Even if sales continue to rise, some dealers say that the cost of CPO refurbishment above the high price in order to obtain inventory has depressed profit potential.
Insufficient inventory and soaring profit per vehicle have prompted dealers to double their investment—or consider participating in—certified used car programs.
A certified second-hand plan can provide distributors with significant marketing and profitability advantages. This is especially true in the finance and insurance office, where customers are ready to discuss protection products and are eligible to receive financial rewards through car manufacturer captives.
Although the pandemic faces more challenges in sourcing inventory and original equipment parts for refurbishment, CPO sales are still climbing.
Cox Automotive reported in July that CPO sales in the first six months of this year were 1.46 million vehicles, surpassing the sales of the same period in 2019, which set a record for CPO sales with a total sales of 2.8 million vehicles. This is an increase of more than 220,000 vehicles from last year and an increase of 60,000 vehicles from 2019.
Approximately 2.8 million certified second-hand vehicles were sold in 2019, accounting for approximately 7% of the approximately 40 million vehicles in the second-hand car industry.
Ron Cooney, Toyota Certified Used Car Project Manager, pointed out that the CPO sales of participating Toyota dealers increased by 26% year-on-year.
“We are working hard to surpass our performance in August last year. This is a very good month,” he said. “But we seem to be out of the super high and super high points of the past five, six or seven months.”
Even with fewer available vehicles, some dealers still prefer certification programs at the same rate as in traditional years.
According to owner Jason Quenneville, McGee Toyota in Claremont, New Hampshire, has approximately 80% of its used car inventory certified—the same amount as before the pandemic.
“The main reason is marketing,” he said. “Once we trade the vehicle, we will immediately certify it. We have an additional push from Toyota to bring people to our website.”
Paul McCarthy, senior vice president of national sales for AUL Corp. in Napa, California, said it is important to differentiate inventory in the face of pandemic shortages. He said that more of the company’s dealer customers are leaning toward CPO, even if they are in a pandemic.
McCarthy said that more favorable conditions for certified vehicles are a reason, especially when it comes to the incentive interest rate of the captive financial company for CPO vehicles.
Another benefit is the warranty coverage, which makes it easier to sell products to customers who believe they get more value from their purchases. “It is essentially friendly to F&I,” he said.
For McGee Toyota, it is critical to maximize the use of the small inventory on the automaker’s website. The dealer has only 9 new cars in stock last week, of which 65 have been used, and usually there are about 250 new cars and 150 used cars in a year.
Although dealers may complain about the cost of refurbishment and certification, Cooney said that these profits may be rewarded long after the initial transaction.
Cooney said the service retention rate for Toyota’s CPO vehicles is 74%, which means that most CPO customers return to dealers for routine and regular maintenance-even if there is no prepaid maintenance package as part of the sale.
“That’s why the standards are very high,” Cooney said. Under poor buying conditions, some dealers are passing certification. As inventories are still tight and the epidemic is raging, some dealers say that in addition to high purchase costs, maintenance costs are driving down the profit potential of used car sales.
Joe Opolski, Roy O’Brien Ford’s second-hand car finance director on the St. Clair Coast, Michigan, said dealers now either swear to CPO or swear to CPO. He said his dealers are often in the middle. Currently, his second-hand garage has only a few CPO vehicles.
“We are abandoning CPO,” he told Automotive News, citing rising maintenance costs, insufficient available inventory, and unusually rising lease extensions. “The cost of acquiring inventory is much higher, and then adding these additional costs to it. It doesn’t make much sense to us now.”
Nevertheless, Opolski has noticed some advantages brought by CPO sales. Most certified used car customers tend to finance because they know the age of the vehicle, and many people will immediately ask how to best protect their purchases.
“I have a captured audience,” he said. “Many customers started talking to me about F&I products even before I started speaking.”
Although some dealers claim to be retreating, many dealers say that the CPO trend will continue to flourish, especially as new car pricing trends drive buyers out of the new car market.
McCarthy said: “As more and more vehicles terminate their leases, this trend will rise because these vehicles are the perfect candidates to turn into CPOs.”
“This is not to say that distributors across the industry are doing their best to promote CPO-because they can’t keep up with it,” Cooney said. “But more and more customers are asking for it.”
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Post time: Nov-10-2021