There was a bit of a slow start for the certified pre-owned car market at the outset of 2019, but that comes off what was the eighth straight record year of sales.
According to Cox Automotive, there were 2.70 million CPO sales in 2018, a 2.1-percent year-over-year gain. This marked another all-time high, and 2019 could see much of the same, with the market expected to reach 2.75 million sales, the company said in an analysis released last week.
This year started with 199,640 certified sales in the first month, which was 1.6-percent softer than January 2018 and 11 percent softer than December, according to Cox Automotive chief economist Jonathan Smoke. This was in line with the overall used-car market in January, Smoke said.
But again, the market remains strong. Cox Automotive attributes the CPO health to plentiful used-car demand and off-lease supply.
There were 3.85 million off-lease units in 2018, an 11-percent increase from 2017, the company said. This year, Cox Automotive is projecting a peak of 4.08 million off-lease vehicles, which would be a 6-percent gain.
Factors pushing used demand
As to why overall used-car demand is so high, Smoke said in a phone interview Tuesday that it boils down to two fundamentals.
“Where we are in the cycle for the market, you tend to have strengthening demand for used vehicles while the new-vehicle market is past its peak and starting to decline,” Smoke said. “Normally that’s related to affordability, primarily because at this point in the cycle, we have higher interest rates that are causing payments to go up much more quickly than they had been in prior years.
“And so, simply put, a consumer that has a fixed amount of money that they can afford to spend or even qualify for a payment is essentially having to look at a less expensive vehicle, in terms of the vehicle price, now than they would have, say, a few years ago,” he said.
“But this time, on top of the normal cycle influence that’s all about payment being related to higher interest rates, we also have the scenario of affordability dramatically getting worse simply from the vehicle expense in the new-vehicle market,” Smoke said.
“And that’s a function of the shift that we’ve been seeing to more expensive vehicle types, like pickup trucks and SUVs, but also the fact that even the more affordable cars today have much more technology in them, such that we’ve essentially seen twice the level of inflation in new-vehicle prices for the last couple of years. It’s showing no sign of slowing down.”
As for certified pre-owned sales, those won’t slow down either. Smoke said there’s at least more year of gains on tap, followed by a plateau at a high level.
“It’s certainly no longer showing the tremendous year-over-year growth that it once had. It, of course, is a function of how quickly the supply of nearly new vehicles that go into the CPO market, which are principally off-lease vehicles, are also slowing down its pace of growth … It’s inevitable that the market will reach a peak. We don’t think we’re there yet,” Smoke said.
“We think we have at least another year of growth in 2019. And then I think it is appropriate to call it a plateau because while we’re no longer going to see off-lease volumes drive growth in the market, we’re going to continue, from a historical perspective, at a fairly elevated level of off-lease supply for the foreseeable future,” he continued. “Leasing has now become a much more significant part of the market, and as a result, we can depend on it providing an ample supply of vehicles that can be CPO’d for the foreseeable future.”
As for the present, or recent past, Cox Automotive shared Motor Intelligence data indicating the brand-by-brand certified sales leaders in 2018. Toyota topped the list, with 345,000 CPO sales last year, followed by Honda at 265,000 sales, Chevrolet at 242,000, Ford at 221,000 at Nissan at 217,000.
Mercedes-Benz, which came in at No. 6 overall, led the luxury crowd with 217,000 certified sales in 2018.
“The CPO market is top-heavy with a few brands accounting for the majority of sales. Toyota is the largest player in the CPO market and accounted for 13 percent of all CPO sales in 2018,” Cox Automotive said in the analysis.
“Toyota along with Honda, Chevy, Ford and Nissan account for 48 percent of total industry CPO sales,” the company added. “Look for that to change as brands like Jeep, Volkswagen and Mazda make gains in CPO sales and increase their share of this market.”
A full rundown can be found here.