It was the eighth straight year of record certified pre-owned car sales, amid an overall used-car retail market that is still seeing some strength.
And while there are signs the used-car market may have peaked from a sales volume perspective, the feeling around last week’s NADA Show 2019 — and in recent forecasts and analyses — is that there’s a still a lot of opportunity in this segment.
Patrick Manzi, senior economist at the National Automobile Dealers Association, said during a press conference at the convention that franchised dealers had increased year-to-date used-car sales 5.1 percent through November.
“And we do expect that trend is going to continue,” Manzi said.
Franchised dealers sold 12.2 million used cars for full-year 2018, according to a presentation from Thomas King, the senior vice president of J.D. Power’s data and analytics division, during the J.D. Auto Summit held just before NADA.
That was up from 11.8 million in 2017 and continues what has been a simultaneous rise in franchised used-car sales and off-lease supply, according to J.D. Power data.
In 2014, there were 10.4 million used-car sales at franchised dealers amid off-lease volumes of 2.2 million units, the data indicates. Both numbers have steadily risen to 12.2 million used sales at franchised stores in 2018 and off-lease supply of 3.7 million.
King said to expect 4.1 million in off-lease units this year.
He said he is “encouraged by the fact while there are challenges to used-vehicle profitability, the overall performance on used is better than we see on new.”
In a presentation later that day, Jonathan Banks — who is vice president and vehicle valuations and analytics at J.D. Power — echoed much of King’s sentiment on used opportunities.
“When you think about (King’s) positive outlook for new-vehicle sales — some risk, but overall positive — we believe the used-vehicle segment has the same (outlook), maybe even a little more positive, especially from a dealer perspective,” Banks said. “From an opportunity perspective, we think the used market is really poised to offer huge opportunities that haven’t really been around and really are based on a fundamentally healthy market.”
Banks also noted that used-car gross margins faring better than new-car gross margins these days, and that the pre-owned market is attracting Generation Y and Generation Z buyers.
New-car sales and used-car sales are heading in different directions, he said.
“We’re in a new era, to me, of utilizing used-vehicle sales to offset that decline in new-vehicle sales, creating affordability, but in a whole different way. It’s affordability to a mindset,” Banks said. “Gen Z’s are looking to affordability, but it’s a mindset. It’s not like the affordability we went after post-recession … where you’re coming out of the economy collapsing.”
Along those lines, while NADA is seeing used-car payments climb, there is still a strong gap between those on the new-car side.
“I think a lot of consumers, when they walk into the dealership, they may have gone in expecting to get a new vehicle, but then they look over at the used lot and they see pretty much the same car, 2 or 3 years old, low miles and a big $150 gap,” Manzi said, referring to the gap in monthly payments.
“That’s going to be enough to pull a bunch of consumers over to the used market, even those with really good credit will be tempted by these used vehicles,” he said.
With what he described as a strong labor market, Manzi said younger generations are now going out to buy cars and most of those are going to turn to used.
Expectations for this year
It’s expected that January will see overall used retail sales — including those involving franchised dealers, independent dealers and private parties — reach 3.1 million units, according to Edmunds.
That would beat December’s total of 2.7 million, but represent a slower seasonally adjusted annualized rate of 39.2 million (against the 39.7 million SAAR last month), Edmunds said.
In its NADA Show press conference, Cox Automotive predicted full-year overall used-car retail sales of 39.5 million units for 2019, which would be consistent with last year’s figures.
“The used-vehicle market came in at the best year for the expansion at over 39.5 million units, thanks to favorable supply and demand, helping that part of the business grow,” Zohaib Rahim, Cox Automotive’s manager of economic and industry insights, said of 2018.
“However, looking forward, we are expecting a market that is post-peak,” Rahim said.
Cox Automotive is projecting 2020 used sales of 39.2 million, following this year’s 39.5 million.
Certified pre-owned still hot
One area of the used-car market that continues to bear fruit is CPO. Citing data from Autodata, KAR Auction Services chief economist Tom Kontos said certified sales in December climbed 8.4 percent from November and 1.3 percent from December 2017.
That led to a 2.1-percent hike in full-year CPO sales, Kontos said.
“On the demand side, CPO sales were strong in December and helped set another annual sales record,” Kontos said in the latest edition of his Kontos Kommentary.
Likewise, in this Kelley Blue Book post last week, KBB’s Matt DeLorenzo pointed out Cox Automotive economist estimates that there were 2.7 million certified sales last year, the eight straight all-time high.