To say that the Sullivan Automotive Group has some experience with selling certified pre-owned vehicles is an understatement. The auto mall in Roseville, Calif., is General Motors' No. 1 seller of certified vehicles and the second-largest seller of certified Toyotas.
"We sell about 2,200 used vehicles per year at our Toyota store (John L. Sullivan's Roseville Toyota) and about 2,000 units at our Chevy store (John L. Sullivan's Chevyworld). About 40 percent of this volume is certified," says Dave Rodgers, senior vice president of Sullivan Automotive Group
To be certified, a used vehicle must undergo a series of safety and mechanical inspections and must be cosmetically and mechanically reconditioned. Dealerships are responsible for that cost, but their investment generally is rewarded at the time of sale.
"It costs us $700 to recondition a Toyota used vehicle and $375 to certify it. On the Chevrolet side, the reconditioning fee is $750 and the certification fee varies," Rodgers ays. "However, we're averaging about $1,000 more on a certified vehicle, when you compare it to a noncertified vehicle."
According to Rodgers, though, the gap between what dealers could make on a certified vehicle vs. a noncertified one used to be much greater.
"We averaged $1,800 on a certified vehicle six years ago," he says. "But that's when Lexus and Toyota were the only ones with certified programs. Now, with other manufacturers in the game, the profits have come down. Still, we're making $1,000 more on these vehicles than on noncertified ones, so it's still good."
And while manufacturers are promoting their certified programs, one has to wonder how long that trend will continue, especially in the face of competitive and attractive new-vehicle financing.
"General Motors' 0 percent financing on new vehicles is driving down the prices of these 2- and 3-year-old vehicles," Rodgers says. "In some cases, it's difficult to get the payments for certified vehicles low enough to make them a viable alternative to someone considering a new vehicle."
But what at first appears to be a problem actually may turn out to be a silver lining for franchised dealers.
"What we have is the used-car buyer, the new-car buyer and the used-car buyer who wants to be a new-car buyer," Rodgers says. "That last buyer is now able to achieve his goal. Where before the payment was too high, they're now able to buy new."
To ensure that that segment remains strong, a number of manufacturers are offering incentives to help sell certified-used vehicles.
"Toyota has increased its advertising a little bit, and it is offering reduced interest rates on used vehicles," Rodgers says.
At least in Rodgers' eyes, the Toyota program also is superior to GM's in other ways. "The Toyota program has a lot more value from the customer's perspective," he says.
"For example, it provides a 6/60 warranty, vs. a 3/30 for GM."