Certified used cars can be a boon to dealers

The certified used-car business gives dealers an additional franchise to complement sales of new cars, says Bill Bates, BMW's certified pre-owned vehicle program manager.

It also brings in customers who may not be able to afford a new car, especially a premium brand such as BMW.

Auto manufacturers benefit because the certified programs strengthen dealers financially, increase parts purchases and build up residuals.

“We hope for a 1% increase in residuals with our certified pre-owned program,” says John Teah, pre-owned car line manager for Volvo Cars of North America, Inc.

Toyota's certified program has become the gold standard for certified pre-owned vehicle programs. It leads the industry with sales of almost 200,000 units in 2001. That's expected to increase modestly to about 215,000 units this year, says Norm Olson, marketing operations manager for Toyota Motor Sales.

The Toyota example has spurred other car makers. From industry mass marketers like General Motors to smaller luxury brands, a big push is underway to increase sales of certified used cars.

“With the strength and support of our dealer network, we plan to be the segment leader for certified used vehicles,” says William Lovejoy, GM's vice president of sales, service and marketing.

Obviously, lower volume brands such as Volvo and Jaguar rack up fewer certified pre-owned vehicle sales. For a boutique brand like Porsche, its certified used car sales have ranged from 400-500 units annually.

The key to the programs is selection, inspection and reconditioning of vehicles obtained by off-lease turn ins, trade ins and auction purchases.

Bates says dealers are encouraged to certify every car they can. He notes that two-thirds of lease maturities come back as certified used cars.

BMW lease maturities were down in 2001, and so were certified sales. Bates expects a 37% increase in lease maturities this year and a 10-15% increase in certified sales.

GM sales of certified used cars in January increased to 18,262 versus 2,181 in January of 2001. That's a huge jump, but it leaves GM a little behind the pace set by industry leading Toyota.

Certified programs vary from brand to brand. But the most important part of each program is lengthening the warranty to as much as six years and 100,000 miles inclusive for some brands.

Toyota, BMW and GM offer money- back guarantees if the cars are returned within specified periods. For Toyota it is five days and 500 miles. Certified Porsche used cars get the remainder of the new-car warranty, plus 12 additional months regardless of mileage.

What goes into inspecting and reconditioning certified cars

It's not the number of points that are inspected to get a used car certified, but the quality and thoroughness of the inspection and reconditioning, says Bill Bates, BMW's certified pre-owned vehicle program manager.

BMW technicians are told not to fix defects or replace parts until the inspection is complete. That way there is no loss of focus on the inspection.

Any car that has been in a crash and sustained frame damage cannot be certified unless repairs meeting company specifications have been made. If any major uni-body part has been replaced, the car is automatically disqualified.

“If there's any doubt, leave it out,” Bates says.

Cars that pass inspection undergo potential reconditioning. To be certified cars must be brought up to virtually new condition.

Dealership offers ambitious certified used-car program

One of the most ambitious certified used-car programs is at Longo Toyota in El Monte, CA. The dealership sells more certified vehicles than any other Toyota outlet in the U.S. A dedicated certified department includes a manager, three administrative staffers and 12 technicians. They work in a separate facility from the new car store.

Longo sold 4,319 used cars last year, 2,618 of them were certified.

“We will certify any used car if it is certifiable,” says Longo General Manager Tom Rudnai.

Even though his dealership manages inventory closely, it will certify a car even if there is an oversupply of that model and color on hand. He says reconditioning costs range between $600-$700, but can go as high as $1,200.

Olson says Toyota is well on its way to establishing a new record for certified used vehicle sales this year. In January, Toyota dealers sold 19,617 used cars. He regards these sales as a way of conquesting that might otherwise have been lost.

Nevertheless, Toyota does not yet break even in this business, Olson says. “But everybody is a winner in this.”
— Herb Shuldiner