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.