In the post-pandemic reshuffling of the auto industry, a surprising trend has emerged: certified pre-owned vehicles that are barely a year old are taking over dealer lots.

What began as a premium-brand tactic has now found its way into the mainstream market. These 1-year-old CPO vehicles are changing the game for dealers, manufacturers and buyers alike. Behind the rising numbers lies a deeper story, one that reflects shifting consumer behavior, economic pressure and strategic adaptation by automakers and dealerships.

Historically, the backbone of the CPO market has been off-lease vehicles around 3 years old. These cars have enough depreciation to be attractively priced but are still new enough to meet certification standards with manageable reconditioning efforts and costs. That model worked well until the pandemic disrupted the lease cycle, production lines and inventory pipelines. Now, with a relative shortage of 3-year-old vehicles, dealers are turning to a new source of certified pre-owned units: their own fleets.

These service loaners, demo units and courtesy vehicles are already on the lot, well-maintained and controlled by the dealership. Certifying them as used vehicles is a low-effort, low-cost, high-speed process. It comes with the bonus of still-intact manufacturer warranties and low mileage, usually under 15,000 miles. In other words, these vehicles are practically new but not priced like it.

Why buyers are biting

From a consumer perspective, 1-year-old CPO vehicles offer a sweet spot. They typically cost significantly less than their new-vehicle counterparts but come with (arguably) even better peace of mind. They include a robust remaining factory warranty, an added certified warranty of one to two years and sometimes additional perks like free maintenance.

In today’s economy, where the price of a brand-new vehicle can shock those who have been out of the market for four or five years, CPO represent a lifeline for an erstwhile new-vehicle buyer.

A growing number of shoppers find a 1-year-old certified vehicle feels close enough to new to interest them — without the new-vehicle price tag. Add to that the fact that interest rates remain high and incentives on new vehicles are still lackluster, it’s easy to see why these lightly used CPO vehicles are catching on.

The OEM incentive machine

Original equipment manufacturers are fueling this trend to certifying one-year-old vehicles by sweetening the pot for dealers. Several offer back-end discounts and/or waive certification fees, making it financially easy for dealers to certify these nearly new vehicles.

What’s in it for the OEM? It builds dealer engagement in the overall CPO program. Encouraging certification of these almost new vehicles is a way to simplify the process for each dealer, increase CPO volume and keep customers loyal to the brand. While it’s a boon to retail customers, it also preserves production volume and prevents excess new inventory from stagnating on dealer lots due to high prices.

What about profit margins?

While this strategy makes sense from a volume and efficiency standpoint for carmakers, the economics for dealers are interesting. One-year-old vehicles haven’t depreciated nearly as much as the typical 3-year-old lease vehicle.

That means they’re more expensive for the dealer to acquire, although the task itself is easier when the vehicle comes from the dealership’s own fleet. Even though the nearly new units require less reconditioning than older CPO candidates, the slimmer margin between acquisition cost and resale price can make profitability tight.

While dealers may prefer the convenience of certifying one-year-old vehicles, they shouldn’t leave money on the table by neglecting older off-lease vehicles.

OEM goals vs. dealer goals

A key reason OEMs institute and support CPO programs is to maintain long-term brand sales volume. Their ideal trajectory? A customer starts with a CPO vehicle and eventually upgrades to a new vehicle of the same brand. But with new-vehicle prices continuing to escalate, that path is getting harder to follow. Instead, some buyers are showing increased loyalty to CPO itself.

For dealers, that’s not necessarily a problem. In fact, it can be a very good thing. Selling more CPO vehicles means sales volume and offers the opportunity for F&I add-ons like extended warranties or maintenance plans. And with 1-year-old units, even if profits are slimmer, the process is simpler and faster. So, while OEMs hope for customer progression, dealers may be content with customer retention.

What comes next?

The trend to a higher percentage of one-year-old vehicles in the CPO mix could be a temporary adaptation to the pandemic-prompted shortage of 3-year-old off-lease vehicles. Or it could be a long-term trend.

As more 3-year-old vehicles return to the market, there’s potential for a CPO rebound across a broader range of model years. But the current success of 1-year-old units shows that the industry has found a viable stopgap and may be another valuable CPO strategy.

The rise of the 1-year-old CPO vehicle is not just a tactic; rather it’s a symptom of a market still recalibrating after years of disruption. It reflects shifting customer expectations, new cost realities and a strategic pivot by brands trying to preserve loyalty and volume in a high-priced market. For now, it’s working. But, as always, the winners will be OEMs and dealers who can adjust quickly to the market, no matter in which direction it turns.

Ben Bartosch is manager of certified pre-owned solutions at J.D. Power.