You have probably heard this one before, but it bears repeating: there’s going to be a ton of lease returns this year. And you can likely expect to see record certified pre-owned sales again.
But the interesting dynamic to watch in 2016 may be how these two trends mesh and the decisions shoppers will have to make between CPO and new, given the increasing (but still relatively healthy) incentive activity.
Autotrader senior analyst Michelle Krebs, along with Kelley Blue Book senior analyst Alec Gutierrez, addressed these and other auto market happenings during a conference call with the media on Tuesday morning.
Early in the call, Krebs said there will be “a tremendous amount of off-lease vehicles” to hit the used market this year. And you can probably expect to see those cars ending up as CPO units on dealer lots, she said.
And that will bode well for an already record-breaking CPO market.
“It’s a record this year. It’ll be a record next year. It’ll be a record the next year after that,” Krebs said of the CPO market. “That’s what we’re anticipating: a continued upward climb. So, I think the question is, ‘OK, do consumers gravitate more toward CPO cars? Is that going to steal some new car sales?’”
It may be a bit early to answer that, but consider the choices shoppers could be making.
From the consumer standpoint, Krebs said, they may have some additional considerations to weigh when deciding between new and CPO. It’s also important to note the role incentives could play in that decision, she said.
“I mean, they always look at new and nearly new, but there will be more reason to do that,” Krebs said. “And in some cases, if we see incentives continue (to be) high, there may be a reason to buy a new over a CPO. So, it’ll be a really interesting year of which (way) do consumers go in terms of CPO or new.”
Getting into specifics on incentives, Gutierrez said that, historically speaking, the industry remains healthy and there haven't been dramatic spending gains. But he has his eye on the somewhat different paths incentive spend and transaction prices are taking. They’re both up, but incentives are rising faster, he said.
“As far as incentives go and transaction prices, (we’re) definitely still in a good place for the industry in terms of discipline, in terms of strong demand from consumers and willingness to pay a premium price for new vehicles,” he said. “Transaction prices ended the year at around $34,400 overall, about a 1-percent increase year-over-year, while incentive spend on an annualized basis will end the year at around $3,000 per unit, which is up about 4 to 5 percent year-over-year.”
Another key figure to watch? The impact of the new interest rates.
“We know that interest rates were recently increased, so that’s something to watch out for, especially related to leasing and what it does for that business,” Gutierrez said. “From a residual perspective, the market still looks strong, however.”