New-car sales may have plateaued, but the flood of off-lease vehicles flowing into dealerships offers tremendous opportunity for dealers prepared to market, merchandise, and sell them strategically.
The days are gone when a “Certified Pre-Owned” sticker alone drew buyer focus. Signage and merchandising remain critically important to CPO sales, experts say, but today’s CPO is a new category – a new breed – and demands new focus and attention within the dealership.
“CPO is a strong segment of a dealer’s used car strategy but it has to be treated as separate franchise, if you will, within the used car department. It just can’t be folded into that,” notes Ed French of AutoProfit Automotive Consulting.
“CPO has to stand on its own, it must have its own product experts who work leads, and it must today be a focal point of the dealership website and physical lot,” says the former Buick dealer and current member of the board of directors at TruWorth Auto, a used car superstore in Indianapolis, Indiana.
With the overall used vehicle market the strongest since 2007 and CPO sales volumes up north of 25 percent, it’s these vehicles that will drive dealership sales in the months – maybe years – ahead.
Given many OEMs are now mandating their dealers inventory off-lease vehicles, every franchised dealer these days is a CPO dealer. The differentiator will be whether your dealership manages the opportunity well or not.
French offers the following “must-haves” for your CPO department:
CPO should command your dealership website – its messaging should be front and center and CPO vehicles should be clearly identified as such for when customers do web searches.
Add a CPO tab to the home page or drop-down menu that quickly takes viewers to your CPO-only inventory.
On the lot, separate used cars from CPO vehicles and mark and merchandise this distinction well.
Train staff to evangelize the difference between CPO and regular pre-owned vehicles and what the CPO certifications include. They should be confident and clear when answering questions to help buyers choose wisely.
Identify the hottest models for CPO in your market and buy and price those vehicles accordingly.
“With the flood of inventory available, the question is what makes a great CPO vehicle from just a certified pre-owned…what is that good-to-great differentiator? It used to be a dealer could CPO anything and that notification by itself was a difference maker, but now it’s not,” French notes.
About 80% of the CPO models any dealer retails will be the dealer’s OEM’s models. Those will be reconditioned to OEM certification specifications. Other makes and models you may inventory and what to market as certified pre-owned vehicles can be reconditioned to third-party certification standards, like Motor Trend.
“The CPO in my mind is the best value for the money and the most value a customer will get for the dollar he or she is going to spend,” French says. And they’re in demand. “In my store,” he adds, “we’re ‘CPOing’ all midsize crossover vehicles because customers want an alternative to new, and this is the hottest segment in the market today.”
Dealers on average spend up to 4 percent of their advertising budget to merchandise physical lot inventory. These merchandising funds help create awareness, alert consumers to special events, and otherwise help promote the sale of the vehicles.
“Certified pre-owned, being a different animal, has to be merchandised more upscale and more attractively than other used cars if dealers want to send the right message about their CPO inventory,” notes Rich Ashworth, president of Wheel’s Automotive Dealer Supplies Inc., a used car merchandising company. Several OEMs require their dealers to use CPO-branded differentiation signage, point-of-sale displays, banners and windshield stickers. Wheel’s manages such programs for several OEMs.
“The right merchandising is absolutely critical,” agrees French. “The Best-in-Class CPO dealers separate out their CPO vehicles and make sure CPO-specific point-of-sale materials are on them. CPO signage must be distinct, whether a windshield banner or window sticker to detail vehicle features and accessories.”
French suggests dealers add QR Codes to window stickers to make it convenient for shoppers to capture more vehicle and dealership information by their smartphone.
Ashworth says dealers used to traditional banners, signs and inflatables for their used car department should not use these same materials for merchandising a class of vehicle as CPO cars, trucks, and SUVs.
“Given the special status CPO vehicles command today – thanks to extensive OEM advertising – signage and point-of-sale materials for these vehicles must be more refined, restrained – and almost new-car like,” Ashworth notes.
Other CPO advantages
Dealers who sell CPO vehicles also flow opportunity in F&I and downline into service. These opportunities can be enhanced when dealers recognize what these buyers look for not only in the vehicles they buy but in the peace of mind they buy them for.
“As we pioneer automotive retail technology with OEMS and on the dealership level, we are seeing how CPO vehicles are received as great values with really sound protection built in. But, as consumers realize they’re not new cars, the opportunities for them to purchase additional protection increases,” notes Jim Maxim, Jr., president of MaximTrak Technologies, an F&I solutions provider. “Especially as these owners will tend to keep these vehicles well into higher mileage, we’re seeing strong vehicle service contract and GAP sales in F&I to these buyers,” he says.
Consultant French notes another opportunity that should flow out of a CPO sale – retention-building dealer-branded loyalty and maintenance programs that keeps buyers returning to the dealership’s service department.
Prepaid maintenance plans, for instance, when gifted to buyers gets them in the immediate habit of using the dealership for oil changes and routine services, notes Ryan Williams, president of dealer-branded prepaid maintenance provider Fidelis PPM. He notes dealers using this plan report one-year retention of 85 percent with second- and third-year rates holding at 65 percent of plan holders.
As dealers see competition for their used car business from online startups such as Beepi, Carvana and others, including CarMax, franchised new-car dealers hold the cards on off-lease, factory-certified vehicles so in demand today. That should be differentiator – and key to that differentiation, French says, is a dealer’s ability to “create a significant virtual presence that makes a difference for the consumer and the dealership, whether on the lot or online.”
Author: Jim Leman
Jim Leman, Owner of Leman Public Relations, has been writing about automotive retail operations since 1992. You can reach him at firstname.lastname@example.org.