Honda doubles down on CPO sales strategy

LOS ANGELES — The headwinds are picking up in auto retail. They include sticker shock, interest-rate volatility, spiking lease returns and younger buyers who balk at the rapid depreciation of a new vehicle. Add signs of an economic downturn in the U.S., and it presents an increasingly rough battleground for retailers, new or used.

At Honda and Acura, sales executives are putting on more battle gear with a rebranding of their certified pre-owned vehicle programs this month. Those Japanese brands are doubling down on CPO by creating a second tier of certification at Honda and extending the warranty coverage period at Acura. Honda also is adding complimentary perks such as roadside assistance and oil changes, while Acura is adding a free scheduled service.

Both marques saw their CPO sales increase at four to five times the market average through July, according to the Automotive News Data Center. And both are projected to have record pre-owned certified sales in 2019 as off-lease volume for American Honda breaks the half-million barrier, according to a company forecast.

For Honda, it puts CPO sales on track for a fourth straight year of record volume. Through July, the brand's CPO sales rose nearly 8 percent, according to the Automotive News Data Center. For Acura, the gain was nearly 10 percent. That compares with average industry growth of 1.9 percent.

"The off-lease volume really provides fertile ground for us to be able to bring those cars in" for certification, said Dan Rodriguez, manager of remarketing and certified pre-owned at American Honda Motor Co.

"This is a way for us to protect the brand because we bring those cars within our dealer network where we know they're going to go through a thorough process before they're offered for sale. We're kind of stacking the deck to have a good experience for that customer, which hopefully leads to loyalty," Rodriguez told Automotive News.

Customers benefit by getting a near-new vehicle that's reliable and affordable, he said.

"For the CPO buyer, security is really big," Rodriguez said. "So warranty really resonates with them."

And for dealerships, certified vehicles sell quickly and improve profitability, he said.

"Used cars have become a much more important part of the overall dealer business," said Rodriguez. "A strong advantage for CPO is the inventory turn. These cars come in and they go out really quickly. That reduces holding costs for them."

Nearly half of the used Hondas at its dealerships are CPO vehicles, according to the automaker. For Acura, that number rises to 68 percent.

The advantage for the automaker? It's all about loyalty.

CPO buyers are more likely to buy a Honda or Acura at the time of their next vehicle purchase compared with a non-CPO buyer, according to American Honda. It's also a gateway to the brands, with 42 percent of CPO buyers new to Honda and 60 percent new to Acura.

In particular, Rodriguez said, CPO sales are a powerful tool when reaching the millennial buyer.

According to an Autotrader survey cited by American Honda, 74 percent of millennial shoppers expressed a willingness to pay more for a CPO vehicle, compared with 62 percent of nonmillennials.

For Honda, bolstering CPO warranties is in part aimed at making those younger buyers feel more secure. They already want a simpler buying process, and a CPO tag on a car can serve as quality filter in the eyes of those shoppers, Rodriguez said.

"They like that they're near-new and have the latest tech features," he said.

As part of the rebranding effort, the HondaTrue Certified program adds a series of complimentary benefits including roadside assistance, emergency fuel delivery and two complimentary oil changes. The warranty includes an additional 12 months or 12,000 miles of coverage beyond the original nonpowertrain factory warranty, which is unchanged at 3 years or 36,000 miles.

Honda's new "plus" tier comes with an additional 24 months or 50,000 miles in coverage on top of the original factory warranty. The "plus" tier is only available on used vehicles with less than 12 months or 12,000 miles on the clock.

Acura's Precision Certified program doubles the additional nonpowertrain warranty period from 12 to 24 months. It also provides up to 50,000 additional miles of coverage vs. the 12,000 additional miles under the old program. So a certified Acura is now covered for six years from the date of the original purchase or 100,000 miles, whichever comes first. Acura also added a free scheduled maintenance with oil change, tire rotation, fluids and filters.

Adding the second tier at Honda was intended to find a special home for loaners with low mileage, Rodriguez said. Those near-new CPOs give buyers another option should a new vehicle fall outside their budget. And they offer younger shoppers all the newest technology and safety features, a strong draw for that demographic.

"We want to encourage the dealers to keep the freshest cars in there," said Rodriguez.

While CPO fees paid by dealerships bring in income for the brands, that gets quickly reinvested in support programs such as marketing and special financing, he said. That feeds into the virtuous cycle of supporting residual values. American Honda is known for no fleet sales and limited incentives to support residuals and profitability.

The revamped CPO programs, Rodriguez said, are "a tremendous positive and an opportunity for the dealers because keeping that residual value high is really key. And CPO provides a mechanism to support that."