The cars themselves presented the answer, says Bill Zadeits, president of the Cherokee Automotive Group, whose holdings include Automotive Remarketing, which covers news from the used car, certified pre- owned, remarketing, auto auction and auto finance industries. “Cars coming off lease were usually only two or three years old; they looked new and they were generally better treated than used cars. Further, the dealers who had originally sold the cars usually knew their full service history. So they advertised the best of these off-lease vehicles as a whole new kind of car, a Certified Pre-Owned Car.”
The process of certification, a thorough bumper-to-bumper inspection, was not to be mistaken for extended warranties of the past, says Zadeits. “An extended warranty was little more than a kind of insurance product; it had little to do with a car's condition and individual history. Instead, it was based on the statistical likelihood of a given model breaking down or otherwise requiring repair.”
By contrast, says Zadeits, a certified pre-owned car was nothing less than a better car. “If anything goes wrong with the car it can be serviced at any franchised dealership, the same as with a new car.''
Even though selling cars as CPO looked good on paper, some dealers were reluctant to offer the program. “Used cars are a lot tougher than the new car business,” says Jeremy Meyer, Audi Certified Pre-Owned Manager, a veteran of 8 years selling new and used cars retail. “Every used car is different. It’s up to the salesman to tell a story and build value in his product whereas every new car is the same; I could sell new cars under three feet of snow. It really takes a better eye to deal in the pre-owned market. If you manage the business right, you can make a tremendous amount of money; if you make mistakes, you're out of business. So we’ve had varying levels of engagement; those dealers who have embraced the program are headed for record years in CPO sales.”
At BMW, says Stephen Saward, Manager of Pre-Owned and Corporate Sales, the success of the CPO program has erased whatever stigma may have been associated with selling used cars. “I think some of our dealers approached the used car end as an unpleasant necessity but that is no longer so, given the popularity of our CPO’s. Last year we sold 219,000 new BMW’s and 168,000 pre-owned cars, so the ratio is about 4 to 3 in favor of new. But where a new car is new only once, a BMW is always a BMW.”
At Honda and Acura the advantages of a certified pre-owned program became evident shortly after the sister marques launched their first CPO program in1996. “Eighty percent of our CPO customers were new to the brand,” says Dan Crowe, Honda Automotive Remarketing Manager. By this time a whole different mindset had begun to permeate the pre-owned market. “Certified prospects were not people who could not afford a new car,” says Crowe. “They were bright, they were well-educated, and they had spent an average of 7 hours on the Internet before coming in to the showroom. For these people, a Certified Pre-Owned was simply the smart move.”
The parameters of certification and the benefits vary from car maker to car maker; Mazda offers 100 points of inspection while Chrysler offers 125 and Ford and Volvo, 169 and 330, respectively. Collectively the alleged inspections provoke a howl of protest from Phil Tegtmeier, a prominent concours judge and proprietor of PhilVille, an exotic car brokerage in Morgantown, Penn. “I could look at a tail light and start counting functions – left turn, right turn, backup light, flasher, and so on – ad infinitum. This is not to say it’s not a great sales tool but I would wager that 75% of the CPO inspections that are advertised are never done. Even if they are you’re still better off having an independent mechanic examine the car and not rely on the dealership.”
Tegtmeier admits he doesn’t certify all the the various Ferraris, Maseratis, and Aston Martins he handles. “A brake job on a Ferrari can cost $20,000. Do you think I’m going to cover that?”
These words of wisdom notwithstanding, the CPO business promises to continue its growth of recent years, says Automotive Remarketing. One reason for this, says Zadeits, is the number of Ford, Chrysler, and General Motors franchises that were forced to close at the turn of the millennium. “It’s hard to convert a car store to something else,” he says. “You’ve got service bays, floor to ceiling windows, so they became pre-owned dealerships.”
To enable these stranded dealers to compete by providing them with their own pre-owned certification and warranties, Zadeits established his own certifying entity, CarMark. “We’re presently in 24 dealerships in 19 states. We don’t know exactly how big the market is for non-franchise CPOs is but there are somewhere between 35 million and 40 million used cars sold each year in the United States,” says Zadeits. “The difference is, a franchise dealership can offer a certified program from the OEM for as much as $3,000 or he can offer ours, which costs less.”
Either way, the pre-owned dealer gets one more certified pre-owned car on his lot, the car manufacturer gets a higher residual value come trade-in time, the used car salesman gets a newer car to weave a story around, and the buyer gets a car that looks new.
“It’s a win-win-win,” says Zadeits.
Maybe, but as Tegtmeier observes, no matter what the make, year, model, or terms of sale, one thing has not changed in the 40 or so years since he’s been in the car business. “There’s really just one thing you need to know,” he says.
“Who are you buying your car from?”
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