Guide to CPO Supplement - S2

INTRODUCTION

Experts see more growth ahead
David Muller

dmuller@crain.com

GUIDE TO

CERTIFIED PRE-OWNED
VEHICLE PROGRAMS

contents
Acura, Audi, Bentley, BMW, Cadillac

FCA US, Ford, General Motors, Honda,
Hyundai

Infiniti, Jaguar, Kia, Land Rover, Lexus

Lincoln, Maserati, Mazda, McLaren,
Mercedes-Benz

Mini, Mitsubishi, Nissan, Porsche,
Rolls-Royce

Smart, Subaru, Toyota, Volkswagen, Volvo

Certified pre-owned vehicle sales,
2018 by month

Data highlights, glossary of terms

2019 is on pace for a ninth straight year of record sales of
certified pre-owned vehicles. New-vehicle affordability
challenges, automakers' efforts to increase awareness of their
CPO programs and the sheer number of vehicles coming off
lease are driving the rise.
Through August, CPO vehicle sales rose 3.1 percent from a year
earlier to 1,900,713, according to the Automotive News Data
Center. That compares with a 2.5 percent increase through the
first eight months of 2018. For all of last year, CPO vehicle sales
rose 2.1 percent to 2.7 million. If 2019's pace through August
continues, CPO vehicle sales will finish this year at 2.8 million.
Waves of vehicles are coming off lease in the wake of record
new-vehicle sales in recent years, and prices of new vehicles
continue to climb. So CPO vehicles, with their automaker-backed
warranties, will continue to be pushed as a value proposition,
said Tom Kontos, chief economist for KAR Auction Services Inc.
"Affordability is an issue on the new-car side of the business,"
Kontos said. "There's probably some increased consideration
among consumers of CPO as a good choice that they may not
have thought about before, and so I think there's still some
headroom for that trend to continue in the next couple of years."
The Toyota brand, after certified used sales fell last year,
posted a 9.8 percent jump through the first eight months of
2019, with 256,593 CPO vehicles sold. Toyota is the industry
leader in CPO vehicle sales for the past 10 years and has sold
more than 6 million certified used cars and trucks since 1996.
Toyota in May updated its certified program's warranty to start
at the original date of purchase of a certified vehicle, rather than
when the vehicle was bought new, as most other programs do.
Toyota offers a 12-month/12,000-mile comprehensive warranty
and a 7-year/100,000-mile limited powertrain warranty.

Honda adds perks
Honda, the No. 2 brand behind Toyota in certified volume,
recorded an 8.3 percent gain in CPO sales through August to
196,724 vehicles. In August, American Honda Motor Co. upgraded
its certified programs, adding a second tier of certification for
Honda and extending warranty coverage for Acura. The
automaker added complimentary perks such as roadside
assistance for Honda and free scheduled service for Acura.

Chevrolet, in third place, experienced a 7.7 percent drop in
sales through August to 157,683 vehicles.
The Volkswagen brand continued 2018's strong performance
with a 16 percent jump to 74,400 vehicles through August. Mazda
also is increasing its certified used sales, with a 19 percent
increase to 41,832 vehicles through August.
After a drop in 2018, Ram rebounded through August, with
certified sales soaring 32 percent to 39,665 vehicles. Eric
Swanson, head of certified used vehicles at FCA US, attributed
Ram's spike in part to a 2018 recall that hurt last year's sales of
certified used vehicles, which can't be sold with an open recall.
"It really took a lot of inventory out of the system last year,"
Swanson said.
Jeep continues to perform well, with the brand's certified
used sales rising 13 percent to 95,052 vehicles through August.
Just more than 60 percent of FCA's 2,600 dealerships
participate in its CPO program, the highest participation rate
ever, Swanson said. FCA expects to sell more than 280,000
certified used vehicles this year, which would give the
automaker its best year on record. FCA's certified used sales
are up 8.9 percent through August to 198,800 vehicles.

Plenty of supply
Forecasters expect overall U.S. used-vehicle sales of around
40 million this year. Only a third of those will be sold by
franchised dealerships, Swanson said, with the balance being
sold by independent dealerships, companies such as CarMax
and Carvana and through private sales.
For automakers such as FCA, the competition is not so much
with other brands. The bigger opportunity is going after the
vehicles sold outside the franchised pipeline.
"I'm more interested in getting people to not go to
independents and not buy cars out of people's driveways off of
Craigslist," Swanson said.
There should be plenty of supply, with more than 4 million cars
and trucks expected to come off lease this year. Analysts have said
off-lease volume should peak in 2019 and continue to be strong for
the next few years. CPO programs were developed to find the next
home for a such vehicles while protecting brands' residual values
and also building relationships with customers, said KAR's Kontos.
He said, "This growth in off-lease volume and the acceptance
and growth in certified pre-owned is hand in glove." a

The Automotive News Data Center surveys automakers directly to gather the information in this supplement, except as noted.

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