US research proves the value of reconditioning cars ready for auction. Each $ invested in reconditioning brings a return of $2.27 *

The popularity of manufacturer approved used Certified Used Programs (also know as Approved Used Programs) has led to wholesale certification programs that non-manufacturer remarketers can use to boost remarketing returns.

To help auction sellers better understand this, Manheim Consulting analysed the remarketing success of seven high-volume auction sellers that offer wholesale certification warranties on their units.  These certified warranty offerings were either the “Manheim Certified Program” or a “Private Label” program for an individual seller using the same standards.

“Success” in this study was defined as the difference between the auction sale prices of units reconditioned to a certified standard backed with certified warranties and the Manheim Market Report (MMR) value for similar units that were not covered by a warranty or reconditioned for certification.

The study monitored 89,813 auction transactions from seven non-manufacturer sellers.  One-third of the transactions, 29,726, were sales of certified vehicles.  Two-thirds were non-certified.  All of the sellers are either leasing or lending institutions, or both.  The total dataset was sufficiently large for a high level of statistical accuracy and confidence.

The overall result of the study: 
Sellers with certification programs averaged a $2.27 return for every $1.00 invested in the recon and certification process.  An ROI of this magnitude makes a convincing case for combining certification and the right kinds of reconditioning into a strong auction remarketing strategy.

While a wholesale certification program might not suit all sellers’ remarketing objectives, the availability of such a substantial investment “lift” makes it prudent to at least review and consider certification as part of a total remarketing plan – for direct sales as well as auction channels.

The best return is on vehicles that have negligible paint and body damage, are generally clean and odour-free and, thus, can be reconditioned for certification at reasonable cost.  The seven sellers spent an average of $356 to recon and detail their certified vehicles; this included the certification fee.

A second reason for focusing on the middle condition grades is buyer confidence. Superior quality vehicles tend to create an implicit “certification” in buyers’ minds simply because their initial condition is better; that tends to reduce, somewhat, the auction buyer’s need for formal certification.

These results do not argue for omitting the higher condition grades from certification. There is a positive investment lift for certifying nearly all vehicle conditions except the very poorest quality units.

Once a group of vehicles is selected, how much reconditioning is enough?  The first objective of reconditioning for certification is to bring the vehicle into compliance with the minimum requirements of the Certified program.  Compliance means meeting the program’s reconditioning checklist.

The seven sellers in this study spent an average of $301 reconditioning and detailing each vehicle. The sellers prepared their similar, but non-certified units with an average investment of $164 for reconditioning and detail per vehicle.  On average, the sellers spent $137 more preparing certified units than they spent fixing their non-certified vehicles.

This extra expense in certification was recovered in the final sale price at the rate of $2.27 for every $1.00 spent on recon, detail and the certification fee when compared to MMR values for the similar but non-certified vehicles.

The study establishes a clear message for remarketers with the volume, the willingness and the resources to engage in wholesale certification:  Such wholesale certified programs, intelligently combined with appropriate reconditioning and detailing, provide a low cost method for significantly improving wholesale prices and residual values.

*Manhiem Consulting Research 2011.