Digital Dealer - March 2020 - 38

S A L E S & VA R I A B L E O P S

CPO

By
Ben Bartosch
Manager of Forecast Analytics,
J.D. Power

Toyota Led Record CPO Growth
in 2019 as Margins Invite Further Investment

>

Yes, 2019 was a banner year

for certiﬁed pre-owned (CPO)
sales in the U.S. Overall, CPO
sales outperformed 2018 by 4.1%,
reaching 2.8 million units sold.
Impressive indeed.
The growth in this segment of the
market reﬂects a growing recognition-
among original equipment manufacturers (OEMs) and franchise dealerships-of
the multifaceted value CPO brings to the
equation. In addition to capturing margins that are signiﬁcantly stronger than
conventional used vehicle sales, CPO
programs have deﬁned a customer-lifecycle journey that builds brand loyalty,
providing a long-term pipeline for new
vehicle purchases.
As a result, the groundwork has been
laid for CPO sales in 2020 to experience another record year. The market
will be supported by the fact that the
high-quality inventory of CPO-eligible
vehicles that underpinned the market
last year will remain in place over the
next 12 months. Sales also will get a shot
in the arm from an increasing number of
value-conscious buyers who are increasingly buying into CPO's Goldilocks value
proposition of "not being too expensive"
while "being somewhat high-end."

CPO Leaders by Volume & Growth
At the brand level, Toyota was the undisputed 2019 CPO sales leader, outselling
its closest competitor by approximately
100,000 units. The next closest competitor was Honda, followed by Chevrolet.
From a growth standpoint, Ram Pickup
saw the largest increase in 2019 CPO
sales, posting an impressive 32% gain.
Subaru posted the second-highest
growth rate just over 16%, followed by
Mazda at just under 16%. For premium
brands, Volvo records the largest growth
with 25%, followed by Land Rover with
17%.

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CPO Emerging as Gateway to New
Vehicle Purchases
It is for this reason that a growing number
of OEM and dealership decision-makers
see CPO as a gateway to new-vehicle purchases. Three-year-old vehicles coming off
leases today- a major source of CPO in-

" With proper
targeting and ongoing
brand engagement,
executives believe a
significant percentage
of CPO buyers can get
converted to a new
vehicle on their next
purchase. "

ventory- have a lot more content than ﬁve
or seven years ago, allowing consumers to
experience "like-new vehicle" purchases.
With proper targeting and ongoing brand
engagement, executives believe a significant percentage of CPO buyers can get
converted to a new vehicle on their next
purchase.
"Ongoing engagement" is the critical
phrase.
To maintain and refresh CPO inventories in response to growing consumer
demand, franchise dealerships will have to
improve their ability to recapture eligible
vehicles in the secondary market. Today,
roughly 40% of eligible vehicles are sold as

CPO, which leaves a tremendous amount
of growth. This means that a signiﬁcant
percentage of new-car buyers are not
returning to the dealerships that originally
sold them their new cars for trade-ins or
re-sales. With CPO sales emerging as an
increasingly important aspect of the industry's balance sheet, dealerships should
proactively develop strategies for reaching
out to previous customers to entice them
to bring their vehicle back when they are
ready to sell so that it can get placed back
into service as a CPO.

Competition from Non-Franchise
Certified Programs Will Grow
That, of course, is easier said than done,
especially with how frictionless and
transparent the used-vehicle market has
become in today's digital economy. It has
never been easier or more convenient for
consumers to sell a car or truck.
Moreover, brand-speciﬁc franchise dealers are not the only players in the market
that have noted the uptick in demand for
CPO vehicles. We expect to see interesting
movement among independent dealerships
as they work to introduce or enhance their
own certiﬁed programs to market. Carmax
and Carvana are two major examples of
non-franchise dealerships with certiﬁed
vehicle initiatives that are growing in
popularity.
As certiﬁed used-vehicle programs
evolve, it will be important to educate
consumers on the major distinctions, most
of which revolve around who offers the
warranties. In traditional franchise CPOs,
the manufacturers back the warranty, while
independent dealers underwrite their own
certiﬁed vehicle initiatives. In 2020, we
can expect to witness a race to see whether
consumers can be made to care one way or
another.
Have feedback, questions or topic suggestions?
Email magazine@digitaldealer.com

March 2020
http://www.digitaldealer.com
Digital Dealer - March 2020

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