As new-vehicle sales continue to grow, an ever-increasing number of off-lease and trade-in vehicles are returning to dealers. According to data provided by AutoTrader, certified pre-owned vehicle inventory has increased by 6 percent since March, 80 percent of which are non-luxury vehicles, totaling to 380,758 vehicles.
What will buyers be looking for? Here are a few of the big hitters from the last few years that are returning to lots in big numbers, as well as commentary from AutoTrader.com analysts.
Great Choices in Used & CPO Vehicles for Each Segment, According to AutoTrader:
- 2011 Ford Fusion: The Ford fusion has been a favorite of ours for many years because it combines several desirable qualities. It's good-looking, has a well-designed interior, is reasonably fun to drive and has enough space that a small family can use it every day. There are also several versions of the Fusion to pick from including a fuel sipping hybrid, almost as good 4-cylinder engine and a V6 version that give the Fusion a sport sedan feel.
- 2011 Honda CR-V: This small SUV essential defines the segment. It's popular, functional and is the perfect no-nonsense car for those who want lots of cargo space and like the elevated seating position of an SUV, but don't want a big truck. Honda's notorious reliability is a big reason this compact SUV is on our list.
- 2010 Toyota Highlander: Like the CR-V, the Toyota Highlander defines the midsize, 3 row SUV. It isn't fancy, but the Limited version has luxury-like features such as leather and a navigation system. But it's the mid-price Sport version that offers the best value. Not too big, not too small, the Highlander is the go-to "just right" family friendly vehicle.
- 2011 Toyota Corolla: This reliable little car has been around since the 1960s and has become the world's best-selling single model, surpassing even the VW Beetle. Efficient and affordable the Corolla is perfect for first time buyers, college students, and seniors on a fixed income as well as young families who need a good car at a low price. Again, like some of the other car on this list, the Toyota Corolla is the textbook definition of "good compact car." Features like power accessories, cruise control and available automatic transmission make the compact Corolla easy to live with even if your automotive aspirations are more Lexus than Toyota.
According to AutoTrader.com, these are all top sellers within their brands, meaning there are a lot of them out there.
"Consumers are armed with a lot of information these days – that means they know the value of a CPO or used car," said Brian Moody, AutoTrader.com site editor. "All of these are priced at about $25,000 or less you can expect these models to fly off lots for great rates and consumers to grow an appetite for used cars throughout 2014 and 2015."
As the month draws to a close this coming Labor Day weekend, a few industry observers offered their predictions this week on what the final August tally will look like for used-vehicle sales.
Starting with Cars.com, chief analyst Jesse Toprak says a strong certified pre-owned market along with credit availability has helped push used-car sales from 3.6 million units in August 2013 to the 3.9 million used sales the company is predicting this month.
“The recent healthy growth in CPO vehicle sales has contributed partially to this increase, due to improved inventory of 2- to 4-year-old used vehicles,” Toprak said in comments provided to Auto Remarketing.
“Just like for new vehicles, credit availability has also been an important factor in the increased sales levels for the used-car market,” he added.
Over at TrueCar, analysts are anticipating 3.55 million used sales for the month.
Meanwhile, CNW Research has its prediction pegged at 3.96 million, which would be a 3-percent year-over-year decrease. The expected year-to-date sum is 28.80 million, essentially static from the eight-month sum in 2013, the company noted in its latest Retail Automotive Summary.
CNW is forecasting that franchised dealers will sell 1.47 million used vehicles this month, a 5.1-percent year-over-year decrease. Independents are forecasted to move 1.26 million vehicles, a 9.5-percent decrease from August 2013.
CNW predicts 1.23 million casual sales, a 7.7-percent hike.
Moving over to the new-car side, Cars.com is calling for more than 1.5 million sales this month, which would beat year-ago levels by 0.2 percent and top July’s mark by 4.8 percent.
What’s more, the projected SAAR of 16.6 million would mark the best August since 2005, beating year-ago figures by 4.1 percent and July numbers by 0.7 percent.
“Summer clearance discounts on outgoing 2014 model-year vehicles and the arrival of new 2015 selections helped propel August sales to the highest levels in nine years,” Toprak said. “We expect sales to continue at a healthy pace through the end of the year, finishing out 2014 with 16.3 million total new-car units.”
Toprak shared with Auto Remarketing the role leasing played in driving such a strong market.
“Leasing now makes up about 26 percent of all new-vehicle sales, up from its lowest point of 11 percent back in September 2009. We are in the middle of a perfect storm for ideal lease creation conditions: very high residual values coupled with extremely low interest rates,” he said.
“Leasing is enabling consumers to get ‘more car for the money’ and it has been critical in contributing to the consistently healthy sales growth in the new-vehicle market,” Toprak added.
Weakening sales this month have triggered increased lot inventory, according to CNW Research’s monthly Retail Automotive Summary.
Despite dealers being able to get a higher-than-average percentage of their asking prices on used cars so far this month, the higher stocks of vehicles have led to the used-car days’ supply going up 3 percent, a trend the report says foreshadows a decrease in month-over-month retail prices.
Franchised and independent dealers are both experiencing increases asking prices, according to Art Spinella, CNW Research’s president.
“Franchised dealers received 96.9 percent of asking price compared to 95.4 percent a year ago,” Spinella said in the report. “Independent dealers were up nearly 2 percentage points from 94.7 percent to 96.6 percent.”
Spinella also pointed out that, although the private party market is experiencing a 7.7-percent increase in sales this month, dealer sales are down.
Specifically, franchised dealers are projected to sell 1.47 million used vehicles, a 5.1-percent year-over-year decrease. Independents are forecasted to move 1.26 million vehicles, a 9.5-percent decrease from August 2013.
CNW predicts 1.23 million casual sales, a 7.7-percent hike.
All told, there will likely be 3.96 million used cars sold in August, down 3-percent from the year-ago sum.
The expected year-to-date sum is 28.80 million, essentially static from the eight-month sum in 2013.
Urban Science’s 2014 mid-year Automotive Franchise Activity Report was released Thursday, revealing expectations of an all-time record-setting year for dealers by the end of 2014.
The report, which estimates that the average number of sales per dealership, based on LMC Automotive’s forecast of 16.2 million vehicles sold by the end of the year, foreshadows a throughput of 904 units. Achieving such a record would be a third-straight year of setting a national throughput record, shattering last year’s record by more than 30 units per store.
John Frith, Urban Science’s vice president, urges dealers to exercise caution when contemplating a potential expansion with the current flow of sales, with an inevitable ebb to come.
“Manufacturers and dealers continue to strike the delicate balance between meeting market demands and achieving profitability levels that have allowed the industry to rebound and thrive,” Frith said. “We know that automobile sales patterns are cyclical; it’s vital to remember current sales levels are near the peak of this cycle and will drop before growing again.
“Planning for the downturn will help dealers avoid financial problems in the future,” Frith continued. “As dealerships approach throughput of 1,000 units in the short term, manufacturers may be tempted to add rooftops to alleviate some of the pressure.”
The report reflects, as of July, a 0.4-percent increase in the number of dealerships in the U.S. since the end of 2013, migrating from 17,838 to 17,903. The first half of this year also brought about a 0.2 percent increase in the number of franchises, jumping from 31,440 to 31,489.
For more information about Urban Science, visit their site here.
KeyBanc Capital Markets likes the used-department outlook not only for the publicly traded dealerships groups its analysts watch closely, but also for the majority of franchised stores — especially the ones that move certified pre-owned vehicles.
According to its July Dealer Survey, KeyBanc said its industry observers continue to believe franchised dealers will outperform the overall used-vehicle industry.
The firm projected that franchised dealers will grow their used retail sales volumes in the mid- to high-single digits annually “for the next few years.”
KeyBanc explained that growth will be driven by the increasing supply of off-lease vehicles, estimated to increase by about 20 percent annually during the next several years. Analysts contend that should provide franchised stores with the inventory to spark CPO sales.
“Franchised dealers have the first hand pick at the highly desired, low-mileage, off-lease supply, and CPO sales are exclusive to the franchised dealers,” KeyBanc analysts said.
And franchised stores can increase their CPO inventory beyond what they can certify through their parent automaker by leveraging the capabilities of CarMark Certified, a warranty program that provides CPO warranties to all vehicle brands. The program, launched in 2010 as a complement to manufacturer-based CPO programs, is administered nationally by NAC (National Auto Care) of Westerville, Ohio.
The CarMark Certified limited warranty provides either a 12/month-12,000-mile warranty from sale date or a 72-month/100,000-mile warranty from in-service date. More details can be found at www.carmarkcertified.com.
Certified sales continue to be a growing portion of store performance. According to KeyBanc, 20 percent of used sales volume at Lithia Motors comes from CPO turns. It’s estimated to be even higher at Asbury Automotive (25 percent) and even more dramatic at Sonic Automotive (25 percent to 30 percent), Group 1 Automotive (30 percent), AutoNation (30 percent) and Penske Automotive Group (35 percent).
“We believe Lithia, Asbury, and Penske are likely to outperform the industry and their peer group average driven by company specific actions, such as the multi-sourcing of inventory, the retail-first approach, improved Internet presence, as well as an established track of proven execution on these initiatives,” KeyBanc analysts said.
Beyond just CPO sales, KeyBanc is bullish on the used market in general, again aided by an acceleration of off-lease supply relative to first half of the year. The firm arrived at that assertion despite CNW Research indicating a 6-percent year-over-year pullback in used sales in July, leaving the year-to-date reading flat compared to the same point in 2013.
“However, used-car demand drivers, such as the job market and financing availability remain on a positive trend supporting a positive used-car demand outlook,” analysts said. “We believe the relative weakness reported by CNW in the first half of the year was largely a result of the disruptive weather conditions during the winter months and elevated pricing during the spring months as demand began to recover.
“Based on our survey results, used-vehicle volume growth in July averaged in the mid-single digits,” KeyBanc continued. “Moving into the second half of 2014 and beyond, we anticipate an inflection in off-lease supply of late model used vehicles which would alleviate some of the pricing pressures and improve the availability of used cars in the supply-constrained used vehicle industry, all of which should drive volume. Off-lease volumes are expected to increase at an annual rate of 20 percent through 2016.”
Dealer survey results provided KeyBanc with the backing to make those assertions since 91 percent said they experienced used sales upticks in July. A total of 36 percent said that increase was between 5 percent and 10 percent while another 18 percent posted jumps of double digits.
And fueling those July sales is the availability of financing, which dealers told KeyBanc is becoming more available or at least remaining stable compared to the previous month.
A total of 55 percent of dealers told KeyBanc that they’re seeing commercial banks and finance companies becoming more aggressive with the remainder of dealers questioned seeing no change.
The story is similar in the subprime space, too, as KeyBanc’s survey showed just 10 percent of dealers noticing any tightening in underwriting practices to buyers with bruised credit histories.
TrueCar Inc. announced recently the best month of the year for consumers to purchase a new vehicle. Despite the common belief that December is the best month to purchase new, the best month, based on average prices over the last five years, is August, with an average total new-vehicle price of $29,296, $169 lower than any other monthly average.
As always, the new-car sales will have direct and indirect effects on used car sales. Although moving more new metal may decrease the number of used-car sales for that particular month, the new sales will encourage the used-car market in one key way: more trade-in vehicles. And those used vehicles will fuel used-car sales further down the line.
“This is a great example of the power of data,” Scott Painter, TrueCar’s founder and chief executive officer said, “which shows dealers are clearing out older inventory in August.
“Consumer buying trends have been turned upside down during the past decade due to the emergence of big data,” Painter continued.
TrueCar also pointed out that the average new-vehicle prices in December, which previously had thought to be the lowest, are actually the highest of the year, with the average price being $31,146.
Used-vehicle sales are expected to fall more than 4 percent for both franchised and independent dealers this month, making up the entirety of the 0.4-percent overall decline CNW Research is predicting for July’s used-car numbers.
Such declines may give credence to one of two theories CNW laid out to explain another used-car phenomena being spotted this month: increased supply.
The firm said in its latest Retail Automotive Summary that used days supply for the month is up 0.39 percent.
“What it portends, at this point, is hard to determine because many of the larger used-car sellers such as AutoNation and CarMax are scouring hills and dales to find middle-aged models for their lots and putting those vehicles in inventory,” CNW president Art Spinella said in the report. “Larger inventory results in higher days’ supply.
“The alternative scenario is that the industry isn’t selling vehicles as quickly and that’s causing a backlog of cars and trucks,” he continued. “Unfortunately, the latter alternative is reflected in a slight decline in used sales this month — about 0.4 percent.”
Franchised dealers are expected to sell 1.68 million used units in July, down 4.5 percent year-over-year, while independents will likely move 1.47 million used cars (down 4.8 percent). Oddly enough, casual sales are likely to rise 10.6 percent and come in at 1.42 million.
As for year-to-date figures, CNW is projecting that even with July’s softness, sales through seven months would still be up 0.7 percent at 24.91 million. But again, the entirety of that increase would be for casual sales (up 3.4 percent).
The firm is forecasting 0.4-percent declines for the seven-month sales tallies for both independents and franchised dealers.
On the new-car side, CNW is predicting an only slightly rosier picture, saying July will likely be “marginally good” for new sales.
As to why, the firm cited a 1.46-percent month-over-month increase in its “Jitters Index” for July — which measures consumer concerns that may impact auto buying — as well as floor traffic that increased only modestly in the first half of the month, plus dealership closing ratios so far that have dropped 6.78 percent year-over-year and 9.08 percent month-over-month.
These trends have occurred amid a downturn in pent-up demand and a “horrible slow-down of sales during the second half of June,” Spinella noted.
“July sales should be an improvement versus a year ago, but as of this date, it looks as if the total units delivered will be hard pressed to top 1.36 million units unless some serious incentive money is spent. That’s a 3-percent increase versus a year ago,” he said.
But while there may have been some softness in the new-car market during the latter half of June, the overall mood for the month — and for the first half of the year — was positive.
In addition to the strong indicators that CNW cited midway through the month in the June RAS — a slower trepidation among consumers, stronger same-store sales and floor traffic increase, to name a few — Autodata Corp. reported in early July that June’s new-car sales climbed 1.2 percent year-over-year and reached 1.42 million units.
Autodata said this resulted in the best new-car SAAR (16.98 million) in almost eight years.
Likewise, a report from Cars.com issued this week also reflected a substantially strong new-car market during the first half of the year, with new-vehicle sales increasing 4.5 percent.
Not to mention, Cars.com chief analyst Jesse Toprak is calling for 8.1 million more new cars sold throughout the rest of the year, bringing his full-year sales forecast to 16.3 million. Previously, it was at 16.1 million.
In talking to Auto Remarketing on Wednesday about the new-car market, Toprak said the product automakers are putting out is the “best we’ve ever seen.” He also pointed to stronger credit availability and low interest rates, among other factors.
“Despite the expected year-over-year dip, the pace of new-car sales remained healthy in June at approximately 16.4 million SAAR,” Toprak said in the analysis provided by Cars.com. “An attractive collection of new models as well as improved affordability due to very low interest rates and lease specials continued to bring customers into showrooms. We expect the rest of 2014 to continue to track above 16 million units.”
Going back to his point on leasing, Toprak told Auto Remarketing that year-to-date lease penetration of new-vehicle sales is at 26 percent. To put that in perspective, he said, compare that to the lowest point in recent history, when lease rates hit 11 percent in 2009.
One sense in which leasing can be positive is that it “enables consumers to get more car for their money,” he added.
Once June figures are tallied, it’s likely that year-to-date used-vehicle sales through the midpoint of 2014 will once again have eclipsed 20 million units, according to CNW Research.
In its latest Retail Automotive Summary, the firm was predicting monthly used-car sales to come in just under 4.5 million, which would push the six-month total to 20.33 million units.
The mid-year mark would be a 0.9 percent increase from the pace of 2013, CNW indicated, although franchised and independent dealers were showing a bit of relative softness in June.
The expected total sales mark for June (including dealer and private-party sales) is up 0.1 percent year-over-year, but franchised dealers are likely to see their June sales tally dip 5.1 percent at 1.65 million units sold, and independents are forecasted to show a 3.8-percent drop with 1.47 million used sales.
That said, both would be ahead of where they were at this time last year, with franchised dealers believed to be up 0.7 percent year-to-date and independents up 1 percent.
Casual sales, meanwhile, are predicted to have jumped 12.6 percent year-over-year in June (1.37 million units sold), with year-to-date sales up 1.1 percent
June is looking like it will turn out to be a successful month for new- and used-car sales, even as the industry moves into the summer season that normally spells a slowdown after tax season highs.
According to TrueCar data, used-car sales from franchised and independent dealers as well as private-party sales are estimated to come in at 3.2 million for the month.
Meanwhile, new-car sales are predicted to end the month up 1 percent year-over-year, coming in at an expected 1.4 million unit sales.
This reprecents a predicted SAAR of 16.4 million new vehicle sales, up 3.2 percent from June 2013 and down 1.8 from this May.
“Summer selling season is off to an even better start than last year, despite one fewer weekend this June,” said John Krafcik, president of TrueCar. “Strong retail sales and stable incentive spending heading into the heart of summer give us confidence that 2014 will be the best year for automakers and dealers since 2007.”
Chrysler (170,000), Ford (219,000) and General Motors (257,000) are expected to lead manufacturers in new-car sales this month.
TrueCar expects the new to used ratio for June to come in at 1-to-2.3.
And as manufacturers gear up for the slower new-car sales summer months, incentive spending is on the rise.
According to TrueCar data, the industry average incentive spending per unit will be approximately $2,735 in June, an increase of 1.6 percent year-over-year and an increase of 2.4 percent from May.
Looking at total industry sales, fleet and rental sales are expected to make up 16.6 percent of that full number this month.
Rental sales remain strong as many older off-lease and off-rental vehicles are making their way into the wholesale arena, and companies are replacing aging fleets.
When the final tally comes in for 2014, annual certified pre-owned sales are likely to have notched another all-time high, according to NADA Used Car Guide, which is forecasting “meaningful growth” in this blossoming market segment in coming years.
These expected gains, detailed in the latest NADA Perspective report, are driven by the fact that both supply and consumer appetite for CPO cars are “moving solidly in the right direction.”
NADA believes there is “huge potential” for this market to continue growing, considering that these cars make up about 13 percent of franchised dealers’ used-vehicle sales. Through the first third of the year, certified sales are outpacing the record year from 2013 (when a best-ever 2.1 million CPO cars were sold) by 11 percent.
But these projected increases come with some stipulations and calls to action. For one, it’s about educating the consumer. The AutoTrader.com data that NADA cited in the report illustrates as much.
AutoTrader’s 2013 study titled Certified Pre-Owned: Understanding the Customer points to great unfamiliarity among consumers about what the CPO process on a car entails. Citing the study, NADA indicates that over a third of new-car shoppers and about a third of used-car shoppers (32 percent) did not know that CPO cars came with complete inspections.
Furthermore, nearly half of both new-car shoppers (45 percent) and used-car shoppers (46 percent) were unaware of the extended warranty on certified vehicles.
And this, the report says, may shed some light on why many consumers won’t shell out more money for the premium that CPO cars command — not only that, this lack of information is likely the top road block for certified’s potentially meteoric growth.
“In the end, cultivating consumer familiarity and understanding will play a lead role in dictating how quickly and how high CPO sales grow,” the NADA report emphasizes in its conclusion.
Elsewhere in the conclusion to the Perspective issue, analysts hammer home these points as to what has to happen in order for the certified market to take advantage of awaiting opportunity: “To ensure this opportunity is maximized, manufacturers will need to enhance marketing efforts to clearly outline to consumers all that certification entails.
“The substantial benefits associated with buying CPO — the rigorous reconditioning, extended warranty coverage and peace of mind that the vehicle is backed by the factory and its dealer partners — should make the task less challenging,” NADA said.
“Having a better understanding of CPO premiums should help support certified consideration as well, especially since CPO premiums deemed tolerable by consumers are above current sales levels,” it added. “In addition, consumers who currently believe they can’t afford a CPO vehicle might reconsider if they had a realistic idea as to what the additional cost would be and the relative value of benefits for which they would be paying.”
In fact, the AutoTrader data shows that peace-of-mind is the top reason people consider going with a CPO ride, followed by the extended warranty offered on CPO cars. NADA emphasizes these two points go “hand-in-hand,” hence where greater education might go a long way.
