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Should Your Dealership Sell Certified Pre-Owned Vehicles?

November 08, 2019

It’s shaping up to be another strong year for the sales of certified pre-owned (CPO) vehicles. Through the first half of 2019, there were about 1.4 million CPO vehicle sales, according to the Automotive News Data Center.

This was 1.24% higher than at the same point last year. In a Data Point report, Cox Automotive remarked that the CPO market is “growing at a comfortable pace,” and projected that 2019 will be the ninth straight record year for CPO sales.

Take a fresh look

The popularity of the CPO market has some dealerships rethinking their CPO sales presence. The average profit percentage on CPO vehicles is 0.8% higher than on non-CPO vehicles, according to industry resource J.D. Power.

Perhaps the biggest benefit of selling CPO cars and trucks is that their popularity could put you in a better position to compete in the marketplace. This is especially true in some rural and low-income areas. Customers can save money by purchasing a used car with a warranty that’s similar to a new vehicle warranty. And some of them may put this savings toward a more expensive CPO vehicle.
 
But there are potential drawbacks to selling CPOs. For example, CPO sales can cut into your new vehicle sales volume if too many customers buy CPOs instead of new vehicles.

Most manufacturers judge the effectiveness of franchise dealerships based on whether they achieve monthly quotas for new car sales. Failing to do so consistently could hinder your future ability to expand by opening more franchise stores. Plus, CPO vehicles typically cost more than comparable used vehicles. Thus, stocking too many can influence cash flow and financing costs, and create a pricing disadvantage against competitors that aren’t stocking these vehicles.

Also, you might have to add more service technicians to perform the reconditioning that’s required to sell CPO vehicles. This could increase your labor costs and eat into profitability.

Pluses and minuses

Certified pre-owned vehicles could present an opportunity to boost your sales and profits. But carefully weigh the pros and cons before deciding what’s right for your dealership. Your CPA can help by performing a cost analysis of this business line.

© 2019