Best PracticesNov 29th, 2016

How to Get Your Share of the CPO Jackpot


While your OEMs move their off-lease inventory to you to be retailed as certified pre-owned (CPO) models, be sure your F&I office is prepared to optimize the opportunity. When CPO buyers understand what differentiates these vehicles from new models, you’ll be presented with robust opportunities to sell them F&I aftermarket products, particularly ones that help them protect and preserve their investment.

Don’t rely on the sales department to have thoroughly explained differences about CPOs to customers sitting across from you. Take time to tell them until you’re confident they know what they’re buying. Data sourced from Edmunds, Manheim, J.D. Power, and our studies with dealers using our global enterprise system highlight the new business opportunities that CPO sales present for you. Here are some highlights I recently presented in an Automotive News webinar, “Driving F&I Profit with Used Cars.”

The Market

The used car market today is the strongest it’s been since pre-recession days, and CPO sales now account for nearly 23% of franchised dealers’ used car sales. This year, U.S. sales of CPO vehicles were 1.6 million through July, up 4.1% compared to 2015 period, according to the Automotive News Data Center. These used car transaction prices are, on average, above $19,000 — a record. This higher price point means many more consumers than ever will want to protect that investment. They will also keep those vehicles longer, often beyond any remaining factory warranty on their CPO purchase. These buyers, when they understand the limits of the warranty coverage of the CPO vehicle, will listen with more interest to the service contract, GAP, and other investment-protection products on your F&I menu.

When presented with interactive menus and/or package-building tools, customers will want to see firsthand the real-time calculations of how products impact their payments. Many CPO vehicles will be leased, creating F&I opportunities. Experian and others report that used-vehicle leasing makes up about 3.7% of the lease market, but that volume is increasing. Used-vehicle lessees are candidates for protection solutions not covered by their contract, including tires and wheels. Customers deserve to know this, and the F&I office is in the best position to present these products.

The use of engaging sales tools helps buyers understand those potential out-of-pocket risks they face when they do not elect coverage. Also, CPO sales lead to high retention. Cox Automotive, citing a 2015 Autotrader CPO study, noted that 74% of CPO owners are likely to purchase the same brand, and 80% are likely to purchase from the same dealership again. In addition, 49% of CPO owners are likely to buy a new vehicle of the same brand.

Sell the Difference

Don’t assume shoppers know what “factory certified” entails, and don’t assume that the sales department has explained it either. Customers know these vehicles have special merchandising signage and placement on the dealer’s lot or showroom, but often that’s about all they know. High-end sales aids, such as an interactive warranty review, help explain the limits of CPO warranties and drive home the value of additional coverage.

Train F&I staff on these differences, and equip them with talk-tracks and cheat sheets to direct the “What’s the CPO Difference” conversation. First, help shoppers understand what the CPO warranty is and isn’t. The certified pre-owned advantage includes subvention of rate (may enable lower lease rate), lower payment, longer-term ownership, and the credibility of the certification. Some units will be reconditioned to OEM-certified status and others to third-party-certified status. Next, although CPO inventory is marketed and presented as like-new, shoppers must understand these vehicles are not new units, and that full-range new-car warranties do not cover them.

Does the unit the consumer is buying come with the remainder of its factory warranty, or a few years remaining of its original bumper-to-bumper coverage? Use this information to transition into additional investment and safety protection solutions available to buyers to give them like-new-car peace of mind. Finally, explain that the dealership’s other used vehicles are also well reconditioned, and although they have higher mileage, are safe and reliable. For the most assurance, remind them that many buyers shopping for used cars opt for CPO vehicles because of their lower mileage and, typically, remaining factory warranty coverage.

Know your Customer

This advice may seem trite, but it is anything but. Sloppiness can creep into F&I attitudes and practices. It’s why we need reminders, solid processes, and good managers to insist that we practice the basics again and again. Don’t just ask these questions to complete the checklist, but to listen for opportunities and note the customer’s responses — even when sales has already asked them. Use a survey system or, if you don’t one, manually review these questions with your customers:

  • Why are you buying a used vehicle? (Gives insight into budget issues and frugality.)
  • Are you the primary driver of the vehicle? (Shows interest in family, road safety, and maintenance products.)
  • What is your credit situation? (Is there room for financing protection products?)
  • Is your budget currently stretched? (How likely is the customer to respond to product options?)
  • How much room is there in your monthly income/expense to offset major repairs? (Emergency expenditures may make a small monthly addition for a maintenance contract more attractive.)
  • How long do you typically keep your vehicles? (Another cue to present risk-aversion products like service contracts or paint protection packages.)
  • In your past vehicle experience, do your cars get a lot of wear and tear? (Another maintenance and appearance-related inquiry.)
  • How would you describe you vehicle maintenance habits? (Does the buyer care?)
  • Does the family travel frequently, and will you use this vehicle for travel? (Gauges interest in avoiding costly travel incidents and expenses with a service contract and other protection packages.)

Your Recommendations

Are you offering a standard set of products because they are on your menu, or are you offering products to fit customers’ needs? Asking the questions in the previous section will help you define and refine what products customers will find of value to purchase.

Take the customer down the F&I path with you. Don’t arrive at conclusions for them because you feel it saves time. Instead, by making assumptions, you sacrifice gross. Is your F&I process set up for success? A 2015 study of more than 270 FCA dealers across a million-plus transactions showed that e-menu use versus no menu use resulted in PVR lifts of $538 per unit and 52% product penetration lift per unit.

Digital F&I tools like e-menus, interactive presentation tablets and screens, and customer surveys help shave time from the F&I process by helping the F&I office present more professionally, and without paper document shuffling. Be sure customers buying CPO vehicles understand their vehicle protection risks and opportunities. This requires that all staff understand what constitutes a factory or third-party certified vehicle.

They also must be clearly trained to articulate those advantages. Once you’ve done a good job of building trust with these customers, they’ll more likely receptively listen to aftermarket protection product presentations. This success won’t just happen, so use the right tools to lend credibility and efficiency to the process. Then prepare to sell CPO with enthusiasm, confidence, and clarity.

Jim Maxim, Jr. is president of MaximTrak Technologies, Reach him at [email protected].

Authored by

Jim Maxim, Jr.

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