I have yet to talk to a franchise dealer that doesn't want to improve the bottom line in the pre-owned department. This makes sense, with new-car margins being what they are.
A subject that always comes up (after inventory control and sales processes) is certified pre-owned. Can it help? Like everything else in today's business environment, that depends.
With respect to CPO, most dealers seem to fall into one of three categories:
- Dealer 1 doesn't see any real value in certification and cannot justify the additional cost to the pre-owned vehicle inventory. But he or she will use it to close an occasional deal, take advantage of a subvented rate, qualify for a factory program or certify just enough to keep the manufacturers remarketing rep off their back. In any case, the dealer will not certify a unit until it's sold. Oddly enough this is usually the same dealer that complains about being unable to find any “real” pre-owned vehicle sales people these days. (Think there is not a connection?).
- Dealer 2 certifies most of the qualifying units in stock up front and likes the programs the factory offers, but doesn't seem to be realizing an increase in gross or units. The sales force is aware of the certified process and uses it in a limited fashion to build value during the walk-around. The sales managers find a certified makes a good switch vehicle at certain times of the year. The dealer knows there are others out there doing a better job with CPO and would like to be one of them.
- Dealer 3 has jumped in with both feet. This dealer treats CPO as if it were a “second franchise.” This dealer didn't just fill up his lot with certified vehicles, slap a certified sticker on, tell his sales staff to “go get ‘em” and hope it would catch on. This dealer had a plan. The plan started with writing down, teaching and defining the CPO process to the entire store. The plan set up a standardized process for reconditioning work, detailing, sales, F&I, merchandising and advertising. Then they practiced a set presentation developed for the entire sales department until it became “culture.” The sales staff made note that the sales process was similar to selling new vehicles in the way customer are treated and information shared. As a side benefit, the dealer also did a few more “pre-owned vehicles” sold by a couple of “new-vehicle” sales guys, people who otherwise would never sell a used vehicle.
These were real discussions.
Certification benefits the following:
- The Factory
It is a method to garner brand loyalty and to protect residual values. It also provide revenue through part sales and financing.
- The Dealer
It justifies a premium price and lays foundation for good service relationships. Surveys confirm higher grosses are generated by certified pre-owned sales when a good process is in place. And the certified business helps differentiate the CPO dealer from the independent dealer down the street that sells used vehicles. (You know, the guy with no overhead.)
- The Consumer
Certification helps remove the fear of the pre-owned vehicle. It gives the consumer peace of mind and satisfaction that they are buying a “special” vehicle.
The CPO vehicle really is a different market segment compared with the traditional pre-owned vehicle buyer. You will likely see more customers with a higher salary level, higher credit rating and higher down payment.
Year-to-date CPO sales stand at 1,152,562 units, which is a 3.2 % increase over the same time period in August 2006. Somebody you know is doing pretty well with CPO.
If you believe the data that franchise dealers captured only 34% of the entire pre-owned industry in 2006, then there is 66% of the market out there that is an opportunity. One way to capture a piece of that is by offering what the other segments can't.
Can CPO improve your bottom line? That depends a lot on you.
Tony Albertson is executive conference moderator for NCM Associates. He is at [email protected].
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