Conflicted Customers

Car consumers like certified pre-owned vehicle programs but sometimes misunderstand them.

Do shoppers really know what a factory-certified used vehicle is?

“Unfortunately no,” says Kraig Quisenberry, general manager of Bay Ford in Port Orchard, WA. “But customers are incredibly receptive to CPO once the conversation is opened.”

U.S. dealers annually sell about 2 million used units through auto makers' certified programs, in which relatively low-mileage vehicles are inspected and reconditioned when necessary, then offered with factory warranties.

Virtually all auto makers run CPO programs. They began as ways to remarket off-lease vehicles. The programs have proven popular with car buyers willing to pay extra for enhanced reliability and a warranty.

But it's not always clear to customers what it takes for a car to get certified or who offers the warranty. Many people think it is the dealership, which sometimes is the case, but not with CPO programs.

“Certified is a household name, even though the customer may not know exactly what that is,” says Chuck Yaeger, manager of the Lexus CPO program.

They are learning.

“Consumers are becoming more educated and dealers are getting better at selling CPO vehicles,” says Larry Pryg, director of General Motors' certified program. “People are willing to pay extra.”

In today's automotive market, “a lot of people want more than just a used car,” Yaeger says. “A car with a 160-point inspection and a warranty appeals to them.”

Some auto makers do a great job promoting their CPO programs — and some don't, say attendees of a recent National Remarketing Conference.

“On average, 70% of people learn about a certified program when they are at the dealership,” says Larry Dorfman, CEO of APCO/Easy Care, an extended-warranty provider.

If the dealership is the first point of such informational contact, “a significant training program must be there,” he says. “If you add value to a car and don't train sales people to present that, you are wasting money.”

Dealership staffers should tout the value proposition from the get-go, Dorfman says. “The customer shouldn't learn about it in the finance and insurance office. Tell them about it from the start, and you can make an extra $800 to $1,600.”

It's vital for sales personnel to understand the program, “because a lot of people who come in don't know about it,” Pryg says.

Auto makers should step up their efforts at familiarizing consumers with CPO programs, Quisenberry says. “It should be common knowledge. It should be out there. Dealers shouldn't have to tell them what it is.”

Customer awareness can vary by market and brand.

“Customers in our market come in asking for certified used cars, and the Internet has helped drive people to the dealership,” says Craig Martinez of JM Lexus in Margate, FL. “It has become harder to stock those vehicles.”

JM Lexus, through the Lexus CPO program and its own non-Lexus plan, certifies about 90% of its used-car inventory. It passes on certifying high-mileage trade-ins.

Bay Ford's CPO stock is at a separate location marketed as “something other than just a used-car lot,” Quisenberry says. “I know customers want certified. We are not attracting new-car customers. We are attracting used-car customers that want extra value.”

Yet, the line between new and certified used vehicles can narrow.

“CPO values are closer to the new side,” says Yaeger. If supply-and-demand issues drive up certified-car prices, “people will float over to new.”

Some buyers pay almost as much for certified as for new vehicles, says Quisenberry. Conversely, he tells of some customers who show an initial interest in certified models but ultimately buy new vehicles instead after reviewing prices.

That's fine with Yaeger. “It's not bad if someone comes in with an idea of buying certified and ends up buying new. And you get the trade-in.”

For dealers, “the most important thing is pricing the car right,” Pryg says. “That's what the customer is interested in.”

Surveys indicate CPO buyers typically are younger, more affluent and better educated than standard used-car purchasers. Demographically, the CPO customers more resemble new-vehicle shoppers.

Certified cars on average bring $1,700 more in profit than regular used cars, says Cars.com.

Statistically, CPO deals close faster and more often.