Offering more context on just how strong the certified pre-owned sales total has been, Autodata Corp. said in an updated sales report and analysis that last month’s CPO sales total was a January record.
And as hot as the new-car market has been — Autodata said it climbed 13.7 percent year-over-year with 1.15 million sales in January — the CPO segment actually rose more rapidly to start 2015.
There were 194,861 CPO sales for the month, according to updated figures released by Autodata. This beat year-ago figures by 17.2 percent, despite trailing December numbers by 3.7 percent.
The daily selling rate was 7,495 in January, up 12.7 percent year-over-year, Autodata indicated.
So, at least in the year’s first month, 2015 appears like it will be another scorcher — and record-breaker — for CPO sales.
And about a week before the month ended, Cox Automotive chief economist Tom Webb said during a NADA Convention & Expo press conference that he was confident CPO sales will break a record for the fifth straight year.
“I can confidently predict that because the growing off-lease volumes create both the need and the ability to make these programs go higher,” Webb said. “With respect to this relationship between CPO and leasing, No. 1, as you can well imagine, an off-lease unit is an ideal candidate to go in a CPO program.”
Stay tuned to Tuesday’s CPO Weekly for a breakdown of how domestic and import automakers fared in the certified market during the month.
Certified pre-owned sales picked up right where they left off — and actually got stronger. Following the fourth consecutive best-ever year for the market, CPO sales climbed more than 17 percent in January, as dealers moved nearly 195,000 units, according to Autodata Corp.
The firm said in its sales data released Wednesday that, specifically, January finished with 194,792 CPO sales, a 17.1-percent increase over January 2014.
The daily selling rate was 7,492, which beat year-ago numbers by 12.6 percent.
The Big 3 sold 72,841 certified vehicles for the month (up 22.1 percent), while Asian brands moved 87,554 CPO units (up 10.8 percent) and European brands had 34,397 CPO sales (up 24.6 percent).
The tie between certified pre-owned sales and off-lease volumes is two-fold — and perhaps more interrelated than you might think.
That was evident when Cox Automotive chief economist Tom Webb explained during a press conference why he is confident CPO sales will break a record for the fifth straight year.
“I can confidently predict that because the growing off-lease volumes create both the need and the ability to make these programs go higher,” Webb said at the recent NADA Convention & Expo in San Francisco. “With respect to this relationship between CPO and leasing, No. 1, as you can well imagine, an off-lease unit is an ideal candidate to go in a CPO program”
The “vast majority” of the off-lease cars, Webb continued, go directly back to the dealership where they were leased. Not to mention, they all would meet CPO program requirements for age/mileage, he said.
And most are in good enough shape to where they don’t require a whole lot of reconditioning from the dealership to meet CPO standards, so the dealer likes to put them through the certification, Webb added.
“The other aspect is that since leasing is primarily controlled by the captive lessors, the CPO programs allow you to protect residual values,” he explained. “And in fact, you can tweak your CPO programs to help you over some bumps that you may have in terms of off-lease volumes.”
For instance, Webb notes in Manheim’s 2015 Used Car Market Report that “the lessor has further opportunities to moderate the residual risk by providing additional marketing muscle or incentives (like reduced rate financing) behind the CPO programs.”
And here’s another interesting nugget that he shared during the press conference: certified sales last year were actually higher than off-lease volumes. Granted, off-lease volumes were well above 2 million, as Manheim Consulting data indicates, but they did not match the 2.34 million industry-wide CPO sales reported by Autodata Corp.
And for 2015, Webb expects CPO sales and off-lease volumes will be roughly even with each other at 2.5 million unit apiece.
“As opposed to that last wave of off-lease units in 2002, when CPO programs were basically still in their infancy and there was, indeed, a very negative impact in terms of used-vehicle residuals during that cycle,” he said.
In fact, Webb says in the Used Car Market Report that “the CPO market was less than 40 percent as big as total off-lease volume” in 2002.
Flash forward to 2015, and at least on the retail used-car transaction price front, franchised dealers seemed to be enjoying the CPO/off-lease market dynamics during the year’s first month
In CNW Research’s analysis on January used-car sales, firm president Art Spinella said increased certified sales and off-lease volumes actually drove pre-owned retail prices higher for franchised stores.
“Transaction prices for franchised dealers’ used-car operations saw a significant increase in January, climbing more than 27 percent versus a year ago and 3.34 percent versus December 2014,” Spinella said. “The vast bulk of the gain can be traced to A) higher CPO sales and B) a growing inventory of fresh off-lease vehicles.”
Editor's Note: This is just the first in a story series Auto Remarketing will have on off-lease and the relationship to residual values. We will share additional viewpoints and analysis from experts at NADA Used Car Guide, Black Book and Experian Automotive. Additionally, our look at off-lease and CPO ties will continue with lease pull-ahead programs and one particular company that is helping in that space, plus additional CPO and leasing insights.
Sure, there is room for the certified pre-owned segment to continue climbing, but it may take some maneuvering when it comes to consumer education.
In a conversation with Auto Remarketing at the recent NADA Convention & Expo, AutoTrader.com president Jared Rowe said much of this segment’s potential comes down to educating the consumer on just what CPO is all about.
Additionally, he said, the salesperson has to introduce CPO, so to speak, at the appropriate point of the shopping process. The real growth opportunity for certified, Rowe says, is to share the benefits of CPO to consumers as they’re searching around to find their ideal vehicle.
That notion is backed up by what AutoTrader found in its 2014 CPO Study, where it emphasized that more shoppers would consider going certified if they were taught more about CPO and its benefits.
Prior to being exposed to the definition of CPO, 59 percent of new-car shoppers would consider buying certified, AutoTrader’s study found. Once they’re taught what CPO means, consideration jumps up to 84 percent.
Among used-car shoppers, those levels jump from 50 percent to 69 percent.
CPO awareness and education is one of the key points behind some of the efforts at CarStory, which recently partnered with Volkswagen of America to offer reports to VW’s national dealer body that can educate VW customers and make purchase decision-making smoother.
“On the CPO side, when it’s (certification) adding a few thousand dollars to the price of the car, it’s critical that consumers understand that value,” said Chad Bockius, chief marketing officer of CarStory parent company Vast, who also talked with Auto Remarketing at NADA. “And that’s our whole approach: we’re going to merchandise the value of the vehicle, using big data.”
These CarStory Market Reports introduce VW’s WorldAuto CPO vehicles to potential customers earlier on in the car-shopping process. And by sharing analytics that showcase “each vehicle’s unique story,” these reports can help foster great consumer confidence.
And beyond that, it helps address what Bockius called the top concern of selling CPO.
“We know that when it comes to selling CPO, peace-of-mind is the No. 1 thing, and that is driven by the warranty. And in talking to dealers that are successful at CPO, they all said the same thing: The way you sell CPO is to compare it to a non-CPO,” he said.
“So, we do that comparison automatically. We show you the additional warranty, and for the sales consultants or the consumers who don’t know about the program or remember all of the selling points, we include all those points, the warranty details, the inspection, the roadside assistance, the financing, etc.”
Addressing the peace-of-mind element is something that Dale Pollak, founder of vAuto and executive vice president at Cox Automotive, believes will help push CPO.
“CPO is strong. I believe in CPO, and I think CPO will continue to get stronger,” Pollak told Auto Remarketing at NADA. “The reason being — like this is a big surprise, ready for this? — every buyer of a used car has a fear of getting a bad car.
“All you have to do is speak to that fear, which well-designed and well-marketed CPO programs do, and you’re going to be rewarded. And I think it’s taken a relatively long time for the buying public to really understand what certification is, and what it’s not,” he continued. “It takes it a good long while, and it’s reaching that moment or point of inflection where consumers actually get it.”
If the latest analysis from CNW Research is any indicator, the number of cars you see out on the lots may be down a bit, with dealers having pulled back on inventory ahead of chillier months. But don’t expect that to last.
“In part due to the anticipated winter selling season, many dealerships reduced inventory going into the November-December-January period,” CNW president Art Spinella said in the firm’s latest Retail Automotive Summary. “That resulted in a shorter supply of vehicles and a 2.4-percent drop in days’ supply.”
However, Spinella adds this forecast later in the report: “Dealers are beginning to stock up for spring selling season, bolstering their inventory. Expect significant sales gains in March through May.”
Those sales gains were already starting to creep in for January.
CNW was forecasting on Wednesday that January used-vehicle sales would beat year-ago figures by 1 percent, saying the Northeast snowstorm in the latter part of January had little impact on the pre-owned car market.
The final tally for January was projected at more than 2.36 million used sales industry-wide, ahead of the 2.34 million used cars sold in the same month of 2014.
The weather in the Northeast slightly softened used sales, “but only because many outlets shut down their businesses on weather forecasts,” Spinella said.
“But the losses were minimal,” he added.
Meanwhile, TrueCar forecasted that January would see 2.92 million used-car sales, a 5.8-percent increase from a year ago.
CPO Impact from Supply
Going back to CNW’s point about increasing used-car supply, one area where volume is likely to be particularly heavy in coming months is the off-lease channel.
As illustrated by Cox Automotive chief economist Tom Webb in Manheim’s Auto Industry Brief for January, such heavy off-lease gains will have a two-pronged impact on one of the hottest sectors of the used-car market: certified pre-owned vehicles.
“It is widely expected that CPO sales will reach a fifth consecutive record in 2015 as higher off-lease volumes increase both the ability and the need to increase these programs that enhance manufacturer and dealer profits by improving customer satisfaction and loyalty,” Webb said.
Although not expected to be as dramatic (percentage-wise) as the increase in off-lease volumes this year, the supply of late-model off-rental vehicles will likely show “nice steady growth” in 2015, including what Tom Webb describes as a “diverse mix of vehicles.”
“And — probably very exciting for franchised dealers — in 2015, for the first time in many, many years, we’re actually going to have an increase in program cars,” he said during a press conference at the NADA Convention & Expo last week in San Francisco.
Webb, who is chief economist at Cox Automotive, said the program cars, especially, should be a nice fit with certified pre-owned operations at franchised dealers, as these stores will get the first crack at grabbing these vehicles.
And although the majority of the vehicles on the rental-risk side are typically purchased by independent dealers at auction, it’s not an overwhelming majority — Webb says it’s no more than 65 percent.
So, there is still a good chunk of rental-risk vehicles that end up on franchised dealer lots, he said, and they’re typically “amenable” to the CPO programs.
More on Growth in Program Cars
The 2015 Used Car Market Report from Manheim (which Webb authored) cites data from Auto Rental News indicating that there were 2.01 million units operating in rental fleets last year, a 6-percent increase. This aligns with reports from rental companies indicating that fleet utilization rates — outside of the recall impact in 2014 — has either been steady or rising.
“Those recalls, plus changing industry dynamics and pricing, will lead to a greater share of the rental fleet being composed of repurchase (program) cars in 2015,” Webb said in the report.
“Avis anticipates that program units will rise to 50-percent of its fleet in 2015, up from 36 percent in 2014,” he added. “Hertz expects purchases to shift from 85-percent risk in 2014 to 70-percent risk in 2015. Enterprise, as well as the small independent rental companies, have always operated fleets that are close to 100-percent risk.”
According to the Manheim report, the overall volume of off-rental cars hitting wholesale channels last year eclipsed 1.5 million — and those numbers will only get bigger.
“In 2015, off-rental volumes are expected to increase to more than 1.6 million units and continue to grow in years following,” Webb said in the report. “The future growth in off-rental volumes will likely mirror the growth in the total rental fleet size, as we foresee no significant change in holding periods.”
The U.S. is coming off of its fourth straight record year of CPO sales, and the certified market continues to grow in Canada, as well.
Automakers such as Audi Canada and Volkswagen Canada tracked record CPO months right and left this past year, while the U.S. market achieved 2.34 million certified sales in 2014, which beats 2013 figures by 10.8 percent, according to Autodata.
To track this rapidly growing market, two of the Cherokee Media Group/Auto Remarketing media properties are providing in-depth analysis and CPO industry trends in upcoming issues.
First up will be the inaugural Auto Remarketing Canada Digital Magazine’s “CPO Stars and Certified Trends” issue, which is set to go live next week.
In this issue, we will honor our inaugural CPO Dealer Of The Year as well as three of the top finalists for the award. Readers will also find analysis on 2014 CPO sales results, tips from best-selling CPO dealers, data on best-selling CPO vehicles and more.
Later in the month, the Feb. 15 issue of Auto Remarketing in the U.S. market is our annual “Best CPO Dealers in the USA” issue.
Once again, Auto Remarketing has done the CPO research legwork so you don’t have to. Check out the Top 10 CPO dealers by automaker, as well as tips and best practices from these very same dealers. Stay tuned to this upcoming issue for a 2014 CPO sales breakdown as well as analysis on the certified environment in 2015.
And analysts are expecting 2015 to mark the fifth consecutive best-year ever for CPO sales in the U.S.
Cox Automotive chief economist Tom Webb predicted during a press conference at the recent NADA Convention & Expo that he expects 2.5 million CPO sales this year.
Stay tuned to Auto Remarketing and Auto Remarketing Canada as we continue to track this rapidly growing market throughout North America.
Volkswagen of America has chosen CarStory to offer reports to its national dealer body that are designed to educate VW customers and make purchase decision-making smoother.
These CarStory Market Reports will introduce VW’s WorldAuto CPO vehicles to potential customers earlier on in the car-shopping process. And by sharing analytics that showcase “each vehicle’s unique story,” these reports can help foster great consumer confidence.
VW dealerships can get these reports, customized for the WorldAuto program, for free on all pre-owned, certified pre-owned and Qualified Pre-Owned vehicles.
VW dealers can sign up for CarStory here.
Michael Ashton, senior manager of CPO and used-car operations at Volkswagen said: “Our mission is to create advantages for our dealer network that drive traffic. The CarStory Market Report does just that by providing the right type of vehicle analytics for consumers to educate themselves on the perfect Volkswagen vehicle earlier in the purchasing process.”
John Price — who is chief executive officer at Vast, the parent company to CarStory — added: “We are excited to show how CarStory can help Volkswagen build customers for life by enhancing the car buying experience with our unique market insights.”
Offering the dealer angle, Josh lever, the general manager of Platinum Volkswagen in New York, said: “The key to selling a certified vehicle is to educate the consumer on the program benefits and peace of mind that come with CPO.
“The detailed dealership inspection, limited warranty, roadside assistance — all of these CPO features, when coupled with the CarStory Market Report, quickly demonstrate the value of a vehicle and the entire CPO program,” he added.
The hand-in-hand relationship between certified pre-owned and off-lease supply has been widely documented and discussed. And for good reasons: a car coming off lease typically fits within the age and mileage requirements of automaker CPO programs, the pipeline to dealer lots makes sense, and it’s a path that tends to benefit both dealer and OEM, just to name a few reasons.
But what about off-rental vehicles coming back into the market? To what degree do these cars make sense for CPO programs?
A CPO study released this fall by AutoTrader.com perhaps puts its best with this header found within its analysis: “Relationship Between CPO Sales & Off-rental Not Perfect, But Getting Better.”
The study goes on to mention these factors at play between CPO sales and off-rental volume. First, most off-rental cars end up in the hands of independent dealers, which would thus keep them out of traditional manufacturer certification programs, at least temporarily.
Second, it points out that much like retail vehicles, rentals “have option contenting.”
Or, as explained by Manheim chief economist Tom Webb, rental companies these days go after vehicles that have options like power windows, power seats and sunroofs that one would find in retail offerings.
Lastly, these days, the number of make, model and market class options in the rental fleet is higher “than ever before,” the study says. This means dealers have more choices when looking to acquire off-rental units, and that arguably means more units that would potentially be ideal for their CPO inventory.
Consider this statistic from Manheim Consulting cited in the study: There were 3,303 unique year/make/model/body configurations sold out of rental companies at Manheim auctions during the third quarter of 2014. That’s up from 2,620 in Q3 of 2013 and 2,216 in Q3 of 2011.
And as Webb points out, a heavy dose of any specific model can pushes residuals down.
The study illustrated trends in overall off-rental supply numbers, too. After falling below 1.3 million units in 2011, supply has been on the rise ever since and is expected to reach nearly 1.9 million in 2017.
In its latest study on certified pre-owned released this fall, AutoTrader.com posed this question to respondents: “Why would you consider purchasing a CPO vehicle?”
What the company discovered is that for new-car shoppers, used-car shoppers and CPO shoppers alike, the same two reasons came in at Nos. 1 and 2, respectively.
And what were they, you ask? Peace-of-mind (first for all three groups) and warranty (second for all three).
Another fun fact: the top five reasons cited by new shoppers were in exactly the same order as those mentioned by CPO shoppers.
Here’s how the top five for each group shakes out, as reported in AutoTrader’s study:
New Shoppers
1. Peace-of-mind
2. Warranty
3. Can afford new vehicle, but don’t want to pay that much
4. Less immediate depreciation
5. Economy (new vehicle no longer an option)
Used Shoppers
1. Peace-of-mind
2. Warranty
3. Can’t afford new vehicle
4. Economy (new vehicle no longer an option)
5. Can afford new vehicle, but don’t want to pay that much
CPO Shoppers
1. Peace-of-mind
2. Warranty
3. Can afford new vehicle, but don’t want to pay that much
4. Less immediate depreciation
5. Economy (new vehicle no longer an option)
More on Peace-of-Mind
The CPO study was released as part of a November presentation in Detroit. Auto Remarketing caught up with AutoTrader’s Michelle Krebs and Rick Wainschel — who led the presentation, along with Manheim’s Tom Webb — by phone later that day to talk about the study.
And here’s something that might surprise you about what CPO shoppers are really after:
In the portion of the study dealing with owners of certified cars, AutoTrader discovered that all of the intricate details of a given manufacturer’s CPO program were not as pertinent to the consumer as the details of the specific car.
“The way that I was thinking about this was, people are buying a car with the reassurance of the program; they’re not buying a program with the details of the car,” said Wainschel. “I think that, sometimes, some of the communications that are associated with CPO get into the nitty-gritty details … when really what consumers are looking for is, ‘I want to find a car that I really like, at a price that I can afford, with features and benefits that I want in it. And then I’ll make a decision about whether doing a CPO version of that makes sense for me.’
“And for many of them, it does, because it provides that peace-of-mind and reassurance, and (knowing that) if it breaks down, they’ll fix it, and if it breaks down, they’ll come get me or give me a rental car and whatever else,” he continued. “And people are satisfied with those aspects of the programs, but they’re not really swayed in making the purchase decision by the details of the program. They’re swayed by the details of the car, with the reassurance of the program helping them to make the CPO portion of that decision come into focus.”
Krebs added: “I could envision an advertising campaign that focuses on the car, just as every bit as the new car, but blanketed in this peace-of-mind aspect.”
The complete story from November on what CPO shoppers find important sheds more light on these trends.
