Awareness of certified pre-owned programs is lacking

Certified pre-owned vehicle sales are on track for a ninth-straight record year. An unprecedented number of vehicles are returning from leases. And overall used-vehicle retail sales are expected to climb in 2019 and 2020. It would all seem to add up to prime time for CPO programs.

But with just more than 2.7 million sold last year, certified vehicles make up only around 7 percent of all used-vehicle sales in the U.S. One factor industry observers identify as restricting CPO volume from growing further and faster is that certified vehicles generally aren't on many consumers' minds. Some buyers arrive at dealerships and don't even know what it means for a vehicle to be factory certified.

"There is overall a lack of awareness, and it's where we all sort of fall down from an [automaker] perspective," Eric Swanson, head of CPO vehicles at Fiat Chrysler Automobiles U.S., told Automotive News.

A 2018 J.D. Power study found that, as shoppers get more familiar with certified programs, the likelihood of them purchasing a certified vehicle goes up. But many consumers still aren't aware, said Andrew Stowe, senior director of vehicle valuations at J.D. Power. "Communicating this information to the customer remains one of the biggest challenges that we have within the CPO space," Stowe said.

Increasing awareness, even by spending more to market the programs, promises a payoff. For automakers, selling certified vehicles is a way to build brand loyalty, and the programs can help dealerships, too, he said.

"When we look at certified vehicles and compare them to vehicles which could have been certified but aren't, they turned quicker, they gross better, and the [finance and insurance] opportunity is equivalent to or a little bit better," Stowe said.

With a peak of 4.1 million lightly used vehicles coming off lease this year, automakers and dealers have plenty of vehicles ripe for certification with which to work. But explaining to a customer the benefits of certification vs. a new vehicle or non-certified used vehicle is tough to do briefly.

"It's a relatively complicated message," Stowe said. "You can't put it in a 15-second soundbite, and so conveying all that information to customers remains a challenge." It explains automakers' continued reliance on online advertising, he said.

One tack Toyota, the U.S. volume leader in certified sales, has taken is to simplify the terms of its CPO program. CPO programs, by definition, come with warranty coverage terms. Most automakers' coverage begins from the date the vehicle was sold new.

On May 1, Toyota updated coverage to start its 12-month limited, comprehensive warranty and 7-year limited powertrain warranty coverage from the date the certified vehicle was bought.

The powertrain warranty caps at 100,000 miles on the odometer.

Before the change, sales personnel would have to explain to customers that, on a 3-year-old car with, for example, 40,000 miles on it, they would have to go 60,000 miles in the next four years to take advantage of the full powertrain warranty. Now, that buyer knows there are seven years or 60,000 miles to go before hitting the limit. In other words, there is less math involved.

"It just makes it so much more tangible for a customer," said Ron Cooney, Toyota Motor North America's CPO sales operation manager. "And of course, it makes it easier on the dealer as well to explain."

American Honda Motor Co. was responding to customer demand when it announced a rebranded and updated CPO program in August, said Dan Rodriguez, the company's manager of remarketing and certified pre-owned.

The Honda-marque program was renamed HondaTrue Certified, and a HondaTrue Certified+ tier was added. HondaTrue Certified+ is for 1-year-old vehicles with 12,000 miles or less on the odometer, and it extends non-powertrain coverage to 24 months or 50,000 miles.

The new tier gives buyers another option if they're just outside the new- vehicle budget, Rodriguez said. Perks such as roadside assistance, emergency fuel delivery and two complimentary oil changes also were added.

Honda's market research leading up to the change found that certified vehicles can attract new and younger buyers. In fact, 74 percent of millennials were willing to pay more for a CPO vehicle vs. 62 percent for non-millennials.

"This certified buyer is really, a big portion of them, that millennial generation and digital warriors," Rodriguez said. "They're very comfortable with the Internet, so we want to make it easy for them to find what they're looking for."So Honda, like other automakers, has turned mostly online to boost awareness of certified vehicles. Rodriguez noted that the company's digital checklist, which provides customers a digital copy of the 182-point inspection checklist accompanying certified vehicles, is listed online.

FCA, too, focuses customer-awareness efforts online. "It's all digital for FCA," Swanson said.

The automaker has explored paid search with Google, and using relevant search terms; putting vehicles in front of active shoppers on Facebook and Instagram; and 30-second ads on YouTube. These efforts typically take the customer directly to a dealership website.

"So the things that we're trying to do from a more of aggressive standpoint … is [make] sure that those shoppers see the inventory and they're directed right to the dealer, as opposed to going to another website or going to a corporate site," Swanson said.

Still, it's a difficult task to create widespread consumer awareness of a relatively niche product. Even if the message gets through to consumers online, there is still a need for dealership-level education, so sales reps can in turn educate customers, experts said.

Cooney said Toyota can gauge how well its online messaging is performing, including whether it's getting in front of a lot of consumers, by analyzing click-through rates and impressions on banner ads, for example.

"But at the end of the day, when you asked Mr. and Mrs. Jones off the street, would you consider buying a certified used or any certified vehicle, they may be likely to say 'no,' " Cooney said. "And their reason why is, 'Because I don't know what it is.' "