There were three primary factors behind what KeyBanc Capital Markets believes to be a rosy outlook for earnings growth in the retail car business over the next couple of years: strong used-car sales, strong parts and service sales and the current dealership acquisition trends.

Based on analysis provided in KeyBanc’s report from its most recent dealer survey, Auto Remarketing will take a look at each of these areas individually, starting with used-car sales.

“Industry used-vehicle growth outlook in the low to mid-single digits is intact, and we believe franchised dealers should outperform the overall industry,” KeyBanc said in the section of the report delving into the 2015/2016 longer-term forecast.

Shedding more light on this expected used-car growth, KeyBanc first points to some economic-based factors, including:

— An economy expected to climb at a 2.5-percent to 3.5 percent clip each year
— Decreasing unemployment
— KeyBanc projects continued strength in available financing, highlighted by Experian data for the fourth-quarter indicating flat delinquency movement from Q4 2013 and across-the-credit-spectrum gains in financing.

Not to mention, dealers should be buoyed by increasing used-car supply. It is predicted there will be around 20-percent annual growth in off-lease volumes for “the foreseeable future,” giving late-model inventories a nice bump.

“This is positive for all used-vehicle sales, but zero- to 4-year-old cars should outperform,” the company said in the report. “Franchised dealers under our coverage have the potential to outperform the overall used-vehicle industry and grow used-vehicle sales as high as low double-digits, as they have the first hand pick at this highly desirable low-mileage off-lease inventory.”

(Overall, franchised dealers have enjoyed a steady rise in retail used-vehicle sales the past four years, according to the NADA Data 2014 report. And retail selling prices for these dealers have climbed from about $15,000 in 2009 to roughly $19,000 in 2014, NADA indicated.)

A Manheim Consulting graph included in KeyBanc’s analysis shows off-lease volumes potentially reaching 2.5 million units in 2015 (compared to just over 2 million in 2014) and hitting the 3.0 million mark in 2016.

And although the increases in new-lease originations aren’t predicted to be as dramatic as those that occurred between 2009 and 2013, the Manheim data set projects 2016 will be the fourth consecutive year with more than 3 million leases written.

March, Q1 & Beyond

Eighty percent of respondents in KeyBanc’s survey said their used-vehicle sales increased year-over-year in March. Although a month earlier, 83 percent had reported used sales falling, the first quarter overall appeared to be rather strong in the used-car department.

“For the full quarter, we expect year-over-year growth in the mid-single digits or higher on average in the industry,” KeyBanc said in the report.

As for full-year 2015, TrueCar said earlier this week it is expecting the industry to reach 2.61 million certified pre-owned sales and 35.79 million non-CPO used sales this year. These would represent year-over-year increases of 11.4 percent and 3.3 percent, respectively.

TrueCar forecasts the supply pool of used vehicles from ages 1 to 5 will come in at 10.4 million this year.

“Improved inventory means we can expect a stellar year for the used market — and particularly for certified pre-owned vehicles,” said Larry Dominique, TrueCar's executive vice president and president of ALG, TrueCar's residual value data unit.

“Across the industry automakers have enhanced CPO programs to delight buyers with longer warranties, improve their own residual values, and successfully grow volumes of these high-margin products for their dealers,” he added.