05/24/2022 7:10 pm | BY GWC Warranty

NIADA’s All-New Certified Pre-Owned (CPO) Program: Is it Time to Go CPO?

This article was originally published in Used Car Dealer magazine in January 2022.

Historically, independent dealerships have not participated in certified pre-owned (CPO) vehicle programs at high levels. Pre-pandemic, the participation rate among independents was just 13 percent, according to APCO’s data. However, in the last two years, the participation rate has climbed to 17 percent, a significant 40 percent increase!

What is driving more independent dealers to implement CPO programs? Several market forces such as inventory shortages and consumer uncertainty are driving consumer demand for CPO vehicles. Additionally, more dealers are realizing the tangible benefits that CPO programs bring, such as higher profits, higher F&I attachment rates, and faster turn rates.

Still, many dealers remain skeptical. Primary reasons that dealers cite for not participating in CPO programs include the high costs of certification, time involved in program maintenance, and lack of a service facility.

For those skeptics, there is good news. NIADA and GWC Warranty have recently partnered to roll out a brand-new CPO program for independent dealerships. This program removes the barriers to implementing traditional CPO programs. In a nutshell, the program makes the process of certifying vehicles cheaper, faster, and easier than ever before.

What’s New and Different?

NIADA’s new CPO vehicle program is administered by GWC Warranty, a leading provider of F&I products and services for the independent market. At the outset, the goal of both organizations was to design a program that meets the unique requirements of independent dealerships and provides consumers with the high level of transparency that they demand. Special considerations were given to the following aspects of the program:

Affordability

While franchise dealerships may pay upwards of $2,000 to certify a vehicle, this CPO program requires an investment of just a few hundred dollars. Additionally, when dealers upsell a consumer to a vehicle service contract (VSC) with longer terms, they will receive a credit back for the limited warranty which can then be applied to the dealer cost.

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 vehicle. The customer wants to know why this vehicle qualifies for CPO while others do not. The digital inspection process is key to providing the customer with a level of confidence in their purchase decision.

NIADA’s CPO program provides dealers with a simple, digital inspection process. 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 vehicle has the option of coming with a 3-month/3,000-mile limited warranty or longer terms such as a 6-month/6,000 mile or 12-month/12,000 mile. The dealership can choose which one to offer their customers to help build their advantage story to the consumer.

Once a customer has the peace of mind in the level of CPO coverage that comes with their vehicle, they are three times more likely to upsell into longer terms and coverage levels to enhance their ownership experience. GWC offers hundreds of term and mileage offerings to fit your customer’s driving habits, enhance their ownership experience, and build upon 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, which will give many consumers the option to have their vehicle fixed at their home, office, or another safe location close to where the vehicle broke down. This 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 at merchandising and marketing their CPO vehicles. NIADA’s new program 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

NIADA’s CPO program confers many benefits to participating dealerships. Here are the primary reasons why more independent dealerships are choosing to implement CPO programs.

Higher profit margins

Recent APCO data shows that consumers pay an average of $750 more for certified vehicles versus non-certified vehicles. Let’s say that your dealership pays from $300 to $500 to certify each vehicle. Then you upsell the consumer to a VSC and receive a credit for a couple hundred dollars for the limited warranty. The math shows you can easily double your investment on every CPO vehicle while building upon a customer experience that creates raving fans for you and your dealership.

Increased F&I Sales

APCO data shows that consumers who purchase CPO vehicles are three times more likely to purchase a VSC with better levels of coverage. This shows that car buyers are recognizing the value of products and plans designed to protect their investment.

Faster turn rate

According to APCO data, CPO vehicles turn an average of 13 days sooner than non-CPO vehicles. With the current inventory shortage, turn rate might not be an issue.But when inventory levels normalize and the usual glut of vehicles return to your lot, CPO program participation can help dealers increase their turn rate.

Levels the playing field

Auto manufacturers have invested millions of dollars in marketing campaigns to make sure that consumers understand the value of purchasing a CPO vehicle. The investment is paying off, as CPO vehicle sales have risen steadily and continue to rise. Until now, franchise dealerships were the primary recipients of this investment.

NIADA’s CPO program helps to level the playing field so that independent dealers can 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 same model are being advertised, an independent dealer will be able to sell their certified vehicle for less than the franchise dealer can sell it and still be able to reap more profit.

Why Now? Market Forces Driving Demand.

Certified vehicles have been gaining market share for several years now. In July 2021, IHS Markit noted an 11 percent year-to-date, year-over-year increase in CPO vehicle sales. Cox Automotive predicted 2.7 million CPO sales in 2021, which would make it one of the three best years on record for certified vehicle sales. There are several reasons why consumer demand for CPO vehicles is rising.

Inventory shortages

Lack of new vehicle inventory has been driving consumers towards nearly-new vehicles as an alternative. This trend will continue through most of 2022 until the chip shortage is solved.

Many dealers are probably thinking that as long as inventory remains scarce, 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 all-time highs, and consumers have been conditioned for over 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 a customer purchases a certified vehicle, they feel confident they are getting more value for their money.

Uncertainty

Another market force driving consumer demand for CPO vehicles is uncertainty. Between the pandemic, inflation, and supply chain issues, it is no wonder that many consumers are being extra cautious. The uncertainty associated with vehicle ownership is high. The ability to provide low-risk, certified options with extra coverage for expensive repairs and parts can help to relieve some of 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 upfront 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 the consumer with a high level of confidence in their purchase decision.

Increased competition

With the high demand for pre-owned vehicles, more than 60,000 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 the online retailers of the world, 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 by a reputable third party helps to set your dealership apart.

Vehicle affordability

Vehicle affordability is an issue that will continue to drive more consumers to purchase CPO vehicles. In October 2021, average transaction prices 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 will 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.