Certified used-vehicle sales are poised to set another all-time record in 2018, predict analysts, manufacturers and dealers. A healthy influx of off-lease vehicles and a better grasp on the value of certification among dealers and consumers are keeping demand for CPO vehicles strong.
Helping things along is that light trucks make up a bigger portion of off-lease vehicles, allowing dealers to stock more SUVs and pickups that customers crave.
“We expect CPO sales to reach 2.73 million this year, about 3 percent higher than last year’s total of 2.65 million,” said Anil Goyal, Black Book executive vice president, operations, in an email response.
“Many shoppers in the market for a used vehicle are currently attracted to not only the great value offered by CPO-level vehicles, but also the variety of inventory available today,” Goyal said. “The primary driver of CPO is off-lease volume, which is expected to increase by about 12 percent year-over-year in 2018.”
Light-trucks make up about half of the off-lease vehicles returning to the market this year, up from about 35 to 40 percent in 2017, said Ivan Drury, Edmunds senior analyst.
In previous years, it was more difficult to add certification to the price of cars, said Drury. That’s because car prices were already pressured by the weight of their rising off-lease volume, and consumer preference began leaning toward SUVs.
“People want SUVs, and SUVs are finally coming off lease (in appreciable numbers),” Drury said. “That’s beneficial to used, in general, but for certified, the fact that we are finally getting the right mix of vehicles is perfect.”
The gap widens
The $13,000 gap between the average price of a new vehicle and the average price of a 3-year-old vehicle is “the biggest we’ve ever seen,” said Drury. He noted that the gap last year was around $12,000, and five years ago it was about $10,000.
The widened price difference between new and used vehicles makes used-vehicle certification “amenable,” to consumers, he added.
“People are willing to pay a premium; you can actually bake in certification, and it can be absorbed properly,” Drury said.
Tom Kontos, KAR Auction Services chief economist, said there are several reasons the surge of off-lease vehicle hasn’t exerted more downward pressure on prices of certified vehicles. But he believes much has to do with franchised dealers buying more of those vehicles in closed online sales.
“Upstream remarketing has prevented much of the anticipated growth in off-lease supply from reaching the physical auction,” said Kontos. “By diversifying sales channels, supply has been disbursed in such a way as to minimize the downward pressure on wholesale prices.”
Fiat Chrysler Automobiles is tracking toward its best year ever for CPO sales, predicts Eric Swanson, FCA general manager, certified pre-owned vehicles.
Though FCA’s CPO sales in August dropped 6.2 percent to 20,766 units, its sales in the first eight months climbed 7 percent to 181,474 CPO units. Swanson expects FCA to sell 270,000 to 275,000 CPO units this year.
Trying different things
This year FCA and some of its dealers began a program under which consumers who browse CPO inventory on a dealership’s website and then click on a YouTube video are served up that dealership’s CPO ad before the video starts.
“We’ve had some success with it,” Swanson said. “We’re trying some different things. We’re figuring out how we can work with our dealers to put the cars they have in front of potential customers.”
Among the companies registering double-digit CPO sales growth so far this year is Mazda North American Operations.
In August, Mazda’s CPO unit sales grew 37.7 percent to 5,201, and in the first eight months, unit sales were up 20.2 percent to 35,193.
Basem Tartir, the company’s national program manager, vehicle retention, said Mazda didn’t have a lot of emphasis on the program until about “15 to 18” months ago.
Prior to that, there was one person at the company “with CPO attached to their name” Tartir said.
Mazda has since added five regional CPO managers and is focused on engaging dealers in the program. Mazda’s certified pre-owned and its vehicle remarketing teams work together to make sure dealers are buying the right vehicles and certifying them, Tartir said.
“The best way to describe it is a grassroots effort, led by our team out in the region and engaging dealers,” said Tartir.
“We have a great CPO program, but I don’t think dealers really knew about it. It’s really gained a lot of momentum in the last four to six months.”
Preston Hammontree, Mazda program manager for certified pre-owned, likes to emphasize to dealers how certified pre-owned vehicle sales provides reconditioning work for their service and parts departments and the potential to sell finance and insurance products.
“A healthy certified pre-owned business raises the tide of all of those departments and makes it a more healthy, profitable dealership,” he said.
Kevin Jones, used-car director at Kia of Irvine, in Irvine Calif., said his customers are attracted to certified used vehicles’ value and their new-car-like warranty.
He believes that industry-wide CPO sales will grow. But as more dealers embrace certification’s value proposition and used-vehicle sales in general, competition is heating up, Jones said.
“Five years ago, it was easy; everybody was focusing on new cars,” he said. “Now everybody’s coming out of hibernation and saying ‘wow, (CPO) is a great profit source’.
“I believe there is a lot more competition out there than there was a year ago and definitely more than there was two years ago.”
Kia Motors America’s CPO sales in August grew 2.9 percent to 6,575 units and through August, sales were up 1.1 percent to 53,173.