CarMax reported last week a spike of almost 10 percent in used-car sales for its first fiscal quarter of 2016 — and much of this increase was driven by younger vehicles, specifically pre-owned units up to 4 years old.
Used unit sales were up 9.3 percent to 150,528 this past quarter, and during the company’s conference call to discuss the quarterly results, management disclosed 76 percent of those vehicles were zero to four years old— also the prime age for certified pre-owned vehicles filling franchised dealers' lots.
This is up from 75 percent the prior quarter, and CarMax management explained it is experiencing an overall shift in supply as units of this age come off-lease in droves.
CarMax president chief executive officer and director Thomas Folliard said during the call, “For the quarter, it was 76 percent (percentage of vehicles sold zero to 4 years old). And you mentioned 75 percent was in the fourth quarter, and that's on top of 73 percent the year prior.
“So I think pre-recession, that number was 85 percent, and then coming out of the recession it was 70 percent. So yes, we've seen some shifting back towards. We've been expecting this with the shifting in supply, with the change in the SAAR. But from quarter to quarter, it was relatively flat from the fourth quarter to this quarter,” he continued.
The industry has been experiencing and is expecting even more of an acceleration in off-lease supply to drive the influx of units of this age.
And many of these units are prime material for automaker’s CPO programs, which are seeing record sales this year.
During the conference call, Folliard was asked whether certified program’s may be beating CarMax to these prime used vehicles since the company's used sales increases aren’t up quite as far as most OEM CPO programs.
Folliard said to get the full picture, one has to look beyond the CPO industry and compare where overall used-vehicle supply is currently compared to years past.
“You can't just look at CPO by itself. You have to look at total comps for the industry. If you look at the average of all the publicly traded new-car dealers, used comps during the first quarter were at 5 percent, so about in line with where we were,” said Folliard. “Within that is where you see the growth in CPO, so there is a distinction there that you have to make.”
Folliard also explained the industry still hasn’t yet seen the full potential of off-lease supply growth, and CarMax is hopeful they will benefit from future results of the current unusually high lease penetration rate.
“Lease percentage right now, I think, in the new car industry is somewhere around 30 percent. And when you see that supply coming back is really two years and three years later after you see a high lease percentage,” said Folliard. “So I'm not sure that we've seen much of it yet, but it's never been a problem for us to source cars.
“And when cars are at a high lease percentage, when you look out two years and three years later, generally, they're more organized at the auction, so it's a little easier for us actually to buy those cars when we see them come back to the marketplace.”
That said, CarMax management reported lease percentage changes in the industry haven’t historically played a large role in the company’s ability to source cars.
“So we actually think it's not a bad thing at all that there's a higher percentage of leases right now. And over the next two years or three years, that'll give us more access to those cars,” Folliard added.
As for what the company will be focusing on over the next 12 months, Folliard in closing broke it down to three factors:
“It's the ability to continuously improve our existing store base, which has gotten quite large, and then our ability to enter new markets successfully, whether they're small markets or medium-sized markets or metro markets, and then to be able to deliver a consumer offer that has all kinds of advantages against the competition that allow us to continue to succeed,” he said.
Folliard said, for him, the most exciting projects on the horizon are “continuing to grow the existing stores and then being able to go after new markets as well.”
All-time record certified pre-owned sales were reached for six import brands last month, according to Autodata Corp., which also highlighted nice gains overall for European- and Asian-brand programs in May.
In its latest recap of CPO sales, Autodata said these import brands had best-ever CPO results: Infiniti, Lexus, Mini, Nissan, Porsche and Subaru.
Plus, Autodata said, Volvo sales were at a recent high.
Overall, Asian-brand dealers sold 107,870 CPO units for the month (up 8.3 percent), with year-to-date sales hitting 482,578. That beats the year-ago pace by 6.7 percent.
European brands reported 43,286 certified sales in May, beating May 2014 figures by 11.9 percent. Five-month figures stood at 185,813 units, an 11.6-percent increase.
Two of the Big 3 automakers posted best-ever certified pre-owned sales figures last month, and collectively, domestic brands have moved nearly 400,000 CPO units this year.
That’s the latest from Autodata Corp., which has released its monthly recap of industry-wide certified sales.
The industry as a whole had its best CPO month ever. As for the Big 3, they combined to sell 81,686 CPO units in May, which beat year-ago figures by nearly 18 percent, according to Autodata.
Through five months, they moved 394,449 certified vehicles for an 18.2-percent increase.
Breaking all-time CPO records, Autodata said, were Ford Motor Co. and Fiat Chrysler Automobiles.
The brands at Ford combined to move 26,097 certified vehicles in May, which marked an 11.7-percent year-over-year increase.
Through five months, they’ve sold 119,528 CPO vehicles for a 9.5-percent upswing.
Excluding Fiat results, the Chrysler, Dodge, Jeep and Ram brands at FCA moved 16,579 certified units in May (up 29 percent) and have sold 74,646 CPO vehicles in five months (up 26.3 percent).
With Fiat sales included, FCA moved 16,661 CPO units for the month, a 29.2-percent increase. The five-month total is at 75,000 units, up 26.6 percent from last year’s pace.
(The aforementioned Big 3 total does not include Fiat figures).
At General Motors, there were 36,916 CPO sales of Buick, Chevrolet, GMC, Pontiac and Saturn vehicles in May, which beat year-ago figures by 18.2 percent. Year-to-date sales are at 189,515 units (up 20.8 percent).
Both new-model leasing and certified pre-owned sales are setting records. Might both markets continue to build steam if automakers, captive finance companies and other institutions are interested in ramping up the volume even more by delving deeper into the non-prime consumer space?
While Kelley Blue Book senior analyst Alec Gutierrez and Autotrader senior analyst Michelle Krebs do not see non-prime leasing gaining much more of a presence than it already has, both industry observers view the potential marriage between CPO units and non-prime consumers as having great potential.
“There is less risk of depreciation. A certified unit will have already taken the brunt of any sort of deprecation,” Gutierrez said. “You know that the captive isn’t going to be on the hook to take that car back in two or three years. I would say that’s likely a better avenue than trying to get more folks involved in an already overheating leasing market.”
Then Krebs added, “And the automakers and dealers are going to be under pressure to move all of those certified pre-owned vehicles.”
Both Gutierrez and Krebs maintained what several other industry observers noticed and finance company leaders acknowledged — competition is prying open the lid on terms as more vehicle installment contract volume goes to buyers lower down the credit spectrum.
But as far as leasing goes, neither Gutierrez nor Krebs are projecting a flood of new metal leaving dealership showrooms connected with lessees holding credit scores in the 600s.
For the record, Experian Automotive mentioned in its latest report that leasing credit has loosened, as the average new-vehicle lessee had a credit score of 718 in Q1 2015, down from 721 the previous year.
“Just looking at lending in general, what we have seen over the last six to 12 months is there has been an increase in the number of loans given to people with less than prime credit. We’re not necessarily talking about deep, deep subprime here, but we are seeing the manufacturers’ captive finance companies and even the more traditional banks expanding their credit portfolios to include subprime and less-than-prime credit worthy borrowers,” Gutierrez said.
“Now as far as how that transitions over to leasing, I would suspect that we’ve seen the same sort of activity happening in their lease portfolios as well,” he continued during a conference call with Krebs that Autotrader and KBB hosted for the media earlier this week.
Although there has been some leasing activity “in that direction,” Gutierrez suspects that any momentum generated in recent months perhaps might not be sustained with the ongoing expectation that the Federal Reserve will push interest rates higher.
“My expectation is you’re not going to see a significant shift in the aggressiveness in their credit portfolios from a risk perspective only because the future is a little bit hazy at this point as far as how sustainable this lease business is going to be in the next year or two. You’re seeing some inching in that direction but don’t expect to see a significant shift,” Gutierrez said.
And leasing originations already above the 30-percent mark for some time now, Krebs has her doubts about that segment of vehicle financing drifting much lower down the credit spectrum in light of the volume of vehicles hitting the wholesale market.
“I think automakers are going to be careful about that level going very much higher in part of what Alec mentioned earlier about what happens with all of those off-lease vehicles,” Krebs said. “We’ve got a tremendous amount of off-lease vehicles coming this year and going forward. While the market seems to be able to absorb all of these now, this is a cyclical business.”
So while Gutierrez and Krebs aren’t ready to say non-prime leasing is about to surge, perhaps a path captives and other institutions might trek is booking more deals with non-prime consumers for a certified pre-owned vehicle — what those off-lease models often become after the original term matures.
May was the best month of all time for certified pre-owned sales and beat the previous record (coincidentally, May of 2014) by more than 12 percent, according to Autodata Corp.
Overall, there were an estimated 232,842 CPO sales in May, a 12.2-percent increase over the same month a year ago, the firm reported Wednesday afternoon.
In addition to being a new record, May’s CPO sales total pushed the year-to-date tally above 1 million.
Through five months, there have been 1.06 million certified sales, which is 11.6 percent ahead of last year’s pace.
Not to mention, the daily selling rate of 8,955 units in May was an all-time high, as well, Autodata pointed out.
Additionally, the company listed these programs as having best-ever CPO results: FCA, Ford Motor Co., Infiniti, Lexus, Mini, Nissan, Porsche and Subaru.
Plus, Autodata said, Volvo sales were at a recent high.
Whether your customers are recent college graduates or shoppers looking for a luxury car without the new price tag — certified pre-owned vehicles might be a good fit.
Analysts pointed out a group of vehicles you may want to keep in mind when marketing to these audiences this week, the majority of which were CPO models.
Kelley Blue Book has released a list of the 10 best CPO luxury cars under $30,000, while Autotrader targeted another audience with its list of vehicles perfect for college graduates.
Interestingly, though one might think college graduates saddled with student loans might be searching for the lowest possible price, Autotrader said that’s not always the case as desirable technology features and stylistic appeal often trump budget with this young audience.
"Any time someone goes through a major life change, such as graduating college, they need to determine if their current ride makes sense for their lifestyle, from both a financial and functional perspective," said Brian Moody, site editor for Autotrader. "For example, while that hand-me-down SUV from your parents was nice when you turned 16, you may want to opt for a safer, more fuel-efficient car as you transition into the working world."
Autotrader said now might be the great time for these college graduates to make it into the dealership as automakers are pushing out affordable models “that are fun, fuel-efficient and thoughtfully designed.”
Below is Autotrader’s top picks for models that might be top-of-mind for graduates, three of which are CPO vehicles:
- 2015 Buick Encore
- 2015 Chevrolet Trax
- 2015 Honda Fit
- 2015 Nissan Versa Note
- 2015 Mazda3
- 2015 Jeep Renegade
- 2015 FIAT 500
- CPO Toyota Camry
- CPO Ford Fusion
- CPO Lexus IS
And for those with a bit more of a budget, or for a college graduate looking for a luxury vehicle to kick off into the “real world”, Kelley Blue Book offered a list of the top 10 best CPO luxury cars under $30,000.
KBB analysts asserted now with most CPO options at their disposal, shoppers don’t have to decide between buying a new Ford or spending similar money on a used BMW or Lexus — in other words, CPO vehicles are making it easier for many consumers to turn to the luxury market.
The list of CPO 2012 model-year luxury cars from KBB includes:
- Volvo S80
- Infiniti EX
- Mercedes-Benz GLK-Class
- BMW X3
- Infiniti G
- Cadillac CTS
- Acura TL
- Audi A5
- Lexus ES
- BMW 3 Series
The certified pre-owned market from May looks healthy once again, based on the numbers from brands who have shared certified pre-owned sales statistics with Auto Remarketing thus far, including one posting an all-time high.
Starting with Porsche, it reported the best-ever CPO month in the history of the Porsche Approved Certified Pre-Owned program. Specifically, Porsche sold 1,355 certified vehicles in May, which was a 36.5-percent year-over-year increase.
Kia had its second-strongest month of all time for CPO sales, moving 5,674 units in May for a 42.67-percent year-over-year hike.
Through five months, Kia has sold 26,341 certified vehicles for a 47.9-percent increase over last year’s pace.
Hyundai sold 8,476 CPO units in May (up 2.7 percent) and has moved 39,790 CPO vehicles so far this year (up 3.3 percent).
Mercedes-Benz USA reported 12,368 CPO sales, a 4.2-percent hike. Through five months of 2015, it has sold 50,174 certified vehicles.
For the BMW Group in the U.S., there were 11,105 CPO sales in May for the BMW brand, which beat year-ago figures by 21.0 percent. Through May, there have been 49,070 CPO sales year-to-date, a 25.2-percent hike.
The MINI division posted MINI NEXT (CPO) sales of 1,100 units for the month, a 40.3-percent increase.
In five months, it has sold 4,632 CPO vehicles, which beats the year-ago pace by 28.7 percent.
Over at Audi, it reported CPO sales of 4,405 units in May.
Moving to Detroit, Ford and Lincoln CPO sales reached a combined 26,097 units in May, up from 23,366 certified sales a year ago.
Through five months, they have sold 119,528 certified vehicles, up from 109,137 in the same period of 2014.
By brand, Lincoln sold 2,126 CPO cars in May, and its year-to-date sales are at 10,619.
Ford sold 23,971 certified vehicles in May, pushing its yearly sum to 108,909.
Next up, Mazda sold 3,670 certified units for the month (up from 3,662 in May 2014) and 17,348 through five months (compared to 17,296 in the year-ago period).
Volkswagen posted 8,795 CPO sales in May for a 3.2-percent increase. This marked its 15th straight month of CPO sales above 7,000, the company said, and pushed the annual total to 39,610 sales (up 4.5 percent year-over-year).
Volvo sold 2,024 certified vehicles for the month, beating the May 2014 tally of 1,433 by 41.2 percent.
Through five months, its CPO sales have totaled 7,982, up almost 45 percent from the 5,509 CPO sales through May of last year.
If there’s any doubt to how much the used-car market has grown post-recession, consider the following data from Edmunds.com that compares used sales data from the first quarters of 2010 and 2015, respectively.
Sourced from Edmunds’ Q1 2015 Used Vehicle Market Report, these four statistics give a clear indication of how strong the market has become:
- Nearly 10 Million Used Sales: In the first quarter of 2015, there were 9.81 million total used-vehicle sales, according to Edmunds. That represents a 3.25-percent increase over Q1 figures from 2010.
- Franchised Used Sales Up Over 36 percent: Franchised dealers sold 2.85 million used vehicles in Q1 of this year, which beats first-quarter numbers from 2010 by 36.70 percent.
- More than 66 percent Hike in CPO Sales: There were 614,400 certified pre-owned sales in the first quarter. That is 66.35 percent stronger than CPO sales in the same period of 2010 and represents the best-ever first quarter for the market.
- CPO Commands Greater Share of Franchised Used: Certified vehicles accounted for 17.7 percent of franchised dealers’ used sales in the opening quarter of 2010; this past quarter, that share climbed to 21.6 percent.
For more insight from Edmunds' report, catch up on our full coverage with these stories:
1 Strategy that May Help Mitigate Off-Lease Risks
Caldwell: CPO Awareness to Continue Growing
It may be a bit early to tell what the ceiling is for annual certified pre-owned sales, but here’s a good sign that Edmunds.com director of industry analysis Jessica Caldwell shared with Auto Remarketing on Wednesday.
As CPO inventory volume continues to grow and the segment becomes more of a household name, she said, consumer awareness will increase.
And that should bode well for an already record-breaking certified market.
According to the Q1 2015 Used-Vehicle Market Report from Edmunds, the 614,400 certified sales in the first three months of the year marked the best first quarter in the history of CPO.
To put that in further perspective, there were 369,350 CPO sales in the first quarter of 2010, according to Edmunds. The latest quarterly figure is more than a 66-percent improvement over that.
And in Q1 of this year, certified vehicles accounted for 21.6 percent of franchised dealers' used sales in the first quarter, compared to 19.8 percent in Q1 2014 and 18.2 percent in Q1 2013.
And overall first-quarter used-car sales industrywide climbed for the first time in three years.
Specifically, the total sales figure was at 9.81 million, Edmunds said, up 1.8 percent from the first quarter of 2014. The last time there was a year-over-year increase in Q1 total used-car sales was 2012, according to Edmunds.
Driving this increase were sales for what Edmunds described as “near-new” vehicles, meaning those cars that are no more than 5 years in age. In fact, about two-thirds (66 percent) of used vehicles sold in the first quarter fit into this near-new class.
That beats Q1 figures for each of the preceding three years (61 percent in 2013 and 2014, and 64 percent in 2012). And diving a bit deeper into those numbers, Edmunds said nearly half (48.6 percent) of used retail sales in the first quarter consisted of vehicles 3 years or newer, which beats Q1 2014 figures by 7.6 percent.
As Edmunds illustrated in the report, the same thing helping to push CPO sales to record levels is also fueling the supply of these near-new vehicles: off-lease volumes. (More on that can be found in our upcoming recap of leasing trends analyzed by Edmunds.com)
But don’t discount the impact of older vehicles in the market, whose strong demand Caldwell also pointed out.
These vehicles, along with newer used vehicles, helped drive the strongest first-quarter retail transaction prices for used cars in history, according to the report. Edmunds pinpointed the Q1 average used-car transaction price at $18,088, up 7.1 percent year-over-year.
So, not only has there been an increase in the supply and sales share of near-new vehicles — which, of course, are typically pricier than other used cars to begin with and often are certified, as well, thus tacking on another price premium — but the market is seeing greater demand for older used vehicles, Edmunds reported.
As such, prices there have surged. In fact, Edmunds data indicates that average transaction prices for used vehicles over five years old in Q1 2015 were 33.6 percent higher than the respective age group’s prices were in Q1 2010.
Compare that to the 16.3-percent gain in used prices over the same time span for used cars under 5 years old and the 12.6-percent gain for used cars overall.
Edmunds has spotted price growth in essentially every vehicle segment in the older used-car group, which it says points to “continued strong demand.”
When asked about prices for both older and near-new used vehicles rising at the same time, Caldwell said it’s not uncommon for this to happen, given that you might be working with two separate consumer segments who are interested in different selling points offered by near-new and older used vehicles, respectively.
Tim Ryan has worked for dealerships that have sold as few as 60 to 70 used cars a month, and he has worked at stores selling as many as 400 or 500 used units each month.
But the demand for pre-owned cars in Columbus, Ohio — home of Bob Caldwell Chrysler Jeep Dodge Ram, where Ryan serves as general sales manager — is probably as strong as you will find in any American city, he said.
Ryan has been in this market for about 27 years, and said the pre-owned space in Columbus is “an extremely big market,” where a dealership has to distinguish itself from the pack.
“The Columbus market is a little more demanding than a lot of marketplaces, because of the selection,” Ryan said. “You have to justify your price, and you have to make yourself different than what your competitor is. If not, you’re just another used-car lot.”
So how does Ryan differentiate the stores he manages? One way is through search-engine optimization.
“We heavily market ourselves and use a lot of SEO,” he said, noting that in light of SEO and the advent of the Internet, the industry has changed entirely.
“The only thing permanent in this business is change,” Ryan added, “and the ability you have to adapt to change is crucial.”
Certainly causing some waves as part of that change is the influence of social media, as well. And given that impact, how you treat the customer and back the product you’re selling is vitally important.
“Everybody has a car. Everybody has a piece of metal with a title attached to it,” Ryan said. “The only thing that differentiates you from your competitor is how that customer’s treated and what they get along with the product.”
Customers at Bob Caldwell Chrysler Jeep Dodge Ram will now be getting the benefits of the CarMark Certified Pre-Owned Program, as the dealership has recently signed onto the third- party CPO program administered by National Auto Care and owned by S&A Cherokee.
“At end of day, the warranty is only as good as the people that are backing it,” Ryan said. “And I have had nothing but tremendous success with National Auto Care.”
When asked what his hope is for his involvement with CarMark CPO, Ryan had this to say: “I won’t say it’s a hope. I believe it’s going to be increased sales and increased back-end revenue. I’m 100 percent sure of it. It’s proven. It’s just how much we stand behind it, and if we’re committed to the program, this program will work.”
Be it third-party backing by CarMark or the factory-certification variety, CPO certainly gives dealers like Ryan and his team opportunities to not only increase confidence in the used-car shopper at the store, but also generate ancillary revenue, future business and continued loyalty.
“People look for that reassurance when they buy a car. The certified brand, the certified name, carries a lot of weight,” he said, noting the tremendous strides made by CPO in 2014 alone.
Ryan points out that, “the first thing searched on the Internet outside of the word ‘used cars,’ is the word ‘certified.’ No. 1 search in SEO.”
Beyond that, Ryan has observed in his own operations that warranty penetration is much higher on certified cars than non-CPO used vehicles.
To learn why, read the full story in the upcoming June 1 print and digital editions of Auto Remarketing.
