February's U.S. light-vehicle sales were 7% below the same time last year. Through February 2003, year-to-date sales are down 4.6% compared to the same period in 2002. All this, while many manufacturers were increasing customer incentives.
A Reuters story says, “Rebates, interest-free loans and other incentives U.S. automakers have used to keep sales robust for much of the past year may be losing their allure, just as the industry braces for a slowdown.”
To most of you, this is old news. Most of us know first-hand of the decreased effectiveness of new-vehicle incentives.
So, if the new-vehicle sales rate is decreasing, what's a dealership to do? How is that lost gross replaced? I think the answer is certified pre-owned vehicles.
I admit delaying before jumping on the certified bandwagon. But whoever thought we would see subvented finance rates, co-op advertising and multi-year extended warranties on used vehicles?
Let's do the math. According to industry sources, 2003 used-vehicle sales should total 43 to 44 million units or approximately 2.75 used for each new unit. Franchised dealers delivered more than 1.2 million certified pre-owned vehicles in 2002, almost double 2001 sales.
Selling such premium-priced units has many benefits, including parts and service revenue during the reconditioning process. The extended warranty will bring customers back to our shops during a time in the life of the car when they often would go to independent shops for service work.
A major benefit of certified is the lack of the factory invoice, thereby negating our favorite type of advertising.
Having pointed out these additional benefits, the sales process should go more smoothly. For as long as I can remember, rookie or less experienced sales personnel were often reluctant even to attempt to sell used vehicles due to many factors. Today, being able to reassure customers of the vehicle condition, extended warranties, and price value removes a tremendous amount of doubt and reluctance from the sales person.
From a management standpoint, we cannot forget the basics of used-vehicle inventory management when getting into the certified business. Due to the fluctuations of the used vehicle market from week to week, we should only buy enough inventories to sustain us for a short period. No more than 15 days. In other words, start slowly.
We know from years of NCM research that the highest gross profits from used-vehicle sales occur during the first 18 days a vehicle is in inventory.
So, it is imperative that you have a process in place to recondition and certify the vehicles within 72 hours maximum. Once certified, the sales force needs to become familiar with each vehicle and aggressively try to retail them immediately.
Many dealers are now keeping a priced certified unit in the showroom with a poster on an easel listing the benefits of buying certified.
One very important reminder: Just because a unit has been certified, don't ignore the effect of aging. Again due to the dollar fluctuation in the market, I recommend a 30-day-and-out policy on certified units.
Granted, you'll probably have wholesale losses at this period. But compared to 60 days later, what is your loss? The best method for preventing large used-vehicle wholesale losses is to apply the practice learned with just-in-time parts. We can reduce our stocking level on fast moving parts (used vehicles) and replace them on very short notice.
Certified pre-owned vehicles are here to stay. They'll only become a larger part of our business going forward.
By recognizing the rewards, getting into this business might be one of your best moves ever, and it may potentially replace the lost revenue you are experiencing in the new-vehicle department.
Tony Noland ([email protected]) is the president and CEO of NCM Associates, Inc.