Double Your Used Car Profits With Late-Model CPO Inventory

The popularity of certified pre-owned (CPO) vehicles is at an all-time high, with 2014 marking the fourth consecutive year of sales growth.

And the best news? Consumers are willing to pay a higher premium for the peace of mind CPO delivers. AutoTrader.com estimates that buyers will pay as much as $2,000 more per vehicle, or about 14%, based on the average used car sale price of $15,900 (as reported in the 2014 Used Vehicle Market Report from Edmunds.com).

It’s very likely, however, that a large number of the used cars on your lot that are on your lot now are ineligible for traditional manufacturer CPO programs. In fact, based on data from Edmunds.com and NIADA, analysis shows that about 13 million used cars sold by both franchise and independent dealers in 2013 did not qualify for manufacturer’s certification, which typically only covers vehicles fewer than five years old and with no more than 70,000 miles.

Money left on the table

Yet this is affordable, pre-owned inventory your customers want. What if the industry were able to certify all these cars? Multiplying 13 million by $2,000 results in an eye-opening number—clearly, there’s a lot of money being left on the table when noncertified used cars are sold.

Of course, not all of these 13 million cars will garner a $2,000 premium. But franchise and independent dealers are missing out on about $11 billion of potential additional gross profit by not certifying their late-model pre-owned inventory. This boils down to, on average, $1,821 gross profit per vehicle that is not being realized by the average dealership.

Let’s do the math: The average cost of a used vehicle at a franchise dealership is $15,900; at an independent dealer, the cost is about $9,104. On average, consumers are willing to pay approximately 14% more for a certified pre-owned car. This means dealers are potentially missing out on an average of $2,163 and $1,238 per sale, respectively. Even if only 50% of that gross profit goes to the bottom line, that’s still $1,082 and $619 per sale, respectively.

Putting these numbers into further perspective, if just 1 million of these 13 million potential pre-owned vehicles were certified, that would add $850 million of additional gross profit in the marketplace.

By limiting the certification of vehicles to manufacturer-sponsored programs, the number of vehicles eligible for certification will necessarily be limited. And today, that makes no sense. After all, the average age of vehicles on the road has never been higher than it is now. As vehicles age, they increasingly fall outside the OEM-sponsored certification guidelines.

Enter third-party certifications

The good news is that easy-to-use, turnkey, third-party certification programs are available to dealers to address this significant dollar gap in the marketplace. Delivering peace of mind to consumers who want to purchase vehicles up to 15 years old and that have has many as 150,000 miles on the odometer can also mean delivering accelerated profits and sales to the dealership. It is a win for everyone.

Not surprisingly, a recent survey of used vehicle shoppers by CarStory showed that the most important consideration when shopping is vehicle condition (81%), so backing used vehicles up with a CPO program simply makes sense. And giving consumers a larger pool of used vehicles that they can be sure will not cost them more in expensive repairs later is an effective way to double your pre-owned gross profits.

Jeffrey Schwartz is the founder and CEO of SureSale, the CPO program that makes it easy for dealers to turn every qualified “as is” vehicle into a certified vehicle. Schwartz was at the forefront of the evolution and development of the automotive Internet, serving as president and CEO of the two companies that pioneered online automotive commerce: AutoWeb and Autobytel.