Certified used cars: Challenges loom for sales

Finding used vehicles to certify will be more challenging in the next two years for dealerships participating in those programs, industry experts told Automotive News.

Sales of certified used vehicles in the U.S. sank in 2022 to their lowest point since 2014 but rose in 2023. There is uncertainty about where annual figures will land in 2024 — and especially 2025 — as the category faces increased competition from new-car sales.

A scarcity of late-model used vehicles is a pain point dealerships will encounter in 2024 and 2025 as the number of off-lease vehicle returns is set to decline in both years.

It's an aftereffect of the COVID-19 pandemic and microchip shortage's disruption of new-car sales and leasing three years ago.

Dealerships will need to be more strategic in retaining what off-lease inventory is available, said Ben Bartosch, manager of CPO solutions at J.D. Power.

"Right now, what is coming off lease should not be quickly overlooked in terms of an opportunity," Bartosch told Automotive News.

Acquiring off-lease inventory is a cost concern for dealerships especially because many leased vehicles are returning with some equity in them, Bartosch said.

Last year, sales of certified used vehicles rose to 2.65 million, up 6.3 percent from 2.49 million in 2022, according to data compiled by the Automotive News Research & Data Center. Sales volume in 2023 closely aligned with where volume landed in 2017, though it remained well under a 10-year peak of 2.81 million in 2019.

Automakers also have worked to offset a lower supply of late-model used vehicles and boost certified sales by expanding the pool of used inventory eligible for certification.

Toyota Motor North America, the longtime leader in U.S. certified used-vehicle sales, expanded its program this year to allow for certification of vehicles up to 10 years old and with 60,000 to 125,000 miles on their odometers.

Toyota calls that tier Silver Certified, which accompanies its Gold Certified tier for vehicles up to 6 years old and with up to 85,000 miles on their odometers.

Those tiers allow dealerships to certify and sell a larger pool of inventory, said Brett Keckeisen, senior analyst for Toyota Motor North America's certified used-vehicle sales program. The automaker has about 1,240 U.S. dealerships, and more than 1,000 participate in the Toyota certified program, he said.

"Some of this feedback we've gotten — from dealers as well as consumers — is dealers appreciate the expanded levels to give them choice to be able to certify older vehicles," Keckeisen told Automotive News.

It's not just a dearth of off-lease vehicle returns that affect supply. Recalls in the last one to two years also diminish what's available to certify, Keckeisen said.

"For [certified pre-owned], they're not eligible if they have an open recall on them," he said, "so the availability of those vehicles goes down and the inventory itself is hard to acquire."

Roughly 20,000 certified used vehicles are in Toyota Motor North America's inventory at any given point, and the automaker sells roughly 1,000 to 1,100 each day, Keckeisen said, which amounts to about a 19- to 20-day supply of vehicles.

Toyota's U.S. certified used-vehicle sales through July fell 16 percent year over year to 226,906. Toyota captured 454,534 certified sales or 17 percent of the annual certified volume in 2023, making it the market leader in the category.

"Our sales plan [in 2025] will be very similar to what it is in 2024 where dealers are doing their best to acquire inventory and keeping up with consumer demand, but inventory is going to remain tight moving forward," Keckeisen said.

The absence of new-vehicle leasing in 2020 and 2021 means dealerships face another 18 months of low late-model used-car supply, even as availability of other types of wholesale inventory increases, said Jim Farkas, senior executive manager for Preferred Auto Dealerships of Grand Haven, Mich.

Preferred Auto has already surpassed its benchmark for certified used sales to make up more than 10 percent of the group's volume in 2024, Farkas told Automotive News.

The group is at 22 percent when including certified used vehicles sold at its Toyota dealership and at 15 percent without it, he said.

When Farkas joined the group, increasing certified used sales was one of his goals. In his experience, strong certified used sales translate in years "back to new-car sales," he said.

Values will be based partly on how automakers promote used-vehicle certification and support dealer partners in those sales, he said.

"You've got to have a special advertising campaign, you need to make sure it's noted on the lot and also visible to the consumer digitally," Farkas said.

"Some of those assets aren't easy to find from the manufacturer, and if they're not pushing it, it's really driven by the dealer."

He would like to see more support from U.S. automakers for certifying used vehicles.

"I believe the imports have realized that when a person buys their product and they can get them in at the entry level that the retention from that product greatly increases," Farkas said. "They put a focus on that early buyer into the market."

J.D. Power in July estimated 2.7 million certified used vehicles would be sold in 2024.

Hitting that mark will require a strong push by dealers to certify inventory through the end of the year, and automakers may need to work with their dealer partners to support certification, Bartosch said.

"Inventory constraints, even if we do see a little bit of improvement, might just not be enough for dealers to really hit those marks," he told Automotive News.

"Right now, new-market activity is just going to be too aggressive."

Automaker incentives for certified used vehicles are strong. But so are new-vehicle incentives, Bartosch said.

"I see it being difficult [for certified incentives] to challenge some of the new-market vehicle incentives," he said.

"I don't know enough about the other OEMs and how hard they're going to be pushing," Toyota's Keckeisen said, "but that 2.7 million CPO number would be definitely something to strive for."