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Used Car Certification Program Jungle
By Mark Wiley
Note: after being part of the design and roll out teams for both GM Canada’s and Mercedes-Benz Canada’s Used Car Certification Programs I’ve enjoyed an insiders view and experience of why these programs exist.
When it comes to used car certification programs it seams that no matter which the original equipment manufacturer (OEM) is they have a certification program that is going to ease all your worries when it comes to buying or leasing a used vehicle of their brand.
Sounds very solid at first, especially when told by one of their veteran used car sales staff, however when you really think about it, some obvious and some not so obvious questions start to arise:
Q: With all the amazing pre-owned vehicle choices out their today why are they only promoting their brand?
A: Because the program is subsidized by the remarketing program of the applicable OEM and they are only interested in moving their off lease vehicles and maintaining the residual value of their lease fleet: therefore keeping the prices higher for your desired used car.
Q: Why does their exchange program (if there is one) have a time limit and only allow me to exchange from their inventory?
A: This is the case to discourage you from switching. Also you have already negotiated your best price on your initial purchase and if you switch it you have to pay the asking price on the vehicle you are switching for. Often this allows the used car department to split the full profit on the second car and create two deals. Result is you pay too much.
Q: Why do I have to come back to their service department for warranty repairs if required?
A: For control. OEM doesn’t want you to get a taste of better value service or an independent opinion on your recent purchase.
Q: Why do I have to pay a considerably higher price to get their advertised low finance rate?
A: If it sound to good to be true…this is the case because the built in OEM warranty and low finance rate are actually additional profit centers for the OEM dealers business office and you pay for this to feel better about your purchase.
Q: How can an OEM dealer offer a lower finance rate than my own bank?
A: Again you are paying for this in the higher vehicle price. Also the finance wing of the OEM is subsidizing the rate to help move their off lease fleet of vehicles that the original customers no longer want.
Q: Why does the business manager at the OEM dealer push so hard for me not to use my line of credit and go with their almost unbelievable low rate?
A: Again control. The last thing the OEM dealer wants is for you to go to your own bank. All those extra things you have purchase for your peace of mind (rust proofing, life insurance, interior protection, etc.) may or may not be necessary and the last thing the OEM dealer wants is for an outside unbiased advisor influencing your decision.
Q: Why do I have to pay extra for an extended service plan to use their advertised low rate?
A: This is part of the package and ties the OEM’s control plan of your future business together. Also it adds two more areas of profit to the deal, the purchase of the service plan and where you come for your future service at a higher price of course.
Q: Why can’t I put a vehicle from the US through the OEM dealers used vehicle certification program, especially after sometimes having to spend money in their service department to make it so called ‘Canadian compatible???’
A: A US vehicle at an often much lower price completely erodes the value of an OEM’s lease portfolio. All of those low new car lease prices are based on artificially inflated residual end values to make it undesirable for you to buy out those leases when they come due. Therefore an often superior vehicle from the US will allow you to drive more vehicle for less leaving the OEM stuck with all their off leases. (Special note: OEM dealers would love to offer US vehicles through these programs but usually are not allowed due to their OEM dealer contracts)
All of these are great questions the OEM dealer doesn’t want to hear. Their dealership is financially structured around being able to sell used cars that are reconditioned through only their service and parts departments usually at full price to maximize profit (re: the price you pay).
Where do your choices come into this? With so many options on the pre-owned market today how does being funneled into one brand at one OEM’s franchise help you make an educated decision, of such importance, with the confidence you deserve?
It doesn’t. In fact it can be confusing beyond imagination and only contributes to the sometimes daunting task of buying a used vehicle in the first place. It also tends to build mistrust rather than confidence. However, once you are at the OEM’s operation the dealer has you right where they want you, in front of their NEW VEHICLES and of course this opens up a whole new set of traps and hooks associated with the 45% depreciation that new car is poised to suffer in its first couple years.
Coming up in the next few days I’ll get into the alternatives to purchasing a pre-owned vehicle at an OEM dealer so please watch for my upcoming articles and videos or email me at mark@wlba.ca
