CPO streak may be ending

As a wave of off-lease vehicles returned to the market, sales of certified pre-owned vehicles seemed poised to set records for the seventh consecutive year in 2017. But in fact, sales have slipped for many brands, and the streak of record CPO sales may end.

CPO sales dropped 3.2 percent in July from the year-earlier period to 227,045 vehicles, according to numbers from the Automotive News Data Center and Autodata Corp. In the first seven months of 2017, sales edged up just 0.6 percent. In contrast, in all of 2016, sales climbed 3.5 percent.

"The market is up — but not as much as we expected," Zohaib Rahim, Autotrader's manager of industry insights, said.

The narrative surrounding CPO sales is shifting rapidly with consumer preference, said Rahim, as the deluge of off-lease sedans returning to dealerships are competing in a drastically different market.

"It's a suspense thriller," Rahim said. "We don't know how it's going to end."

Sales are sliding for several of the highest-volume CPO brands, even as some smaller players post solid growth.

Take Toyota Motor Sales U.S.A., the leader in CPO sales with 17.5 percent of the market as of July. It sold 274,534 vehicles through July this year, a 9.9 percent drop from a year earlier. Toyota- and Lexus-brand CPO sales are down for the first seven months.

In July, Lexus' CPO sales slid 16 percent, while Toyota-brand CPO sales tumbled 21 percent.

"The large majority of off-lease vehicles returning to market are passenger cars," Scott Heyer, Toyota's general manager of sales operations, told Automotive News in an email. "Similar to the new-vehicle market, CPO is also seeing light-truck demand increasing."

Heyer said it would be difficult for Toyota's CPO program in 2017 to match last year's all-time high. He noted that some models, such as the Matrix, Venza, FJ Cruiser and the entire Scion line, are no longer available as new vehicles, so are increasingly in meager supply for CPO.

With the shift of consumer preference to crossovers and SUVs, Heyer said the Highlander, Tacoma, 4Runner, Sequoia and Land Cruiser are increasingly in demand.

But cars still drive CPO sales for Toyota. The Camry remains the No. 1 volume vehicle and Corolla is third. The RAV4, a crossover, is No. 2.

General Motors' total CPO sales ranked second among automakers at 232,827 through July, down 5.7 percent, although Cadillac's CPO sales, which are run as a separate program from GM's other brands, shot up 45 percent to 27,000.

Audi's CPO sales fell behind Cadillac's in the first seven months. Audi sold 26,830 CPO vehicles, down 1.1 percent.

Other major automakers whose CPO sales declined included Mercedes-Benz USA, down 18 percent in July and off 2.8 percent for the first seven months, and Hyundai-Kia Automotive, down 13 percent in July and 4.3 percent for the first seven months.

Among the automakers with CPO increases were American Honda, up 8.1 percent for the first seven months, and Fiat Chrysler Automobiles, up 13 percent through July. BMW Group's CPO sales for the first seven months rose 14 percent, despite a 7.7 percent fall by Mini.

Millennials remain a powerful consumer base for CPO vehicles, but automakers' success in selling to them will depend in part on those companies' marketing strategies and use of incentives, Autotrader's Rahim said.

Automakers "prefer new-vehicle sales," Rahim said. "You see how much incentive money is being spent on CPO," and it doesn't match what is spent on new vehicles.

Anecdotally, that incentive disparity has contributed to the relative softness in CPO sales. With automakers' spending heavily to move new sedans, particularly smaller ones, some dealerships are said to have decided against spending the money to certify competing off-lease vehicles, calculating that the return on investment wasn't sufficient.

But Rahim also noted that the strong industrywide CPO gains of recent years were unlikely to continue anyway. Past years' growth in CPO sales could have had more to do with the entrance of mainstream brands to the CPO market and less to do with individual performance of the luxury models that long dominated the market, he said. That implies that, with most brands now in the market, it may be more difficult to generate the growth rates of recent years.

Nonetheless, Rahim is optimistic about the CPO market. As sedans are replaced in the new-vehicle market by crossovers and SUVs, that paves the way for CPO customers to have a larger volume of light trucks from which to choose, and CPO sales should catch up, Rahim predicted.

He said, "The sequel will be better."