ATLANTA -

With even the highest-performing dealership possibly hitting a ceiling of how fast its inventory can turn, Cox Automotive chief economist Tom Webb took the opportunity to reinforce why the certified pre-owned slice of the market is becoming even more important.

Webb acknowledged metrics from the seven publicly traded dealership groups show their gross margins in their used-vehicle departments are ticking lower after each successive quarter. But yet most, if not all, of these companies are seeing profits at record levels because, as Webb pointed out, their throughput and efficiencies are greater — all while their F&I income levels continue to remain strong, too.

“I would expect that the margins would start to level off simply because the increased efficiencies that they have gained, but at some point you reach a limit,” Webb said. “A lot of these dealers are turning their used-vehicle inventories in 30 days. Some even less than that. You really can’t do much better than that. There are basically physical limits on how fast you can turn your inventory.”

With those limitations in play, insert the appeal and profit potential of CPO units as the vehicle — pun intended — for how managers can generate the most performance out of their stores.

“The fact that the dealer gets added gross on the unit and turns it faster, has higher F&I penetration rates with service contracts wrapped around, it’s a bigger profit opportunity for the dealer,” Webb said. “To the extent that the dealer is buying on the potential profit opportunity, some of that goes into what they’re willing to pay for these units.

“There are some instances where depending on the brand and the CPO program, where the gross margin different might not be all that great so you might not be doing as much,” he continued. “But for some, it’s nice dollar amount, and more importantly, the vehicle does in fact turn fast and have more F&I income than a typical unit would.”

Webb also mentioned it’s not just dealers who have luxury brands under their rooftop who are getting the most of the CPO market. He acknowledged that luxury brands have traditionally been slightly ahead of their CPO pack since they move a lot of new metal as leased units and have been doing “a good job of keeping end-of-term lease units at the dealership network.”

Webb added, “It’s my assumption and belief that the industry as a whole, the mainstream models, are moving more toward what the luxury vehicles are doing in terms of the off-leasing environment.”

That off-lease environment is expected to intensify during the remainder of this year, into 2016 and beyond. Cox Automotive already is thinking off-lease volume should approach 3 million units with the suspicion it should stay around that level, since Experian Automotive notes that around 30 percent of the new models rolling over the curb nowadays at franchised dealerships are attached to leases.

“We’re in much better position to handle the off-lease volume issue going forward than we were during the last peak in 2002,” Webb said. “The CPO programs at that time were in their infancy. Some of them were developed to handle and help support residual values. The remarketing practices are much better than what we had in the past.

“The CPO programs are working because there’s greater consumer acceptance. They do well for the dealers and the captive lessors,” he continued.

“I would never go far as to say a CPO is the panacea to protecting residual values. But it sure helps,” Webb went on to say.

So could CPO be the catalyst to where dealers can turn their inventories even faster than 30 days?

“CPO volume going forward is really dependent upon how much money and marketing efforts that the manufacturers want to put behind the programs,” Webb said.

More discussion about the importance of certified pre-owned units is the focus of the CPO Forum, the opening segment of Used Car Week. The CPO Forum brings together dealers and services to mingle about best practices and network to bolster your CPO program.

Used Car Week is set for Nov. 16-20 at the Phoenician in Scottsdale, Ariz.

For more details about the CPO Forum in the agenda and registration, go to www.usedcarweek.com.