September 25, 2020

VW CPO sales set May record

Even as a pandemic severely impacted scores of its stores, Volkswagen set an all-time certified pre-owned sales record in May.

The brand’s long-struggling U.S. dealers racked up 11,087 CPO sales for the month, thanks in large part to a reconfigured warranty offering and a program from Volkswagen Credit for 0 percent financing for up to 60 months on CPO vehicles. The offer continued to run through June.

“It is Volkswagen of America’s largest CPO sales in its history, it’s done during a pandemic and with approximately 30 percent of our dealers closed, or their sales departments closed in some manner, for most of the month,” said Michael Ashton, Volkswagen of America’s senior manager of national CPO/used vehicle operations. “We have a lot of brand-new customers to our brand because of that program.”

Volkswagen’s Certified Pre-Owned program was already growing steadily before the COVID-19 pandemic. The brand hit its highest annual CPO sales in 2019, at 103,524, up 8.5 percent, on top of a 26 percent gain in 2018.

Those gains had largely come as a result of warranty enhancements made in part to hang onto customers in the aftermath of the brand’s disastrous diesel emissions scandal, which came to light in 2015.

VW reconfigured its CPO program in 2018 to add up to 12 months/12,000 miles on top of its 6-year/72,000-mile original warranty. That meant that a vehicle returned after a two-year lease could be certified and covered for up to seven years or 84,000 miles.

Volkswagen last year lowered its original warranty to 4 years/50,000 miles but added two years of free maintenance. That brought certification coverage to a total of five years or 62,000 miles from the original in-service date.

For diesel vehicles, the CPO program added two years with unlimited miles.

But in early April, as COVID-19 shuttered dealerships and sales plummeted, VW’s U.S. executives were staring at a collapse in CPO sales that mirrored those of new vehicles, Ashton said. That’s when they decided to step in.

The operation was projecting only about 2,500 CPO sales in April, Ashton recalled.

“This was not a great situation, and that’s when we really started to push to change, to try to come in and have some relief for consumers.”

Volkswagen introduced 0 percent financing on CPO vehicles April 11 and managed to finish the month at 5,684 CPO sales — still down, but far from collapsed.

To help dealers get inventory to certify, Volkswagen in May launched Dealer Direct, a dealer-only auction site where its network of 650 U.S. dealers could bid on off-lease vehicles that weren’t first grabbed by the dealer taking them in.

“One of the things for us was realizing very early on that CPO actually enhances new-car sales,” said John Luciano, general manager of Street Volkswagen of Amarillo, in Texas, and chairman of the Volkswagen National Dealer Advisory Council.

Luciano said consumers see certified vehicles as the factory standing behind its product, which elicits trust, especially as the brand works to restore its image.

He said dealers sometimes complain about the added costs of reconditioning incurred in the certification process.

“But if you’re doing it internally, and you’re doing it properly, then you’re driving gross back into your service department and your parts department.

“It’s a good thing because you’re selling a really good car and driving the residual values.”

Under Volkswagen’s program, the dealer pays a flat fee, regardless of model, to certify a vehicle, which is passed along in the pricing. To achieve certification, the vehicle must go through a 112-point inspection with only minor blemishes on its Carfax history, and it has to be under 7 years old with under 75,000 miles.

“It builds a lot of value,” Luciano said. “Based on everything you’re going to get with it, plus knowing that the recon’s been done, we price it at $1,495 [in added margin], and hope we get $995 on it.

“If it will pass the checklist, I will certify it. The program is that good.”

Steve Hendricks, general manager of Luther Westside Volkswagen in St. Louis Park, Minn., has been a big believer in Volkswagen’s CPO program for a dozen years.

The suburban Twin Cities store has been the brand’s top CPO seller for most of that time, averaging more than 100 CPO vehicles a month. He said some dealers incorrectly assume that consumers won’t bear the added costs of certification.

“They think customers strictly go by price,” Hendricks said. “And some people do. But people who want to buy a new car but can’t afford it, they look at CPO cars as the next best thing.”

Inventory matters, he added.

“You can’t have just one or two CPO cars on the lot,” he said. And a lot can’t have two similar vehicles side by side, with one reconditioned and the other not.

“You’re either in, or you’re out,” he said. “If a car qualifies for CPO, and you don’t certify it, you can’t [logically] explain that to a customer.”