Boosting Dealer Sales with CPOs

Randy Beil recalls an uncomfortable encounter as a new hire years ago at BMW North America.

He was assigned as a remarketer on the used-car side of the business. Making the rounds, a visiting home-office executive from Germany asked the newbie what he did for the automaker.

When told, the higher-up responded, “We sell new cars, not used cars, so why do we have a used-car department?”

Beil says, “It was my second day on the job, and he’s asking, ‘Why do you work here?’”

The executive had it wrong. Automakers and dealers today are highly involved in the used-car market – with good reason.

So says Ron Cooney, sales operations manager for Toyota Certified Used Vehicles, a unit which recently added a new “silver” status to pre-owned vehicles its dealers sell.  

“All OEMs are in the used-car business,” he tells WardsAuto. “It’s a big part of our field education, marketing, media, everything. You must be good at used cars to be really good at new cars.”

He speaks of the “value chain” that connects the new- and used-car businesses, indicating that about 40% of consumers who buy a Toyota CPO vehicle purchase a new Toyota as their next vehicle.

Cooney describes the cycle:

“We want to sell a new car. And we want it back to sell as a TCUV gold vehicle and back again to sell as a TCUV silver vehicle and back again when it only qualifies as a used car at the dealership.

“We want to keep the customer and the car in our family. It’s important to sell and finance it repeatedly. And we want our dealers to recondition it using OEM parts.”

Toyota’s certified pre-owned program launched its new silver warranty program to attract more customers to dealerships and give salespeople an added extra for consumers: peace of mind in the form of warranties. 

TCUV silver certification offers warranties for 12 months or 12,000 miles (19,200 km) for vehicles less than 10 years old and with fewer than 125,000 miles (200,000 km).

That compares with the higher gold tier with a warranty plan that extends for seven years and 100,000 miles (160,000 km) on vehicles that are less than six years old and have fewer than 85,000 miles (136,000 km).

Vehicles in both tiers undergo multi-point inspections (160 for gold, 136 for silver) and reconditioning as needed. The buyer receives whatever remains of the original owner’s new-car warranty, plus a factory-backed used-car warranty.

Cooney envisions an eventual tier above silver or gold as well as the possibility of Toyota dealers selling non-Toyota CPO vehicles. About 80% of Toyota’s 1,277 U.S. dealers participate in the voluntary program in which the vehicles are priced higher than standard used cars.

The most-sold Toyota-certified vehicle is three to five years old with 40,000 miles (64,000 km).  The RAV4 crossover utility vehicle is No.1, the Camry sedan is No.2, reflecting the ranking of the best-selling new Toyotas.

“The goal of CPO is selfish – but for all three parties,” Cooney says. The automaker keeps a customer in the brand family. Dealers sell a vehicle at a premium price “and can stand tall” doing so. And customers get a warrantied vehicle “they can drive confidently.”

Scarcity of vehicles because of a supply shortage in recent years is expected to increase wholesale and retail prices of CPO units.

Yet, the used-car market doesn’t veer wildly from year to year, Cooney says. “Every year, this country does 39 million to 40 million used-car sales. That’s probably going to keep happening.”

What’s different in today’s market is that dealers must work harder to acquire used-car inventory.

“There are always used cars to be had,” Cooney says. “You just have to get them. Nobody has sold a ton of new cars over the past few years.”

That’s because a parts shortage forced automakers to cut production levels. Leasing dropped when OEMs withdrew customer incentives as demand outpaced supply. “You’re not going to have the same amount of lease returns dropped off at your dealership doorstep like before,” Cooney says.

His advice to dealers who want a well-stocked used-car lot despite today’s vehicle acquisition challenges:

“Find the cars. Talk to your service customers about buying their current vehicles. Advertise that you buy cars. Tell people, ‘Don’t sell it on Craigslist or Facebook. Sell it to me.’”

Many dealers already do that. “That’s why they are so successful,” he says.

One of them is Firas Makhouf, used-car director at Driver’s Village, a multi-franchise dealership near Syracuse, NY.

He says affordability remains an issue, but he expects his department will have another good year in 2024. His store sells about 380 used vehicles a month.

Driver’s Village uses various ways to acquire pre-owned inventory. “About 95% derives from trade-ins, lease buyouts and street purchases (private-party transactions),” Makhouf says.