Certified to the Rescue

Brisk certified used-car deliveries are giving a needed boost to the automotive remarketing industry that's seen prices and sales soften as a result of generous incentives auto makers have offered going on two years now.

Most major dealer groups report increased used-car sales for the first half of 2003 compared to same-time 2002. Certified programs are credited for the increase.

“Our used-car sales and revenues jumped 25% in the first half, thanks to the certified programs, especially on luxury cars,” says CEO Roger S. Penske of United Auto Group. “BMW certified was up 66%.”

Auctions and franchised dealerships are enhancing their reconditioning shops to handle the action. Reconditioned certified vehicles come with warranties and sell for higher prices than conventional used cars.

Separate certified lines on used-car lots have proven to be effective in selling, along with turntable displays in showrooms and auto shows.

The growth of certified-vehicle programs has helped offset the impact of new-vehicle incentives, according to Tom Webb, Manheim Auctions' chief economist.

He says, “Incentives bring them in to the showroom, and then they might find more affordable payments on a certified car that has passed the 100-points checklist and has been reconditioned like a new model with a long warranty.

“That raises certified sales which, in turn, raises off-lease residual values. It's a win-win situation. Manufacturers support the trend with certified advertising campaigns and higher sales and profits result for the dealers.”

William T. Heard's 17-dealership network, based in Columbus, GA, upgraded reconditioning services to retain its position as the second largest privately owned seller of used vehicles, with 37,739 sales in 2002.

Heard says his dealerships strive for consistent reconditioning work.

“We use quality-control checkers, recruit for technicians constantly and coordinate with auction staffs on their sales to us,” he says.

The largest privately owned seller of used vehicles, the 53-store V.T. (Van Tuyl) network headquartered in Shawnee Mission, KS, retailed 69,352 units last year.

The V.T. brand, added to GM's four certified pre-owned programs, accounted for healthy used-car sales at strong prices despite the counter-effect new-vehicle incentives have on the remarketing industry, says co-owner Larry Van Tuyl.

“Certifying used vehicles and reconditioning them to be ‘like new’ is attractive to payment shoppers,” Van Tuyl says. “Certified vehicle buyers get a better warranty than non-certified , and their sales are continuing to go up as terrific values.”

According to Autodata Corp. and automakers, sales of certified vehicles jumped 24.5% in the January-July period of 2003 to a record 885,531 units — compared with 711,276 in the same 2002 period.

GM's certified sales led the industry with 283,117, followed by Toyota/Lexus, 166,089; Ford Motor brands, 135,014; Honda/Acura, 120,638; DaimlerChrysler, 82,511; BMW, 39,396; Volkswagen/Audi, 34,323; and Nissan/Infiniti, 22,048.

Toyota's strong showing has spurred the Japanese auto maker to speed up its remarketing channel to Toyota and Lexus dealers. Dealers are alerted to off-lease vehicle returns via the Internet. They're allowed three-five day purchase options, prior to units going to dealer-only auctions.

Toyota Financial Services' national remarketing manager, Kent Pace, says the automaker plans to sell about 100,000 off-lease vehicles to dealers this year, 30% of them coming from Toyota Dealer Direct and Lexus Dealer Direct.

“If the residual is above the market price, Toyota adjusts its price to factor that in — which is a good deal,” says used-car manager Roy Durham of Longo Toyota, El Monte, CA.

As the nation's No. 1 dealer in gross volume, Longo sold 3,930 used vehicles in 2002 in addition to record new-car deliveries of 19,300 units.

Certified vehicles account for 65% of the used-vehicle volume at Longo, which is owned by Roger Penske's Penske Automotive Group. That's up from 60% last year. Durham would like to hit 70% in 2004.

The National Auto Auction Association (NAAA) is devoting a big portion of its membership services to guidance on reconditioning and online purchasing. A panel on reconditioning at NAAA's Salt Lake City convention last month urged that members improve training for reconditioning writers, step up recruiting among minorities and insist on accurate descriptions of vehicle conditions in Internet purchasing.

The largest publicly-owned used-car networks — CarMax, Inc. and America's Car-Mart — reported increases in volume. CarMax, based in Glen Allen, VA, said 2002 sales reached 190,100 used units, a 28% gain at its 45 dealerships.

President and CEO Austin Ligon of CarMax says it's now concentrating on the pre-owned vehicle core of its business, and disposing of four Mitsubishi franchises and a Ford outlet in Kenosha, WI.

The retailing network grossed $3.5 billion in fiscal 2003. CarMax's 45 stores have their own reconditioning shops.

America's Car-Mart, a “buy-here/pay-here” 66-store operation headquartered in Bentonville, AK, boosted its revenues 27% to $43.3 million, in the second quarter.

“As new-car manufacturers scale back on incentives, the attractiveness of lower-priced new cars will decrease,” predicts Car-Mart CEO T.J. (Skip) Falgout III. “That will boost our core business.”