The certified pre-owned vehicle market has experienced consistent growth over the last several years. At J.D. Power, we expect to see this trend continue in 2019. The new-car affordability squeeze felt by many consumers contributes to the growing appeal of used cars.
The demonstrated ability of CPO vehicle programs to provide better margins, enhance brand loyalty and improve relationships with owners could emerge as a critical success factor for automakers, dealerships and other players across the automotive value chain.
CPO Protects OEM Brands
Every major automaker maintains a CPO program to remarket their off-lease vehicles. Vehicles are inspected, reconditioned when necessary and warrantied.
CPO programs also provide OEMs a terrific opportunity to not only protect the brand, but also to get an early start on building brand loyalty among used-car shoppers.
J.D. Power research documents a significant positive difference in the allegiance consumers have for a brand following CPO purchases compared with non-certified alternatives. It is a sentiment that carries bottom-line implications as CPO vehicles consistently deliver higher profit margins.
Brand Loyalty is 10 to 12 points higher for CPO vs. non-CPO equivalent. Profit margin is approximately 0.75 points better for CPO, even higher for premium nameplates.
As a result, we see a growing number of OEMs explore how they can expand CPO activities from being a peripheral “bolt-on” activity to becoming a more integral element in their go-to-market business strategy.
Auto executives are placing greater effort into assessing benefits built into CPO programs and are strategically evaluating the warranty offerings for these vehicles to ensure they are in line with growing customer expectations in the secondary marketplace.
Enhanced Dealer Relationships (When Consumers Know)
The opportunities for dealers are just as compelling. CPO extends and deepens the dealer-customer relationships by moving beyond the purely transactional nature of conventional used-vehicle sales.
CPO initiatives create a halo effect for the dealerships that offer them. The programs have a track record of creating repeat customers who are more likely to stay loyal to their brand. Interestingly, however, consumer awareness of CPO initiatives is remarkably low.
Forty percent of shoppers surveyed last year indicated they were at best “slightly familiar” with CPO. That number rises to more than 50% for buyers age 34 and under.
Given the significant benefits that CPO can deliver to OEMs, dealers and consumers, a clear opportunity discovered by our most recent CPO studies is to identify and engage with target audiences that stand to gain the most from these initiatives through:
- Consumer Education. Take every opportunity to communicate the value that CPO programs bring to consumers.
- Enhanced Training. Invest in training sales teams to integrate the CPO discussion into the customer engagement process to reap significant rewards.
- Dealership Promotion. Ingrain and reinforce the CPO message to as many customers as possible. It puts consumers on the path to the enhanced ownership experience that builds dealership loyalty. (Wards Industry Voices contributor Andrew Stowe, left)
J.D. Power collects and analyzes retail-transaction data from thousands of automotive franchises. That data quantifies the benefits of CPO programs for manufacturers and dealers.
Andrew Stowe is senior director at J.D. Power.