Uncertain about manufacturer certification

Consumer surveys say one thing, but some dealers say otherwise on the advantages of factory certification programs.

Since the advent of used-car superstores about five years ago, those surveys say about 40% of the car-buying public describes franchised new-car dealerships with factory certification programs as the preferred venue for purchasing a pre-owned vehicle.

Yet some dealers remain lukewarm toward most manufacturers' certification programs, the notable exception being high-line imported marques, whose dealers have found the factory certification programs most readily accepted by their customers.

For most other brands, including the domestics, factory certification has proven to be less than alluring to some dealers.

Those skeptics frequently cite the high cost of the factory program as their main reason for not signing on. Most programs require a signup fee, plus reconditioning costs of $500 to $2,000 per vehicle.

"Consumers say they want certified vehicles, but they don't want to pay for the costs that certifying entails," says Jon Lancaster, president of a Madison, WI, dealership company that holds Chevrolet, Nissan, Toyota and Lexus franchises, as well as its own in-house used-car brand, Car America.

He adds, "In the minds of most consumers, the vehicle has been reconditioned or is certified or guaranteed by someone somewhere, so the cost of the manufacturer certification seems like an unnecessary expense. Not many people really understand the value proposition of factory certification."

One dealer, who requests anonymity, says his used-car manager doesn't believe in the factory certification program, which makes it difficult for him to try to sell it to his customers.

He and other dealers see little difference between a certification program and an extended warranty, except that one is built into the sale price of the vehicle while the other is an add-on that the customer can drop any time.

Worse, they say, the obligatory short-term aspects of participating in the factory certification program - the three-day money-back guarantee and the 30-day exchange period, for instance - are dealer, not factory, liabilities.

If a car stays out 25 days and then comes back, it's worth $1,000 less at auction, and that depreciation comes out of the dealer's bottom line.

"Financing is another issue," says Car America's Mr. Lancaster. "Lending institutions won't lend any more money on a car that's been correctly reconditioned than they will on one that's just had a hose run over it."

Yet proponents of certification programs, factory and otherwise, say they carry several benefits.

Cars sell for more when they are inspected, reconditioned, certified and warranted, says Ron Robbins, Ford Motor Co.'s director of North American fleet, lease and remarketing operations.

Such vehicles also lead to greater customer satisfaction. That, in turn, gives the used-car industry a better name, says Mr. Robbins.

But he adds, "You can't just wash a vehicle and hope it sells...You have to put work and, yes, money into it."

For many dealers, the obvious alternative to factory-designed programs is an in-house certification program that the dealership designs and controls. This approach has been embraced by car retailers of all sizes, from the single-point dealership to the largest megadealer companies.

"Basically, all our dealer/operators participate in a manufacturer-certified program for used vehicles," says Scott Smith, chief operating officer for Charlotte-based Sonic Automotive. "We participate mainly to support our manufacturers. But the percentage of manufacturer-certified vehicles held in inventory at our dealerships is relatively small.

"The majority of our vehicles are sold as Sonic-certified. We designed the program with the help of APCO. It gives us the opportunity to offer our customers several options: buy the vehicle as is with whatever remains of the original warranty, or buy a vehicle that carries the manufacturer certification, or buy a vehicle that is Sonic-certified."

Mr. Lancaster agrees that some sort of certification is a good long-term strategy for dealers who want to boost their pre-owned vehicle sales, but the improved profits could be slow in coming.

He adds, "If you're really doing the reconditioning and certificating processes correctly, the effort can pay off over a five- or 10-year period. We've done follow-up with customers who didn't buy from us, but later wished they had.

"In a lot of those cases, we get to sell them the second time around. You want to think that if you do things right, offer a better product and really take care of the customer, that the public will begin to understand the value in what you're doing.

"Many do understand eventually. But it takes time. And, in the interim, the initial profit picture is a real struggle.