO sales climbed 14 percent and came in at 1.47 million. Every year since, the certified market has moved more than 1.5 million units annually and reached a peak just under 1.7 million sales in 2008.

CPO sales totaled 1.53 million in 2009 and then jumped 7.1 percent last year to finish at 1.64 million.

This sum came in below the peak levels experienced from 2006 to 2008, but through September of this year, certified sales have already hit close to 1.31 million, according to Autodata.

When asked what sparked the growth in CPO over the last decade or so, Benstock had this to say.

“The manufacturers have been forced to get involved in this. By doing that, you’ve got some efficiencies that we didn’t have before. We’ve got some marketing horsepower.  I know on the Honda side, the number one source of CPO customers is Honda.com,” Benstock noted. “So now Honda.com has this great availability of products for the customers, again making it easier for the customers to view the products.

“In addition to that, it’s just simple time. People buy a CPO car, buy it from a credible manufacturer like Honda … and they realize when they have a problem, they have the full manufacturer there behind them,” he added.

Today’s Challenges

While yesterday’s biggest challenge might have been getting dealers and consumers to buy into the notion of certifying a car, today’s certified market presents a hurdle of a different sort.

Arguably the most visible and pressing of these hurdles is finding enough used cars to certify.

Ingram said he has never seen supply so sparse. The leasing downturn from the latter part of the last decade has resulted in low off-lease returns in today’s market. As many can likely attest, lease returns are often the lifeblood of CPO supply.

“When your main stream of product dries up, then you really have to go out and search for it,” Ingram said.

Offering some advice, Ingram said that if he was a dealer, he would start with his existing service customers and look for two- to four-year-old vehicles with good service histories and mileages in the 40,000-mile ballpark.

“I think if dealers went to their service department and looked through their service records and pulled up those vehicles, they would be surprised how many certifiable vehicles that are out there,” Ingram said, noting that it is a good source to not only find the used car, but also generate the new sale.

Benstock concurred, saying his service lane is still a prime avenue to find CPO-worthy cars.

“People go to the bank for money because the money is there. I go to my service department for cars because the cars are there,” he said. “That is not going to ever end. I’m surprised, again, on my part that it took me so long to figure it out.

“I feel it’s my obligation to present the value proposition to them, where we could perhaps give them a new car with much more equipment, much better gas mileage, much better safety for a similar or lower monthly payment,” Benstock added.

Web Presence

Pryg touched on another element in the CPO business that has changed greatly since  the segment’s early days: the presence of the Web. As Ingram alluded to, Lexus switched to the Web to get the word out about CPO, which helped spread the message.

But the Web has also led to a more educated consumer.

“I think the biggest difference is the Internet. The used-car business has changed so much over the past five to seven years where customers really have access to so much information,” Pryg said.

“The dealers that are usually the most successful with the program now are the ones that are very transparent with consumers and have the consumer’s interest at heart right from the beginning. GM is really pushing hard to try to make sure we have the most satisfied customers on the planet. And part of that is being very transparent with them and very open and honest,” he continued.

“I’d say the biggest impact on the business on our end of  is the Internet awareness of our customers of what cars cost and what’s been done to them,” Pryg added, noting that “we’ve had to change the mindset of dealers on the used-car lot,” to being more open and transparent.

CPO Surge Surprising?

Looking back at nearly 20 years of the CPO market’s history, Auto Remarketing asked Benstock, Ingram and Pryg if they were surprised at how much it has grown.

Each had something a bit different to say.

Starting with Ingram, he said he did expect it to be as big as it is now.

“I really did,” he said. “It’s now a norm, where before it was the exception. Almost every dealer sells certified vehicles. And in most cases, it’s going to be 65 percent of their pre-owned brand. I know with Lexus, our dealers do sell some non-certified vehicles, but of those pre-owned brand vehicles, probably about 65 percent are certified. And you have some dealers where it’s 80 percent.”

Meanwhile, Pryg took it a step further.

“Quite frankly, I’m surprised it’s not bigger,” he commented.

“The annual certified sales range for the industry has grown, but it’s still a fraction of the cars that are sold,” Pryg surmised.

“Of course, not every car can be certified. So you have to take out the ones that can’t be certified and the ones that don’t qualify, but there are still more than can be,” he continued.

Wrapping up with Benstock, the New York dealer said he’s not shocked that CPO has grown like it has, but he is surprised about one thing, in particular.

“I’m surprised it’s taken dealers so long to come on board. It’s logical: organizing a sales process and organizing pricing and the way we prepare cars has created obvious efficiencies in the market. With those efficiencies should come an explosion of sales,” he said. “And it absolutely has.”