We all know today’s automotive market is tricky to navigate. As margins compress and sales slow, your job is to make sure that when consumers do decide to purchase a vehicle, they’ll purchase from your dealership. Of course, that’s all great in theory. Making it happen in practice, though, takes a complete understanding of exactly what today’s consumers are looking for.
And these days, consumers are looking for certified pre-owned (CPO) vehicles.
The CPO sector is thriving, with an estimated 3 million consumers currently in the market for CPO. And that number is only getting bigger. Three million more vehicles are expected to come off lease in 2016, which could expand the CPO market to 5.2 million consumers by 2020. That’s 5.2 million reasons to make CPO a cornerstone of your dealership. Because consumer demand for CPO is so high, it creates a major opportunity to increase your profit margin on used vehicles — all while improving consumer satisfaction and loyalty.
But if that’s the case, why do CPO vehicles only make up 21 percent of used vehicle sales at franchise dealerships? In my opinion, the biggest reason is this: Many dealers don’t know how to create a CPO program that meets consumers’ needs. Fortunately, those needs aren’t complicated — in fact, it all comes down to three things.
1) Stocking the Right Vehicles
Consumers don’t go shopping for warranties — they find a car in the make and model they want, and then they consider options like CPO. To build a successful CPO program, focus on stocking the most attractive vehicles possible. Because no matter how good your CPO program is, it can’t make up for a bad car.
What makes a CPO vehicle compelling depends on your market, but most consumers expect the basics: manufacturer or dealership certification, detailed inspection, extended warranty. Still, to really knock it out of the park, you’ll have to think bigger. The best CPO candidates are your most in-demand used vehicles: popular makes and models, in top condition, with the latest technology.
A good warranty won’t make a bad car more attractive, so if you’re stuck with slow-moving inventory, CPO isn’t the solution. But for in-demand inventory, certifications can increase a vehicle’s value, making your best inventory — and your profit margins — even better.
2) Offering the Right Benefits
The importance CPO consumers place on vehicle quality reveals one important trait about their purchase habits: They prioritize value over price. By choosing CPO, consumers prove they’re willing to pay more for a car that goes beyond the basics. So why not build in a benefits package that adds even more value?
The most effective CPO benefits packages address these three areas:
—Maintenance. 57 percent of used car shoppers choose a CPO vehicle because of the safety the warranty provides. Offering free oil changes, one-year cosmetic damage protection or tire damage coverage can enhance that safety benefit, encouraging more consumers to take the plunge into CPO.
—Security. Peace of mind is a deciding factor for 64 percent of CPO consumers. Certifications and warranties provide some security, but your benefits package can take it to the next level. Features like GPS tracking, vehicle alarm notifications or engine failsafe mode can provide the security CPO consumers crave.
—Concierge. Consumers want a safe and secure vehicle, but they also care about their overall ownership experience. Offering services like loaner vehicles, free car washes or vehicle pickup for service appointments can increase consumer satisfaction; it also boosts your retention potential. If your benefits package covers all three segments, the results could be bigger than you think. Great benefits packages have been shown to increase CPO purchase interest by 38 percent!
3) Listing the Right Price
While consumers clearly understand the value of CPO, too many dealers underestimate the profit potential of this key market segment. The average consumer is willing to pay $3,000 more for a CPO vehicle than for the same vehicle without a certification. Dealers, on the other hand, estimate that increase at just $1,260. By recognizing the value consumers place on CPO, most dealers could be earning $1,740 more per vehicle than they currently are!
Because CPO vehicles are so compelling, they can sell with a higher price tag … and they sell faster, too. On average, a frontline-ready CPO vehicle sells in 30 days — five days faster than an ordinary used car. That increase in velocity raises dealers’ number of inventory turns from 10.4 per year to 12. In other words, by certifying your used vehicles, your dealership can earn the equivalent of an extra month and a half of selling time.
True, inspecting and certifying used vehicles requires some initial investment. But with the combined benefit of higher price tags and faster turns, CPO’s small upfront cost is more than worth it.
It’s easy to see why today’s consumers are so interested in CPO. These reliable, safe, high-quality vehicles are a great fit for millions of consumers looking to purchase. And if your dealership delivers the right vehicles and the right benefits for the right price, there’s no end to the value you can earn.
Rob Christman is the fixed operations director of sales at Cox Automotive.