Certified Programs Get Serious

Certified used vehicles have become such a growing profit center that auto makers are adding extended powertrain warranties as a selling feature and including loan offers with low interest rates for cream-of-the-crop pre-owneds.

As sales of certified used vehicles head for a record 1.5 million mark this year, Mitsubishi has entered the ranks of certified program sponsors with a segment first. The same 10-year/100,000-mile powertrain warranty the struggling Japanese auto maker offers on new vehicles is added to the warranty for certified used cars.

Two luxury-brand auto makers — Audi and Lexus — have extended low or zero-interest-rate loans to certified pre-owned programs (CPOs), marking their increasingly prominent role for dealers.

Audi applied zero-interest loans through Volkswagen Credit to '01 A6 models. Lexus, whose parent company Toyota launched the CPO initiative in 1993, entered the fall selling season with 3.9% loan offers through Lexus Credit on all its certified pre-owned models for up to 60-month periods. The same rate applied to leases on certified cars.

The stepped-up attention to certification as a profitable approach to clearing inventories of pre-owned and off-lease models came with recognition of the CPO label as a useful prop in the used-car market.

“Certified used is almost a separate department for us,” says Bill Piercey, owner of a General Motors and three Honda dealerships in southern California and Piercey Toyota in San Jose.

“Our focus on certified used has resulted in some of our biggest gains.”

He says remarketing cars to the fullest helps the service and part department make a good profit by reconditioning vehicles as part of the certified check-list program.

Piercey handles three lines that dominate the CPO sales lists. GM raised its CPO sales 10.1% in the first half of 2004 to 260,307 vehicles. That amounts to 29.3% of the national total of 785,353. Toyota/Lexus accounted for 137,292 CPO sales or 17.4% of the total, outselling the Ford brand's total of 109,575 during that half-year period. Honda/Acura reported 97,399 sales, surpassing the Chrysler Group's 79,222.

More auto makers are revving up certified sales goals in response to the profits and sales of reconditioned and warranted used vehicles. DaimlerChrysler, BMW, Volkswagen of America and Nissan all improved their CPO sales this year from 2003.

Reinhard Fischer, Audi's director of sales, says the no-interest loan on A6 models, another segment first, was designed to encourage dealers to buy used A6 models coming in off-lease prior to the 2005 model's debut last month.

Audi's parent, VW, raised its sales target for used certified vehicles to 51,500 in the U.S. and Canada for 2004 from 45,453 in 2003. “Our program has grown organically,” said VW's certified pre-owned marketing leader, Patrick McFall.

GM's four certified programs — Cadillac, Saab, Saturn and GM Certified (Buick, Chevrolet, Oldsmobile and Pontiac as a group) — have maintained segment leadership this year as a corporate entity, although Toyota remains the brand leader with 116,459 sales in the first half. In fact, Toyota claimed a shortage of certified pre-owneds entering the second half after a first-half decline of 2.1% from the 2003 total.

GM's used-vehicle activities director, Jeff Heichel, forecasted a boost of 8%-12% in certified volume for 2004 as the year began. The first-half rise actually was 5.2% industry-wide, which Heichel says reflects the overall used-car decline due to heavy selling pressure from new-vehicle sales throughout the year.

GM Certified claims its authorized certified vehicle dealers not only were the market share leader but also produced higher profits and faster turns than they did with non-certified vehicles.

Mitsubishi's new CPO program is available on 2001 and later models with fewer than 60,000 miles of use. A 123-point inspection process is used for certifying Mitsubishi vehicles, compared to 128 points on Toyota and Lexus.

“Consumers and dealers have asked for this type of product assurance to bring peace of mind to the pre-owned car-buying process,” says Mitsubishi's Michael Tocci senior vice-president for sales, distribution and fleet.

Mitsubishi dealers such as Scott Grove, who has three Mitsubishi stores in the Chicago market, welcomed the CPO entry.

“Many of us are selling more used than new cars,” Grove says. “The CPO initiative will help a lot through the crunch period, as well as the fact that Mitsubishi Credit has decided for the first time to buy certified pre-owned paper.”

Fussy about service to their customers, even those opting for certified pre-owneds, some Lexus dealers are raising their inspection checks beyond factory levels.

Meade Lexus, of the Detroit suburb of Southfield, MI, goes above and beyond the minimums required on the 128-point reviews for certifying pre-owneds.

“If the rap sheet says we can certify tires at such-and-such a depth and brakes at a certain wear level, we add 10% to the qualified, says Meade's Pre-Owned Vehicle Sales Manager Michael Mannone. “Just like with new vehicles, we don't want a customer coming back with a problem.”

Meade Lexus sold about 500 certified vehicles in the January-September period, enough to rank fifth among the brand's 206 dealers in sales. The charter Lexus dealership displays certified Lexus vehicles in front of its modernistic store on Northwestern Highway. Most of those vehicles have come in off leases or as trade-ins.