CPO sales poised for another record in '17

Certified pre-owned vehicle sales are poised to set a seventh consecutive record in 2017, fueled by a glut of off-lease vehicles returning to the market.

Tom Webb, chief economist at Cox Automotive, said the rate of CPO sales growth could pick up slightly from 2016 because of those off-lease vehicles

"We will definitely see another year of growth, though it will likely be relatively modest like last year," Webb said.

The U.S. auto industry posted its sixth consecutive year of record certified pre-owned sales in 2016, selling 2.6 million units in 2016, up 3.5 percent.

CPO sales rose 2.3 percent in December from the year-earlier period to 232,318 units, according to data compiled by the Automotive News Data Center.

How strong 2017 ends up being for automakers' various CPO programs will depend in large part on what they do to make them profitable for dealers, Webb said at a Cox media briefing ahead of the Detroit auto show in early January.

"In the end, it always depends on marketing," he said, "and incentives."

In those terms, 2017 is off to a strong start. Both American Honda Motor Co. and Mercedes-Benz USA advertised their CPO programs during the radio broadcasts of the NFL conference championship games on Jan. 22.

A recent study also indicated that dealerships could charge more for their CPO vehicles than they've been charging, which would increase the likelihood of dealerships marketing those vehicles more aggressively.

The Cox Automotive 2016 CPO Study, released in mid-November, found that the average consumer is willing to pay $3,000 more for a CPO vehicle than for the same vehicle without a certification. But dealers estimate that consumers will pay only $1,260 more for a CPO vehicle. The implication is that dealers may be pricing their certified inventory as much as $1,740 per unit below what consumers would be willing to pay.

The study also found that a CPO vehicle sells on average in 30 days, or five days faster than the average 35 days for a comparable non-certified vehicle.

While the upfront cost of certifications may hold back some dealers from developing CPO programs, the combined value of higher price tags and faster turns more than counteracts this cost, the study concluded.

"CPO only accounts for 21 percent of used-vehicle sales at franchise dealerships," said Scott Hernalsteen, senior director of research and market intelligence for Cox Automotive Media Group, citing National Automobile Dealers Association and Autodata/Motor Intelligence data. "This study proves that CPO vehicles are especially valuable for today's consumers, and should encourage dealers to take advantage of untapped CPO opportunities."

Off-lease vehicles are a major source of those that could qualify for certification. Yet the increase in CPO sales has lagged the rise in off-lease vehicles, numbers from J.D. Power and Associates show.

Manufacturer CPO sales, excluding private-label ones, topped lease maturities in 2013-15. But J.D. Power analysts, speaking at the combined Used Car Week conference and National Auto Auction Association convention in November, projected that manufacturer CPO sales would rise 4 percent to 2.7 million in 2016, vs. a 33 percent rise in off-lease vehicles, to 3.1 million.

As part of a presentation titled "CPO's Most Important Days Lie Ahead," Jonathan Banks, J.D. Power's vice president of vehicle valuations and analytics, said consumer awareness remains an issue. A survey of 3,090 consumers found that 42 percent of them -- and half of those ages 18-34 -- said they were "not at all, or slightly familiar" with manufacturer certified pre-owned programs.

In 2016, Toyota Motor Sales U.S.A. remained the largest player in the CPO market, capturing a 19.6 percent share of total sales.

Toyota's CPO sales gained 14 percent on the year from 2015 to 518,969 units.

Subaru had the largest percentage gain in CPO sales of any major automaker on the year, jumping 20 percent to 67,148 units.

Fiat Chrysler Automobiles CPO sales, boosted by strong performances from the Jeep and Ram brands, rose 17 percent to 220,693 units, making it the only Detroit 3 automaker to post a gain in certified pre-owned sales in 2016.

General Motors, the second-largest player in the CPO market, saw its sales decline 7.2 percent to 411,638 units. Sales for GM Certified, which includes the Chevrolet, Buick and GMC brands, fell 9.9 percent, cancelling out a 37 percent rise in Cadillac CPO sales.

Ford Motor Co. CPO sales fell 9.5 percent to 268,299 units, due in large part to a 10 percent drop in Ford/Mercury brand sales.

Volvo, which accounts for 0.6 percent of the CPO market, saw its sales drop 16 percent from 2015 to 16,760 units. Other automakers to see year-over-year CPO declines included Volkswagen, down 12 percent, and Mazda, down 5.2 percent.

Others with notable year-over-year percentage increases included BMW and Jaguar Land Rover.