I will be attending the Certified Pre-Owned (CPO) Dealer Conference in Las Vegas next week and wanted to share with my readers some insight my astute colleague, David Wagner, supplied to me. CPO sales continue to break records on the number of units sold by manufacturers and overall CPO sales are outpacing last year’s numbers by 6.2% according to Auto Remarketing. In fact, many manufacturers that were not in the CPO business are starting to put more emphasis on the program. My good friend David Carp states in an article, “[Kia is] very excited about breaking an all-time high record in September with 977 Kia CPO units sold,” Carp continues with: “Kia Motors continues to be dedicated to growing our Kia certified pre-owned brand.”
CPO sales now account for 14% of total used vehicle sales when limited to the ages that are typically certifiable (see below) . This has increased from a low of 10% at the end of 2009. This amounts to nearly 2 million (1.7million) units a year (versus nearly 11million used registrations in the 0-6 year old range).
CPO vehicles drive higher transaction prices but also improve brand value – I am not just talking about the specific vehicle premiums, which is obvious, but the intangible premium of extending the vehicle lineup to different customers while also controlling the sales experience of your used inventory. CPO models remove the risk of costly repairs while concurrently bringing value to the customer enabling dealers to better align consumer needs with the right vehicle. For example, a new Honda Civic will cost a consumer about $27,000 while a certified Accord with similar equipment is priced at $19,000 - $22,000, depending on the model year. So instead of putting a consumer into the vehicle they can afford, a dealer can put a customer in the vehicle they want or need.
Of course this comes at a price…CPO premiums will cost a consumer up to 20% more for luxury brands and about 8% for mainstream brands. These premiums fluctuate and suggest that the value of CPO is more than the sum of its parts (warranty, inspection, reconditioning) – there is a market for CPO, closely tied to New and Used, but with its own market forces of supply and demand. For example, in times of extreme economic anxiety, consumers are less willing to pay the additional premium associated w/ New or CPO Used, which drives down sales for CPO units. As confidence picked back up in 2010, so did CPO sales. Premiums also increased during 2010 especially on luxury models.
Consumers can expect to pay additional premiums for CPO units as used supply gets tighter on low mileage vehicles. In fact, many manufacturers will be challenged to find vehicles that qualify to be a CPO due to the lack of lease returns. This will create an interesting scenario to meet the increasing demand for CPO units. We may see interesting programs from dealers and OEMs to attempt to get consumers with these scarce vehicles back to the market quickly to fuel the CPO supply while concurrently helping out new vehicle sales. With used prices so high this model will have some legs during the upcoming year with consumers taking advantage of high resale values and manufacturers and dealers attempting to align supply and demand for these scarce units.