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Everyone that has their own money or income tied to a new car franchise is looking to pre-owned and fixed operations to make a living; except maybe Honda. The loss of leasing, at least in the domestics, has complicated the new car advantage vs. pre-owned even farther with C.P.O.V. providing a compromise to new vehicle buyers..

Ad Agency Online has had an excellent R.O.I. for our dealer clients by helping them focus on C.P.O.V. vehicles as an alternate to new and conventional pre-owned but I am often challenged by used car managers who don't have the same confidence. I usually come back with O.E.M. reports and various "think tanks" and industry studies that document the increasing percentage of C.P.O.V. vehicles in total pre-owned sales with a faster turn, increased front end profit, increased internal income to fixed operations and improved customer loyalty in service after the sale.

Recent O.E.M. captive lender support in finance terms and rates have improved the C.P.O.V. payments and extended them to credit challenged customers - not special finance, just marginal credit. All of this coupled with actual sales history in stores that integrate an inventory control system, like AAX, has also supported the value of C.P.O.V. based on historical sales within the dealers that buy and manage their inventories scientifically; as we all should by the way!!!.

Regardless of the above, I am still being questioned by used car managers that think that they are overpriced or cause reverse conversions to new; although I find the opposite since more new car customers are switched to C.P.O.V. than the other way around.

If I am missing something - and the used car managers are right - please tell me what? If you agree that C.P.O.V. are a valued addition to the used car inventory - please help me to explain it to the non-believers.

I am hosting a seminar at the 5th Digital Dealer Conference titled Marketing CPOVs vs. new or pre-owned in credit-challenged industry ... and I would appreciate any information or personal experience that you can provide to share with my audience.

After all, what are friends for!

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This is my opinion. Certified preowned is an attempt by the OEM's to enter the used car business greater than they already are with program vehicles and to control the dealers retail financing relationship.

You add an extended warranty to the cost of the vehicle and are basically forced to send the paper to a captive finance source due to advance. It is a big win for the OEM and their revenue models. The dealers loses the opportunity to sell certain back end products, a non taxed item becomes taxed to the consumer (in the states I have done business in anyway), the captive finance source gets first look at the paper when it is submitted and consumers get rolled up to new on a call if they have marginal credit.

Big win for the OEM - Not so good for the dealer and the consumer.

Paul Rushing - Believer in All Things Possible
912-266-1629 800-357-1793
http://ismintraining.com
http://drivingsales.com
Follow Me on Twitter
paul@parushing.com
Paul,

You missed the #1 reason why CPO programs exist... Raise residual values! The primary justification for OEM's spending millions of dollars on CPO programs has little to do with their finance companies, heck, they don't even like each other and there is more friction between a car company and their finance arm than there is between a sales department and a service department in most stores. The people at car companies that create CPO programs do not benefit in any way from driving business to the captive finance company, they set up APR deals that are subsidized by the car company at great expense as an incentive to get dealers to participate in the CPO program. This is motivated by the car company's desire to keep late model used coming off lease and traded in from going to auctions, which is the #1 destroyer of resale values and subsequent lease residuals.

CPO programs are all about lease residuals and resale values... Keeping them higher by keeping a car company's used vehicles away from the auctions! Every time a 2007 Chevy, Ford, Toyota or whatever goes through an auction, the brand's residual values are reduced!

The fact is, CPO programs cost car companies a lot of money, they do not constitute a profit center, they are an expense. I am not biased for or against CPO programs, but I have been in enough meetings in Detroit, Torrance and North Jersey to know the truth about them in regards to OEM motivations and how they work. There are several car companies who do not have CPO programs right now because they have not felt the pressure to support residual values.

You may find this hard to believe, but ask any expert why BMW. Mercedes-Benz, Toyota and Honda have such high residual values, and the answer you get will include each companies highly effective and highly successful CPO programs.

Paul, there are a lot of things you are very knowledgable about, but your comment above shows that you have a lot to learn about car companies and CPO programs.
Ralph,

I stated it was opinion and it was not designed to be an authoritative comment. Opinion was asked for and I gave it. There is a lot I do not know about CPOV and I was regurgitating arguments I have heard from others. Like my father who is a veteran 15 year used car manager the largest Chevrolet dealers in my market area, and opinions given by one of the larger dealer groups in Georgia middle managers in an interview I had first of the year, who has several Honda franchises.

If they are an effort to prop up residual values then with the recent exits from leasing it may be moot except for the brand that are maintaining strong leasing programs.

Honda has done it the right way in helping maintain their resale values and it probably has a lot more to do with not selling direct to rental companies and glutting the market current model year used cars, than certified preowned.

But then again that is my opinion and this is a topic I don't claim mastery of. :P

Paul Rushing - Believer in All Things Possible
912-266-1629 800-357-1793
http://ismintraining.com
http://drivingsales.com
Follow Me on Twitter
paul@parushing.com
Hey Paul,

The "geo-politics" of the reason for C.P.O.V. and/or who is the prime beneficiary is interesting but I was hoping for some examples of experienced success or failure to have them turn a profit for the dealer since he is the one paying all of our bills!

Of equal value would be any experience with predictive inventory management applications and appraisal systems that replace "opinion" with cold hard facts based on actual sales from the dealership putting the information in and using historical evidence to advise them as to how they should proceed tomorrow.

To get the conversation back in the right direction - one example is AAX - any opinion on that or hopefully something better? I know that all processes start with people - and they are still needed to manage, monitor and implement suggestions by AAX - or their substitute. (I figured that I better say that first so we don't slide back into people vs. processes - been there, done that!)
Sorry to disagree, but CPO started, at least in the domestics, as a way to funnel the repurchased rental cars back through the dealers without the stigma of being rental cars.
No disagreement! Ralph correctly pointed out their value to the OEM's is to preserve residuals which is in line with your comment.

Frankly, why they are "subsidized" in the form of extended warranties and in some cases with reduced finance rates and extended terms isn't the question. The fact that they exist as an alternate to New and conventional pre-owned as a "bridge vehicle" that supports customer confidence and ability to buy is the opportunity that I am trying to capitalize on. The O.E.M's have their agenda, my dealer clients have theirs - and every once in a while - NOT ALWAYS - they are the same!

Any input on how you do with them vs. new or conventional pre-owned would be greatly appreciated! - including any best practices that you would like to share.
--I guess I'd say it is sort of like buying a house and getting it appraised and inspected.--

Speaking as someone who has dealt with both of these types of providers in the past. You can be rest assured that Real Estate Agents and Developers invite them to play golf, parties, hunting trips and lavish dinners quite regularly. Those professions possibly have more room for corruption and have more legal problems from corruption than the car business has ever had.
Hey Paul,

I hear you, but unfortunately I am a "car guy" and also a "commercial real estate agent" now specializing in buy/sells for car dealers looking for the highest and best use for their facilities. I have had to put up with those stereotypes from both sides of the cocktail parties! My only defense has been that I took the road less traveled and plaid it straight all my life and my "sales pitch" was always based on my honest concern for my customers with my integrity a tie for first place.

That aside, you are right about the failings of the human element in both businesses and I think that accounts for some of the push back I get on on C.P.O.V. fom many "old school" car guys. The first "defense" I present when defending my push for C.P.O.V. is that "they can't make any front end or that they sit too long." I then show them historical evidence that proves them wrong - unfortunately it is usually from another source since they have already tilted their own stats by pushing the C.P.O.V. to the back burner, or they don't market them properly or develop any branding identity for them in the store; which is what they need to move them.

I know that these same used car managers would NEVER take a "kick back" from a wholesaler after they purchase a used car for inventory or when they blow out a retail piece for wholesale so of course I accept their "opinion" instead of the facts or even my own 25+ years of experience when I consider that they can't "earn" that income when they buy a C.P.O.V. vehicle from the O.E.M. sponsored auctions.

I also know that when I suggest that we install a predictive used car inventory application with an integrated appraisal sytem that sources in-store historical data linked to book and current market values in favor of their "opinion" when appraising a car that they are only considering what is best for the dealership!

I know that I am not the only honest car guy out there -and my respect for my "friends" with shared ethics is why I even bother to share my best practices on ADM. What I needed in starting this forum was some other examples of predictive inventory management applications or C.P.O.V. marketing tools or experience to help me - help my dealers filter out the bad from the good for the rest of the team that dosen't share in the "under the table" revenue stream that is all too often the source of the "opinion" that C.P.O.V. is not a good thing.

Of course, maybe I am wrong, and if so - say so and I will back off! But, I don't think so!!!
The biggest problem with CPO cars at a lot of dealerships, and a few I have been with, is that the dealership doesn't want to put the money into a used car to make it right. They may do the Inspection, but don't fix or refurbish to really make it a CPO, and, then they wonder why they don't make the profit. In most cases, the CPO is only used for the special APR that the OEM may have or for the added warranty.
I hear that! The days of pushing the first deal out of the lot with no regard to tomorrow is over. A properly conditioned CPO vehicle must look, feel and even smell like a new vehicle or the customer will consider it just like any other used car! The "branding" of the vehicle tied to the dealership as the only source for a true certified pre-owned is part of the image that will not only sell the vehicle, but the dealership as well.

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