Currently, used-car certification programs are now available through most, if not all, major car manufacturers and are joined by numerous warranty companies touting their own versions of vehicle certification.
The certified pre-owned market has broken sales records in each of the past five years, and all data point towards 2016 as another record-breaking year for CPO sales.
Typically, any used car sold through an OEM CPO program or off-brand warranty company will cost more than a used car that is not certified. There are several reasons why such vehicles command a premium in the used-car marketplace. This article will discuss the factors that drive up those costs and, more importantly, increase perceived value for consumers
Certifying a used car requires a financial investment by the dealership in the unit itself. With so many dealerships focused on price compression and turning vehicles faster, adding any additional cost to a vehicle becomes a critical financial decision on the part of the dealership. For dealers in the current highly competitive marketplace, differentiating themselves from competitors and winning over the consumer have become essential to survival.
Wowing the consumer, while keeping the right vehicles on the lot, maintaining value in the car and offering a fair deal is what turns vehicles faster and allows for profit to be made.
In The New Gold Standard, by Joseph A. Mitchelli, the author speaks about how the Ritz-Carlton Hotel Company “wows” their clients: “Customer satisfaction is not enough to ensure business success. Recent research ash shown that customers who are only ‘satisfied’ with a company’s service are far less likely than customers who are ‘extremely satisfied' to remain loyal to that business.”
Specifically, Mitchelli states that customers who reported that they were “extremely satisfied” with a business, were two-and-a-half times more likely to make future purchased from that company.
In the automotive business, there are three major differentiators that move a consumer from satisfied to extremely satisfied at a dealership. They are: vehicle inspection, extended warranty protection and emergency service/roadside assistance. Let’s take a closer look at the value each of these affords.
If a used vehicle meets specified mileage and age requirements, a vehicle history check is performed to ensure the vehicle’s title is clean. If the vehicle history report is clean, the vehicle is then thoroughly inspected by a professional mechanic at the dealership and any failed components are repaired or replaced.
The vehicle is then reconditioned inside and out, with the goal of making it as close to new condition as possible. The vehicle history report and the report detailing the certified used-car inspection and reconditioning process are supplied with the vehicle at the time of sale.
Extended warranty protection
Many CPO programs extend the length of the original manufacturer’s warranty coverage. The extension of coverage typically includes the limited powertrain warranty, which covers the engine and transmission. It may also extend the original “bumper-to-bumper” limited warranty, which covers those components of the vehicle, other than the powertrain, that are not subject to normal wear and tear (tires, brakes, belts, fluids, etc.). Alternatively, some CPO programs offer a separate warranty covering the vehicle against defects for a specific range of time/mileage.
Emergency service/roadside assistance
In addition to extended warranty coverage, CPO programs often include 24-hour roadside assistance, and sometimes provide additional perks such as towing, key lockout, battery jump, trial subscriptions to satellite radio or Internet services, free scheduled maintenance, or courtesy transportation in the event the vehicle requires repair for a covered item.
Additionally, some CPO programs provide a money-back guarantee, allowing a vehicle buyer to return the car within specific time and mileage limits and to choose a replacement vehicle form the dealer’s selection of CPO vehicles.
Value to the customer
Buying decisions made by today’s automotive customers are influenced by several critical considerations: Can they trust the dealer? Is the vehicle safe? Can they be secure in knowing that they’ll be able to maintain the vehicle and their lifestyle in case of an emergency?
When the consumer understands that the dealership took the time to inspect the vehicle, and complete and document the repairs, this creates a level of trust with the dealership. If the dealers is willing to take the time to care for these vehicles, then the perception is that the dealer has put customer needs and satisfaction first, which leads to a higher transaction satisfaction.
Gilbert Fairhorn, author of Leadership and the Culture of Trust, suggests that social factors and self-serving practices have eroded the confidence that consumers place in businesses. Taking the additional time required to put a vehicle through a rigorous safety inspection bridges the trust gap between consumer and dealer.
With vehicle safety recalls taking the lion’s share of automotive news, toady’s buyer needs to know that their car is safe. They want to be assured that their significant other, their children, as well as themselves, will be in a vehicle that was inspected, repaired, and certified as safe to drive.
Having access to a detailed and itemized checklist of all items which were inspected by a professional mechanic, and a car that has passed this inspection or has been brought up to those standards, appeals to today’s car buyers. Furthermore, backing this with a warranty adds additional peace of mind that the purchase is safe and reliable.
A recent Harvard study reports that American families judge themselves financially vulnerable: almost half of Americans felt that they were unlikely to access $2,000 in 30 days in the event of an emergency. According to a new Bankrate.com report, “Almost two in three Americans don’t have enough savings to pay for a $500 repair or a $1,000 emergency room bill.” In other words, if most people in the U.S. have a catastrophic breakdown, they would be unable to pay for repairs for a month! Car buyers are looking for the security of knowing that, in the event of an emergency, they would be covered and taken care of.
We began this discussion by stating that CPO prices are higher and enumerated the various reasons why and what this provides the car buyer. Other contributing factors to price are that these cars, sold through dealership under CPO or off brand warranty, are newer models with lower miles. They have been thoroughly inspected with vetted title histories, are reconditioned to as close to new condition as possible, are equipped with extended warranties, and offer additional services that are unavailable for used vehicles not sold through a CPO program.
Whether or not paying extra for these services is worthwhile to the consumer, is really based on their needs and risk aversion. By offering consumers a higher level of trust, safety, and security certified pre-owned sales continue to see record transactions, and thus it is apparent that these sales are filling a need now demanded by record numbers of car buyers.
Rob Christman is the fixed operations director of sales at Cox Automotive.