LAS VEGAS -

An ample supply of off-lease SUVs and crossovers coupled with consumers looking for affordable alternatives to new vehicles promises to pave the way for another record year of certified used-vehicle sales.

That was the consensus of analysts, dealership managers and managers of CPO programs who attended Used Car Week, Nov. 11-14, in Las Vegas.

Industrywide, factory-certified used-vehicle sales rose 4 percent to 2.8 million in 2019, according to Cox Automotive. The company also predicts  that about 4 million off-lease units will roll back into the used-vehicle market in 2020, about the same or slightly down from 4.1 million 2019.

Ron Cooney, sales operations manager for Toyota Certified Used Vehicles, said he expects industrywide CPO sales growth to continue for the 10th consecutive year in 2020.

“You can get a two- or three-year-old car with so much technology on it, and it’s just prime, we really do see it growing a little bit more,” Cooney said, during the panel discussion, “Dealers in Focus: The Next Decade.”

Toyota certified sold 34,142 CPO units in December, a 16% increase over sales in December 2018, and its calendar 2019 CPO sales rose 13.2% to 387,914 units, the company said.

Cooney said 3- to 4-year-old vehicles, with 35,000 to 45,000 miles on their odometers make up about 80 percent of Toyota’s CPO sales and inventory.

Watching residuals

Eric Swanson, head of certified pre-owned vehicles at Fiat Chrysler Automobiles, said the challenge facing the entire industry this year is keeping those lease returns — mostly SUVs, crossovers and trucks — within the franchise dealership fold and out of auctions channels to prevent major residual value losses.

FCA is prepared for its off-lease volume, but there’s always room for improvement, Swanson said.

“It’s always about getting dealers to become more engaged in certified pre-owned; it’s about getting dealers to be more pre-disposed to purchasing these lease returns,” he said during a sidelines interview at the conference.

“With the volume of off-lease returns and what I know is coming through our auctions and I do my job, we shouldn’t have any problem selling over 300,000 cars” in 2020.

In calendar 2019, FCA’s CPO unit sales rose 9.9 percent to 294,266 units; its December unit sales grew 8.2% to 24,408, the company said.

Anil Goyal, executive vice president, operations, at Black Book, said though the overall used-vehicle supply will remain high this year, the company is not projecting a steep fall in residual values.

More crossovers and SUVs, fewer sedans

However, Black Book is predicting that the supply of off-lease SUVs and crossovers will increase by 5% and the supply of sedans will decrease by 5%.

“The mix is more aligned toward the demand of consumers,” Goyal said who commented during a sidelines interview at the conference and a subsequent interview in January.

Black Book data shows that the average residual value for 3-year-old compact crossovers remains strong at 49 percent compared to 3-year-old, midsize sedans which have an average residual value of 44%.

“Given that the supply is going to be higher this year, we’re projecting a 1% drop in residual values” for crossovers.

Andrew Stowe, senior director, vehicle valuations, at J.D. Power, during his presentation: “Used Vehicle & CPO Industry Update,” cited seeing similar trends in his data.

For example, as of early November, small SUV wholesale auction volume was up almost 40 percent and compact SUV auction volume up 20%, he said. In that same period, mid-sized SUV volume was up by a lot smaller percent but still increased by about 50,000 units, he added.

Despite all the used vehicles flowing into the marketplace in recent years, prices have trended upward, meaning that demand is sufficient to off-set supply, he said.

Safeguard CPO

But, “Going into next year it’s going to decline quite a bit, a 2% drop,” Stowe predicts.

“We’ve gotten back to what is going to be a normal trend, anyway, without this aberration in 2019 when prices were so strong. But as far as I’m concerned, used is red-hot and this is where you want to be.”

He also pointed out that as the industry evolves, it promises to bring changes in terms of vehicle sales and ownership, so “it is incumbent on dealers to safeguard” the CPO business, he said.

CPO vehicles typically are more profitable, turn faster and cultivate more loyalty than like make, model and mileage non-certified vehicles, he said.

“Dealers choose to participate in this space,” he said. “They wouldn’t do it if it was just (to) feel good.”

Ray Sanabia, general sales manager and partner at Cavender Toyota, in San Antonio,  said even if the overall used-vehicle market is flat to down over the next couple of years, CPO sales will continue to increase because every year more Toyota dealers and dealers representing other franchises, choose to participate in their respective CPO programs.

“There’s another dealer saying ‘hey, you what? I’m going to participate. It’s not showing up in the box score, but the number of Toyota’s and Lexus’ will continue to go up because you have more dealers participating” in CPO, Sanabia said, during the “Dealers in Focus: The Next Decade,” discussion.

Building trust

Jeffrey Schwartz, founder and president of SureSale, a non-factory certified used-vehicle program, outlined why it makes sense for independent dealers to consider adopting CPO programs during his presentation, “No Vending Machine Required: How CPO Can Revolutionize Your Dealership.”

Citing a Cox Automotive study, Schwartz noted that factory CPO sales grew about 2% in the last three years while at the same time, the number of CPO shoppers grew 25%.

He also said over 60% of buyers with prime and better credit scores in 2019 who secured auto loans, bought used vehicles.

“What’s fascinating to me is those are not your typical used-car buyers,” he said. “These are displaced new car buyers and they want something that is not the typical used-car experience or used car.”

He said used-vehicle retailers CarMax and Carvana are doing just that by selling vehicles with peace-of-mind amenities such as clean titles, vehicle history reports; mechanical inspections; limited warranties and purchase protections; and extended protection plans.

Non-factory certified programs and marketing characteristics such as those embraced by CarMax and Carvana, help build trust and independent dealers “need to go up-market to satisfy the product demand of” these buyers, Schwartz added.

Costco Auto CPO sales increase

Also helping support CPO sales is Costco Auto Program, which prearranges prices on new and used vehicles for its members through a network of franchise new-car dealerships.

In 2019, Costco members purchased more than 115,000 used vehicles through Costco Auto, a 10% increase over 2018, said Rick Borg, the program’s general manager of operations.

CPO purchases among Costco Auto buyers increased nearly 5% and purchases of Select Pre-Owned vehicles grew 53%. SPO vehicles have a minimum of 6,000 miles and 6 months remaining on their new-car warranty.

“(The combined sales of CPO and SPO) is significantly higher than the 4 percent growth in the industry overall,” Borg said, in an email that also cited Cox Automotive’s CPO sales data. “We look forward to expanding this program with our participating dealerships and meeting higher Costco member demand for CPO vehicles in 2020.”