Historically, independent dealerships have not participated in certified pre-owned vehicle programs at high levels.
Pre-pandemic, the participation rate among independents was just 13 percent, according to data from APCO.
But over the past two years, that rate has climbed to 17 percent – a 40 percent increase.
So what’s driving more independent dealers to implement CPO programs?
Several market forces, including inventory shortages and consumer uncertainty, are driving consumer demand for CPO vehicles. Additionally, more dealers are realizing the tangible benefits CPO programs bring such as higher profits, greater F&I attachment rates and faster turn rates.
Still, many dealers remain skeptical.
Among the reasons often cited for not participating in a CPO program are the costs of certification, time involved in program maintenance and lack of a service facility.
For those skeptics, there is good news.
NIADA has recently launched a newly updated CPO program for independent dealerships.
The new NIADA Certified removes the barriers to implementing traditional CPO programs. In a nutshell, it makes the process of certifying vehicles cheaper, faster and easier than ever before.
What’s New and Different?
NIADA’s new CPO program now offers multiple administrators, including GWC Warranty, a leading provider of F&I products and services for the independent market.
NIADA’s goal was to design a program that meets the unique requirements of independent dealerships and provides consumers with the high level of transparency they demand.
Special considerations were given to key aspects of the program.
Affordability: While franchise dealerships pay upwards of $2,000 to certify a vehicle, the NIADA CPO program requires an investment of just a few hundred dollars.
Digital inspection process: For a CPO program to be successful, a salesperson must be able to clearly explain the value of purchasing a CPO vehicle versus a non-CPO unit. The customer wants to know why that vehicle qualifies to be certified while others do not.
The digital inspection process is key to providing the customers with a level of confidence in their purchase decision.
NIADA’s CPO program provides dealers with a simple digital inspection process through a partnership with Carketa.
All dealers have to do is enter the vehicle, VIN and miles, and the system runs a vehicle history check. The system then provides the dealer with a checklist of requirements for the vehicle to be certified. As each item is completed, the dealer can check it off.
Once a vehicle is certified, the dealer can click a button to launch that information out to all the vehicle listing sites. Additionally, copies of the digital inspection checklist can be printed for merchandising purposes and to show customers.
If your dealership does not have a service facility and you don’t want to pay the hourly labor rate at the facility you partner with, there is an option to have someone come to your lot and complete the inspection for you for a nominal fee.
Upsell options: Every NIADA Certified vehicle has the option of coming with a 3-month/3,000-mile limited warranty, or longer terms such as 6 months/6,000 miles or 12 months/12,000 miles.
The dealership can choose which one to offer customers to help build its advantage story to consumers.
Once customers have the peace of mind in the level of CPO coverage that comes with their vehicle, APCO’s data shows they’re three times more likely than non-CPO buyers to upsell into longer terms and coverage levels to enhance their ownership experience.
GWC offers hundreds of term and mileage offerings to fit your customers’ driving habits, enhance their ownership experience and build on your reputation, while at the same time providing valuable profits back to your dealership.
No repair facility needed: GWC Warranty is partnered with a national network of authorized service centers, providing consumers with plenty of options for repairs.
Recently a mobile service provider was added as a partner, giving many consumers the option to have their vehicle fixed at their home, office or another safe location close to where the vehicle broke down.
That option once again builds on consumers’ confidence in your dealership and provides an enhanced ownership experience.
Robust digital and merchandising program: Dealerships that have success with their CPO programs all have one thing in common: They do a great job of merchandising and marketing their CPO vehicles.
NIADA Certified provides dealers with support, recommendations and a variety of marketing materials needed to help them maximize the benefits from a nationally recognized endorsement of their CPO program.
CPO Program Benefits
Why are more independent dealerships choosing to implement CPO programs?
Higher profit margins: Recent APCO data shows consumers pay an average of $750 more for certified vehicles than noncertified vehicles.
Let’s say your dealership pays $300 to $500 to certify each vehicle. Then you upsell the consumer to a vehicle service contract.
The math shows you can easily double your investment on every CPO vehicle while building on a customer experience that creates strong loyalty for you and your dealership.
Increased F&I sales: According to APCO’s data, consumers who purchase CPO vehicles are three times more likely to purchase a service contract with better levels of coverage.
That shows car buyers are recognizing the value in products and plans designed to protect their investment.
Faster turn rate: CPO vehicles turn an average of 13 days sooner than non-CPO vehicles, according to APCO’s data.
With the current inventory shortage, turn rate might not be an issue. But when inventory levels normalize and the usual glut of vehicles returns to your lot, CPO program participation can help dealers increase their turn rate.
Level playing field: Auto manufacturers have invested millions of dollars in marketing campaigns to make sure consumers understand the value of purchasing a CPO vehicle. That investment is paying off, as CPO vehicle sales have set records nine of the past 10 years and are on pace for another record year.
Franchise dealerships have been the primary beneficiaries of that hot market. But the NIADA CPO program helps level the playing field, allowing independent dealers to compete with franchise dealers for the same CPO customer.
In many cases, independent dealers will even have a price advantage.
In addition to paying $2,000 or more to certify each vehicle, franchise dealers have higher overhead costs, including service labor and marketing costs.
When two certified vehicles of the same make and model are advertised, an independent dealership can sell its certified vehicle for less than the franchise dealer – and still reap more profit.
Why Now?
Market forces are driving demand.
According to Cox Automotive’s analysis of Motor Intelligence data, 2021 CPO vehicle sales through October were up 9 percent year-over-year and were 2 percent higher than in 2019, when the current annual record of 2.8 million units was set. That record, Cox said, “remains within reach” for 2021.
There are several reasons consumer demand for CPO vehicles is rising.
Inventory shortages: Lack of new vehicle inventory has been driving consumers toward nearly-new vehicles as an alternative, a trend expected to continue through most of 2022 until the chip shortage is resolved.
With inventory remaining scarce, some dealers are thinking, why implement a CPO program now? They can’t keep cars on their lots as it is.
That is exactly the reason to implement a CPO program right now.
The cost of procuring inventory is at an all-time high and consumers have been conditioned for more than 30 years to purchase vehicles with massive rebates and discounts.
Some customers need a reason and justification to pay more for the vehicle they want, and a CPO program can help provide that justification.
When customers purchase a certified vehicle, they feel confident they’re getting more value for their money.
Uncertainty: Between the pandemic, inflation and supply chain issues, it’s no wonder many consumers are being extra cautious.
The uncertainty associated with vehicle ownership is high, but the ability to provide low-risk certified options with extra coverage for expensive repairs and parts can help relieve that worry.
When consumers know their “new to me” vehicle has been extensively inspected and comes with protection from unexpected repairs, it’s easier to pay more up front – because they know they won’t get hit with a large service repair bill in the near future.
When done correctly, a CPO program instills consumers with a high level of confidence in their purchase decision.
Increased competition: With demand high for pre-owned vehicles, independent dealers are fighting for the same customers.
In addition to competing with each other, independents are competing with franchise dealers, rental car companies and online retailers such as Carvana and CarMax.
CPO programs provide dealers with a way to differentiate themselves from the competition. Any dealer can create a certification plan, but adopting a program from a reputable third party helps set your dealership apart.
Vehicle affordability: Vehicle affordability is an issue that will continue to drive more consumers to purchase CPO vehicles.
In October, the average transaction price for new vehicles in the U.S. hit a record $46,036, according to Kelley Blue Book. Even when new vehicle inventory is replenished, price tags like that put new vehicles out of reach for many Americans.
For consumers who still want that “like new” experience, CPO vehicles can satisfy the demand.
Independent dealerships that offer a CPO program backed by NIADA are making a strong statement about the quality of their inventory, which attracts more customers and builds customer trust while increasing margins and profitability.
