Bear with me as I dust off my industry insights hat. CPO sales are interesting to forecast because a few variables can impact supply.
First, the strength of the retail leasing market two to three years in the past plays a crucial role in determining the possible universe of vehicles that can be certified in any particular year. Typically, vehicles coming off lease drive the supply of what ends up being certified. It’s important to note that not all off-lease vehicles become CPO vehicles.
Second, the current market influences CPO sales levels. Overall strength in the used-retail market affects dealers’ demand to certify off-lease vehicles as well as their ability to certify them.
And last, automaker incentives for CPO programs can influence the rate at which eligible vehicles are certified by dealers.
Keeping all this in mind, where do we see CPO sales going?
It’s hard to envision an environment with a dramatic pullback in CPO sales. Could it take a year or two to set a new annual sales record? Sure. Do we drop back to 2012-14 levels? Probably not.
The challenge in the CPO market today (and for the foreseeable future) is not demand but supply. A lot of new-vehicle production was lost after the onset of the coronavirus pandemic. As we think about getting past those challenges, the best bet for the next couple of years is that CPO sales could hover from 2.6 million to 2.8 million vehicles annually, not going beyond 2021’s level of nearly 2.8 million.
The beauty of certified pre-owned offerings is not what’s in the respective automaker programs. Instead, it’s about the consumer who’s jumping into a CPO vehicle.
A common term used to describe some CPO shoppers is budget-conscious. And while that may be true for a subset of that population, I think we need to emphasize that these consumers are, broadly speaking, value-driven shoppers. They are willing to pay a premium for a vehicle because of what the CPO program offers and what that means to them about the quality of their purchase.
Here you have the perfect loyalty scenario if you are a dealer or an automaker: a consumer willing to spend extra on a vehicle to get peace of mind on their purchase. A good-to-great experience in that vehicle and with that brand adds strength and support in laying the foundation of consumer loyalty. Add in a customer’s in-store experience related to service, and you have a great tool to keep a customer engaged with both the brand and the dealership.