There were 2.11 million certified pre-owned sales in 2013, according to Autodata Corp., representing the best year ever for the CPO market, the third straight year of record-breaking sales and the first time the industry has ever reached the 2 million unit threshold.
And this historic sum will likely be “blown away” by what happens in 2014, says Jonathan Banks of NADA Used Car Guide.
Although overall supply of used vehicles up to 8 years old available for dealers will be essentially static from 2013, NADA Used Car Guide is eyeing approximately an 18-percent year-over-year increase in off-lease volume, following what was about a 14-percent rise in 2013.
“The big story here is, there will be more availability for the franchised dealers for inventory for those CPO units, which is great for consumers and great for dealers,” Banks said during a press conference at the NADA Convention & Expo in late January.
“We think that 2.1 million CPO sales (figure) … will be blown away, driven by the availability of lease returns that will inevitably come back in 2014,” he said.
So, the pipeline of CPO-worthy cars will be much thicker this year. What about the demand side? How much untapped potential is there in the certified market?
“We don’t have a specific figure, but to put it in perspective, CPO sales represent roughly 12 to let’s say 14 percent of all franchised dealer sales. That’s a small number. So, there’s a lot of opportunity for growth there — even if you’re talking about going up to even 30 percent, which is still a fairly small number, but a big jump from where we are today,” Larry Dixon, senior manager of market intelligence at NADA UCG, told Auto Remarketing in an interview at the convention.
And consider the significant investments that automakers are making in their programs, Banks added, coupled with rising consumer awareness.
“It’s tapped, but the spicket hasn’t even been opened yet,” Banks said in the interview.
And once supply comes back and awareness improves further, watch out. Still sluggish GDP growth, relatively high unemployment and underemployment, and people driving older cars that need replacement, makes for a ripe market for certified, Banks suggested — and likely double-digit growth.
But that’s not the only likely driver for certified increases.
Dixon looks at the automakers who have had stronger than average performances on the new-car side, particularly when it comes to leasing. Those brands, he said, are even more inclined to have their dealers put a great deal of emphasis on CPO.
“They are going to have more supply coming back than other brands, on average,” Dixon said. “In order to help keep values up and to generate more of a customer experience and build relationships with the customer, it’s in their best interest to grow CPO (sales).”
Banks said that along with the new-car sales market hitting the 16 million annual sales range, a big story in the marketplace will be a marketing push behind the certified programs.
And that’s something that’s needed in the business, Banks said, to raise dealer engagement. Challenges with that along with those associated with supply and awareness have been a limiting factor to CPO growth, the NADA analysts suggest.
“I think the manufacturers need to do some more concerted marketing with the dealers, because they need that participation,” Banks said.
Dixon added that in surveys and conversation they’ve had with dealers, marketing support from the OEMs is something that comes up. The dealer may not necessarily be happy with the certified fees they have to pay, but it helps for them to be shown the benefits of doing CPO: relationship-building with the consumer, improved fixed-ops revenue, potential for new sales in the future and so on, he said.
NADA Used Car Guide considers retail transactions from several automakers, and in placing CPO premiums in its guide book, it is typically determined to be a good value for the dealer — even when weighing costs — for the dealer to certify vehicles, Banks said.
“It clearly pencils out as being a good proposition. The value proposition is there, it’s just a matter of more people need to be aware what it means,” he said. “And they need to have 100-percent participation.”
What’s the Growth Potential?
In the 2014 Used Car Market Report, Manheim Consulting does put a number on a potential CPO sales target: 4 million.
And that could be reached quite soon.
Much like what the team from NADA UCGsuggests, Manheim says the surge in off-lease supply in 2014 and coming years means more landmark certified years are “inevitable.”
However, Manheim’s report poses this question: does the CPO market have a “natural limit” as to how high sales can climb?
“After all, the ratio of CPO sales to the number of new vehicles sold in the prior three years rose from 1 percent in 2000 to more than 5 percent in 2013. Does that suggest that the supply of potential CPO units is becoming stretched? Not at all,” the report reads.
“Note that several manufacturers that have long-established CPO programs, high lease rates, and remarketing processes that keep a large share of returning vehicles within their dealer network often have CPO-to-prior sales ratios in the double digits,” it continued.
“This means that the CPO market has the potential to grow to more than 4 million units per year, in short order. It is only a matter of how much marketing muscle the manufacturers want to put behind the programs — and, of course, the dealer’s ability to continue to earn good profits on the sales.”
As for 2014, in particular, look for another historic best, as Manheim’s Tom Webb illustrated during an NADA press conference: “I can pretty much guarantee that CPO sales are going to hit a record again this year.”