ODonnell: Encouraging BMW dealers to sell more off-lease cars means fewer go to auction, keeping residuals up.
DETROIT — BMW and Mercedes-Benz say their certified pre-owned sales have soared as cash-strapped and entry buyers switch to used cars.
As more cars come off lease, both brands have given dealers quotas for buying them back, tying margin and bonus payments to used-vehicle retail requirements for stores. The new performance goals reduce the number of off-lease cars going to auction and keep residuals up, said Jim O'Donnell, CEO of BMW of North America.
The key to Mercedes' success with used cars has been the warranty, giving buyers more confidence in the certified vehicles. "And from a dealer perspective, it was good for business," said Michael Slater, vice president of sales for Mercedes-Benz.
Mercedes-Benz sold 64,645 certified pre-owned cars last year, up 26.9 percent from 2007. BMW sold 104,000 certified pre-owned cars last year and wants to sell 120,000 this year, O'Donnell said.
The new dealer certified requirements also keep residuals up by lowering the number of vehicles going to auction — where vehicles are sold for less.
"Everyone is being affected by cars going to auction, but our numbers are not that high," said Ernst Lieb, CEO of Mercedes-Benz USA.
Mercedes set certified targets for dealers when it revamped its margin program Jan. 1, 2008, requiring dealers to buy a prescribed number of certified used vehicles from the factory. Mercedes tied that to part of the 3 percentage points of the base dealer margin that is linked to performance goals.
BMW has made similar adjustments to its margin this year, with 2 percentage points of the 5 percent payment linked to dealers buying and reselling certified cars, O'Donnell said. In the past, dealers would buy back cars from the factory but send many to auction rather than retail them, he said.
BMW has an Added Value Program not tied to the margin. Dealers are paid 5 percent of the sticker price of each car sold. The 5 percent is split into two areas: 2.5 percent for customer satisfaction and 2.5 percent for meeting other goals — which now will include buying from BMW a required number of used cars coming off lease.
BMW has a record number of cars coming off lease this year — more than 155,000 units, O'Donnell said. Because BMW's margin program had no teeth, many dealers who bought used cars from the factory sent them to auction rather than sell them as certified pre-owned vehicles, he said.
Last year, about 15 percent went to auction. The number could have been higher, O'Donnell said, but tightened credit meant that fewer traders were buying cars at auction.