Top-Performing CPO Dealer Shares Three Keys To Success

Congratulations to vAuto dealer Don Luke and his team at Bill Luke Chrysler Jeep Dodge & Ram in Phoenix for earning AutoRemarketing’s 2015 CPO Dealer of the Year Award.

The honor follows a stellar performance. Luke and his team retail 500 used vehicles a month, including roughly 200 certified pre-owned (CPO) vehicles. They average a 30-day retail turn rate on used vehicles, which translates to an annualized inventory turn of 12 times a year.

Luke shares that he’s found a welcome surprise since he decided three and a half years ago to step up his CPO efforts with Chrysler.

“I was concerned about service contract penetration,” he says. “I worried that we might be hurting our penetration as we increased CPOV sales—because, truthfully, that’s where you’re making your money. It’s not, unfortunately, selling the car sometimes.”

Luke says the dealership averages nearly 60 percent service contract penetration on all used vehicle sales, and estimates the penetration runs 5 percent to 10 percent more for CPO units.

He explains: “The mindset is that customers already believe the vehicle is more valuable because it’s a CPO vehicle. You’re offering them a 90-day, almost bumper-to-bumper warranty, you’re giving them a 100,000-mile powertrain wrap. That has value. That takes a little bit of the sting out of buying a used car.”

Luke adds that it’s important to emphasize a CPO vehicle’s inherent value right up-front with customers.

“We start that conversation early in the process—‘this is a great car, it happens to be a CPO car, and has these benefits,’” he says. “When you take them into F&I and offer an extended warranty with even more coverage, they see the value. You don’t start that conversation after a customer has bought the car, goes into the F&I office and hears someone telling them about extending a warranty.”

As a vAuto dealer, I asked Luke for pointers that might help other dealers improve their CPO business. He shared three:

Don’t get too proud of your CPO units. “You definitely have to be willing to play the game in today’s market,” he says. “This past month, we sold a great many of our fairly fresh units at a loss because the market is starting to change as it always does at this time of year. When you realize the market’s shifting, you have to be willing to retail out of your cars. Get rid of them, even if they’re all losers. You can go to the auction and buy fresh stuff you won’t lose on.”

Stay committed to your turn objectives. “You have to be totally committed all the time,” Luke says. “If you pause, and you decide I won’t take those losses, and I’ll hold my prices up, you’re not going to have a 30-day turn. You’re going to go to a 60-day turn, or a 90-day turn. Instead of losing $1,000 a car, you’ll end up losing $1500 to $1800, and you’ve really got a bloodbath. To be in this, you’ve got to constantly concentrate on that 30-day turn, regardless of the pain level.”

Invest in your sourcing strategy. “We literally take every opportunity we can to buy cars,” he says. “We just added a third online buyer. My used car manager also buys online and at times he’s looking at two auctions at the same time. We’ve got to buy a lot of cars to keep up with 500 units a month retail. The key, of course, is buying the right cars at the right prices.”

Our conversation also touched on current market conditions. Not surprisingly, Luke sees a lot of opportunity.

“A lot of guys have been sitting on inventory they bought 90 days ago or more to take advantage of selling in the summer,” he says. “Now they’re sitting on those cars, and they don’t want to go into the winter with them. So what do they do? Send them to the auction. When you get a glut of cars at the auction, prices start to go down. And guess who’s there waiting to buy them?”