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Are the headaches associated with bringing vehicles up to certified pre-owned (CPO) program standards worth it? For dealers, there’s certainly more work, money and time involved with finding, reconditioning and certifying vehicles for CPO programs.
On the surface, it may seem like the higher margins don’t really justify the higher cost of reconditioning and manufacturer fees involved.
But the financial equation isn’t that simple. The fact is, CPO programs attract a certain type of customer that is willing to pay a bit more for a used vehicle in good condition, along with a warranty, roadside service and other perks. This is exactly the type of customer you want in your database, and you have to look at the long-term value of that customer.
Additionally, CPO vehicles are typically sold with 12-month to 24-month warranties, which means you will have several opportunities to cultivate a service relationship with a new customer. What is that opportunity worth?
The key to making a CPO program successful is deciding that it’s going to be successful. Like any investment, the secret to maximizing ROI lies in your ability to streamline operations and create process efficiencies. This includes sourcing, reconditioning and marketing your CPO vehicles.
Don’t Rely on Auctions
To maximize CPO gross margins, it’s important that you don’t pay too much for a vehicle to begin with. Sometimes you can find a good deal at an auction, but many times you can’t. Your used car manager should know how to spot a good deal and when to pass. If he doesn’t know, help him create a formula.
The best source of vehicles for a CPO program are the cars you have already sold. Do regular database searches to find vehicles that fit your manufacturer’s criteria. With the addition of an equity mining tool, it’s easy to identify former customers who are in a position to trade-in their vehicle.
Additionally, set up a vehicle exchange program in your service lane. Creating a process to approach and make offers to service customers will net a steady supply of vehicles for your CPO program.
Improve Your Recon Process
If you’re serious about maximizing the profitability of your CPO program, an efficient reconditioning process is an absolute must. The ability to track vehicle progress, set alerts at every stage and hold personnel accountable for deadlines is necessary.
One of the biggest benefits of a CPO program is that the vehicles sell quickly and deliver higher grosses. But you can’t sell a car that’s sitting in your shop. Every day it sits, you lose gross. In the event of a service backlog, you’re probably better off paying techs overtime so you can get your CPO vehicles turned in a timely manner. Do the math.
Promote Your CPO Program
Think of your CPO program as an investment. You have created an efficient process to source vehicles at a good price and push them through recon. You’ve paid the manufacturer fees, and you have a supply of excellent CPO vehicles on your lot ready to be sold.
The last piece needed to maximize your ROI is marketing. There’s demand for your product, but people can’t buy something they don’t know exists.
Many dealers are afraid to promote their CPO program, believing that some of their customers will buy a CPO instead of a new vehicle. You know what? They’re right.
At some point during the purchase process, some new car shoppers will decide that a CPO is a better option for them. That decision will be made by your customer based on their financial situation, not on anything your salesperson did or didn’t do. When a customer comes to this conclusion, your best salesperson will not be able to dissuade them, nor should they even try.
I’ve talked a lot about how the role of the salesperson is changing in the auto industry. We should not be selling; we should be helping the customer make a decision that’s best for them. If your salesperson tries to push a new vehicle that a customer doesn’t want, there’s a good chance that customer will leave and buy a CPO from your competitor.
Wouldn’t you rather get the CPO sale instead of no sale at all?
First, the margins are higher on CPOs so you’re netting more profit overall. Second, only a certain percentage of new car buyers will decide to buy a CPO, and you’re not losing them. You’re still selling a car and gaining a potential service customer. CPO sales should be celebrated, not treated like red-headed stepchildren.
Third, promoting your CPO program with marketing campaigns is going to create more new opportunities than it will ever cause you to lose. Think about consumers in your area and/or in your database who are still driving 2008, 2009 or 2010 vehicles. They are probably ready to upgrade soon. Chances are they won’t be buying a new vehicle, but they may be very excited about the opportunity to purchase a CPO. To them, a 2015 vehicle is new.
Finally, establishing your dealership as a trustworthy source for CPO vehicles is an extremely appealing value proposition for many consumers.
Don’t be afraid to invest in your CPO program. If you stay committed and create efficient processes, the gross profits returned will add substantially to your bottom line.