Certified pre-owned vehicles are selling quicker and for better margins than similar non-certified used vehicles, but dealers who want to push the product are challenged by a lack of consumer awareness.
New data from J.D. Power shows higher average profits and faster turn rates for CPO vehicles consistently during the past two years — and that spread grew in the third quarter of this year.
"It does seem to be a compelling argument," Andrew Stowe, senior director of vehicle valuations at J.D. Power, said of the CPO segment's profit performance. "And the fact that it isn't advertised more or communicated a little bit more is one of the things that's maybe holding it back from even greater growth than we've seen over the last couple years."
Consumers purchased just more than 2.6 million CPO vehicles in 2017, according to the Automotive News Data Center. Through the first 10 months of 2018, total CPO sales in the U.S. rose 2.2 percent.
And the average profit percentage on CPO vehicle sales was 5.7 percent in the third quarter of 2018 vs. 4.9 percent for non-CPO vehicles, according to J.D. Power. CPO vehicles had an F&I profit of 4.7 percent in the period, compared with 4.4 for their non-CPO counterparts. And CPO vehicles on average took 43 days to turn in the quarter, compared with 67 days for non-CPO vehicles.
"So make more money front-end, make more money back-end, and make more money more often," Stowe said.
So what's the holdup? Some dealers may prefer their own certified programs and do only the bare minimum for the programs dictated by the automakers. And there's lots of room to step up promotions, said Jonathan Banks, J.D. Power vice president of vehicle valuations.
There's not much marketing "to say, 'Here's all the stuff about certified,' " Banks said. "And then you think about the young buyer — you don't want to do a traditional media campaign probably. You want to do something a little more interactive and social."
| With new-vehicle prices rising and affordability becoming more challenging for consumers, it's a good time for dealers to embrace certified pre-owned vehicle sales. |
| | 2018 forecast | 2017 |
| Used-vehicle sales at franchised dealerships (millions) | 12.2 | 11.8 |
| | 2018 YTD | 2017 |
| Used-vehicle monthly payments (3 years old) | $413 | $395 |
| | 2018 forecast | 2017 |
| Lease maturities growth, mainstream | 6% | 12% |
| Lease maturities growth, luxury | 20% | –1% |
| | 2018 YTD | 2017 |
| CPO sales growth, mainstream | 3% | flat |
| CPO sales growth, luxury | 2% | 4% |
| Source: J.D. Power |
In general, certified vehicles continue to face a dearth of consumer awareness, J.D. Power said.
In a survey this yearto gauge that consumer awareness and reception of certified vehicles, J.D. Power found that of the customers who are likely or extremely likely to consider purchasing a certified vehicle, only 44 percent are "extremely" or "moderately" familiar with CPO programs, while 31 percent were "somewhat" familiar and 24 percent were "not at all" familiar with them. That survey garnered about 10,000 responses.
Meanwhile, automakers have so far been disciplined on incentives despite slowing retail sales. Industry retail sales are forecast to dip to 13.8 million units in 2018 vs. about 14 million a year ago. At the same time, incentive spending per unit is down so far in 2018 vs. 2017, according to J.D. Power.
"The discipline on incentives is a good-news story when it comes to CPO because you don't want the downward price pressure to start having an impact on profitability in used," Stowe said.
For some buyers coming back to the market after the expiration of new-vehicle leases, affordability could be an issue, Banks said.
"Why not serve them up with a nice certified pre-owned as an option to a new vehicle?" he said. "You're not seeing that."
And the affordability challenge, Banks said, is "not going away, unless manufacturers change their strategy for the market. So for us, it's like a perfect opportunity."
