Automotive News - November 26, 2018 - 20

20 * NOVEMBER 26, 2018

remarketing
Opportunity for dealers

With new-vehicle prices rising and affordability becoming more
challenging for consumers, it's a good time for dealers to embrace
certified pre-owned vehicle sales.
2018 FORECAST

Used-vehicle sales at
franchised dealerships (millions)

2017

$413

$395

2018 FORECAST

2017

Lease maturities growth,
mainstream

12%

Lease maturities growth,
luxury

20%

-1%

2018 YTD

2017

CPO sales growth, mainstream

flat

CPO sales growth, luxury

But buyers' awareness low, J.D. Power survey shows

David Muller

dmuller@crain.com

ertified pre-owned vehicles are
selling quicker and for better margins than similar non-certified
used vehicles, but dealers who
want to push the product are challenged by a lack of consumer
awareness.
New data from J.D. Power shows
higher average profits and faster
turn rates for CPO vehicles consistently during the past two years -
and that spread grew in the third quarter of this
year.
"It does seem to be a compelling argument,"
Andrew Stowe, senior director of vehicle valuations at J.D. Power, said of the CPO segment's
profit performance. "And the fact that it isn't advertised more or communicated a little bit
more is one of the things that's maybe holding it
back from even greater growth than we've seen
over the last couple years."
Consumers purchased just more than 2.6
million CPO vehicles in 2017, according to
the Automotive News Data Center. Through
the first 10 months of 2018, total CPO sales in
the U.S. rose 2.2 percent.
And the average profit percentage on CPO

vehicle sales was 5.7 percent in the third
quarter of 2018 vs. 4.9 percent for non-CPO
vehicles, according to J.D. Power. CPO vehicles had an F&I profit of 4.7 percent in the period, compared with 4.4 for their non-CPO
counterparts. And CPO vehicles on average
took 43 days to turn in the quarter, compared
with 67 days for non-CPO vehicles.
"So make more money front-end, make
more money back-end, and make more money more often," Stowe said.
So what's the holdup? Some dealers may prefer their own certified programs and do only the
bare minimum for the programs dictated by the
automakers. And there's lots of room to step up
promotions, said Jonathan Banks, J.D. Power
vice president of vehicle valuations.
There's not much marketing "to say, 'Here's
all the stuff about certified,' " Banks said. "And
then you think about the young buyer - you
don't want to do a traditional media campaign probably. You want to do something a
little more interactive and social."
In general, certified vehicles continue to
face a dearth of consumer awareness, J.D.
Power said.
In a survey this year to gauge that consumer
awareness and reception of certified vehicles,
J.D. Power found that of the customers who

Source: J.D. Power

Power executives said. After all, lease maturare likely or extremely likely to consider purities, a good source of vehicles that are candichasing a certified vehicle, only 44 percent
dates for certification, are forecast to grow.
are "extremely" or "moderately" familiar with
Although there are different takes on
CPO programs, while 31 percent were "somewhether an off-lease tsunami is hitting the
what" familiar and 24 percent were "not at
market, there is no denying there are a lot of
all" familiar with them. That survey garnered
used vehicles that were new in 2015 and 2016,
about 10,000 responses.
which were both record years for sales.
Meanwhile, automakers have so far been dis"We see varying degrees of participation;
ciplined on incentives despite slowing retail
that's just one of the realities we face," Stowe
sales. Industry retail sales are forecast to dip to
said. "It's the classic case of, the more we can
13.8 million units in 2018 vs. about 14 million a
communicate this to people,
year ago. At the same time, inthe more they understand
centive spending per unit is
down so far in 2018 vs. 2017,
"It's the classic case and appreciate the benefits."
according to J.D. Power.
of, the more we can
"The discipline on incenSales staff
communicate this to
tives is a good-news story
For dealers, certified-vepeople, the more
when it comes to CPO behicle success begins with a
cause you don't want the
well-trained sales staff, Don
they understand and
downward price pressure to
Luke, owner of Bill Luke
appreciate the
start having an impact on
Chrysler-Jeep-Dodge-Ram
benefits."
profitability in used," Stowe
in Phoenix, told a conferAndrew Stowe, J.D. Power
said.
ence at the 2018 Used Car
For some buyers coming
Week show in Scottsdale,
back to the market after the expiration of
Ariz., this month. It helps to use phrases that
new-vehicle leases, affordability could be an
denote certified vehicles' attributes, such as
issue, Banks said.
the additional warranty, Luke said.
"Why not serve them up with a nice certiEric Shoemaker, pre-owned director at Trofied pre-owned as an option to a new vehiphy Nissan in Mesquite, Texas, agreed with
cle?" he said. "You're not seeing that."
Luke.
And the affordability challenge, Banks said,
"It all starts with sales staff," Shoemaker
is "not going away, unless manufacturers
said.
change their strategy for the market. So for us,
On the automaker side, Mazda is working
it's like a perfect opportunity."
on awareness, said Basem Tartir, national
program manager for vehicle retention and
remarketing at Mazda North American OperOff-lease mismatch
ations. Mazda's regional CPO managers are
Although relatively small, CPO is a mature
"constantly training" district managers to talk
market, Stowe said. It has gained more attento dealers about how to sell the product.
tion of late as more consumers appear to be
"For us, it's similar to a dealer too, in terms
getting priced out of new vehicles and with
of making sure our folks understand CPO and
off-lease returns expected to peak in 2019.
why it's important to us as a brand and imBut despite the added attention, CPO sales
portant for our dealers," Tartir said. a
aren't keeping up with their potential, the J.D.

Potential pre-owned buyers? Anyone
fied vehicles are willing to
Just who exactly is a certified
spend more for the peace
pre-owned vehicle buyer?
of mind they get because
Well, it can be just about anyof the more detailed inbody who walks through the
spection process and adshowroom door.
ditional automaker war"Stop thinking of it as a
ranty attached to the veCPO shopper - because evhicles.
eryone is really a CPO shopConsumers generally
per," Brad McKay, senior
McKay: Think
say they're willing to pay
product marketing manager
more broadly
a $1,000 premium for
at Cars.com, said this month
at Used Car Week in Scottsdale, Ariz. certified vehicles, said Jonathan
Shoppers who end up buying certi- Banks, J.D. Power vice president of

vehicle valuations. The data shows
that those who buy CPO vehicles actually end up paying more than that
in reality, he said.
In a survey for Automotive News by
DealerRater conducted Oct. 22 to 29,
recent buyers of CPO vehicles said
they were attracted in part by the
price vs. a new-vehicle price, plus the
more robust inspection and the additional warranty offered on the vehicle.
- Amy Wilson

CPOs sell quicker
for higher profit
than non-certified

11.8

2018 YTD

Used-vehicle monthly
payments (3 years old)

Andrew Stowe of J.D. Power says certified
pre-owned profit performance is "compelling."

12.2

2017

Why CPO?

Consumers see multiple reasons to buy certified pre-owned
vehicles. Survey respondents were asked to provide the most
attractive selling point for buying if they had purchased a used
vehicle backed by an automaker certified pre-owned program in
the previous 12 months.
The price vs. a new-vehicle

price: 21.8%
The additional CPO

warranty offered on the
vehicle: 6.1%
The multipoint inspection

offered peace of mind vs. a

noncertified used vehicle:
5.4%
A positive experience

purchasing a CPO vehicle
previously: 3.2%
All of the above: 52.6%

Other: 11%

Source: DealerRater-Automotive News survey of 6,049 consumers conducted Oct. 22-29

http://www.Cars.com

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