The Multi-Billion Dollar Certification Gap—a Problem in Search of a Solution

A huge “certification gap” exists in our industry and it represents a potential loss of billions of dollars for dealers who sell used cars.

 

Consider this: over 35 million used cars were sold in 2010, but fewer than two million of them were certified by OEM-sponsored programs. Meanwhile, consumers are willing to pay, on average, a 12-27 percent premium for a certified vehicle.

 

Let’s add the numbers up. The average cost of a used vehicle at a franchised dealership is $11,026, and at an independent dealer it is $9,562*. So dealers are potentially missing out on an average of $1,323–$2,977, and $1,147–$2,582 per uncertified vehicle respectively. Let’s take the average of the above numbers, $2,007, and look at the big picture. If just one million more vehicles were sold as “certified” by dealers, they would be looking at additional revenue of two billion dollars!

 

Add to that the fact that certified vehicles turn over 20 days faster than their uncertified counterparts (meaning more sales volume), and the dollars lost by dealers for lack of certification really begin to add up. And that’s not all. The fact is, the majority of used car buyers (65 percent) want to buy certified vehicles! They cite “peace of mind” as a top priority when buying, and believe the quality of a vehicle is higher if that vehicle has been certified.

 

So on the one hand, you have a population of shoppers who want certified vehicles and are willing to pay more for them and, on the other hand, a population of dealers that are only able to certify about six percent (and far less if you are an independent dealer) of their inventory, on average. Plus, the used vehicle market has never been hotter…This is a problem in search of a solution.

 

By limiting the certification of vehicles to manufacturer-sponsored programs, the number of vehicles eligible for certification will necessarily be limited. Consider that the average age of vehicles on the road has never been higher than it is today. As vehicles age, they increasingly fall out of the OEM-sponsored certification guidelines.

 

The time is ripe to take advantage of expanded products and services designed to widen out the CPO phenomenon that began 20-years ago. Luckily, new third-party programs are available to meet this market need. Look for programs with expanded eligibility requirements (as much as 15 years and 150,000 miles) third-party independent inspection and extended service plans.

 

Consumers want it, and dealers profit from it. That means that closing the multi-billion dollar certification gap is a win-win solution and should be on the agenda for dealers in 2012. If your dealership sells a good amount of used cars, or even if you are a dealer looking to increase your used car sales, then make it a point to research a program which will allow you to certify more of your used car inventory!

 

Jeffrey Schwartz is president and CEO of Mota Motors. To stay current on the CPO industry, email Jeffrey Schwartz at jschwartz@dealermark.com or go to www.jeffreyschwartz.com.

 

* CNW Research: “Franchise dealers are estimated to fetch $11,026 per used vehicle, on average, with independents expected to average $9,562” http://www.autoremarketing.com/content/trends/cnw-used-inventory-still-record-lows-big-3-used-supply-improves?page=2#ixzz1fzXhPUrq

 

 

 

 

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