On Nov. 12-14, dealers, industry influencers and manufacturer representatives gathered at the Phoenician Resort in Scottsdale, Ariz., for the CPO Forum, the certified pre-owned conference kicking off Auto Remarketing’s Used Car Week.
As was the case during the 2011 conference, inventory constraints dominated the conversation. With the average age of vehicles on the road at its highest point since 1995, many trade-ins don’t qualify for certification, leaving dealers with little choice but to look to auctions for CPO-eligible inventory.
On the “Best of the Best” panel featuring top CPO dealers, Gerald Cardenas of Momentum BMW said that because his store sells a high volume of used vehicles, relative to new, they’ve relied heavily upon auctions to keep their inventory stocked.
“Most of the stuff we get in on trade-ins [have very high mileage], so we have to hold our hands up at the auctions longer than we want,” Cardenas said. “But we need the cars.”
By contrast, Will Amiri of Longo Toyota said while his store buys some of its inventory from auctions to keep CPO units up, the fact that Longo is the top new-car Toyota dealership in the area drives more acquisition of recent-model inventory via trade-ins than most other dealerships.
“We’ll certify anything that can be certified,” Amiri said.
Despite the continued challenge of acquiring inventory, there was a sense of optimism at the conference. Trade-ins are expected to rise as more new-car shoppers enter the market, and lease terminations are expected to increase in 2013, shared Monday’s keynote speaker, Joe Derkos of J.D. Power & Associates.
Derkos revealed that 500,000 additional lease maturities are expected in 2013 over 2012 levels, and more than half of new vehicle sales are also resulting in trade-ins, which bodes well for dealers considering the fast growth in new-car sales expected in 2013. Furthermore, the average FICO score is decreasing, suggesting auto loans for new-car consumers with lower credit ratings are freeing up.
Before the CPO industry is completely on its way to a more favorable supply situation, however, it must first contend with the impact of Hurricane Sandy.
During the “Certified Pre-Owned Pricing Trends, Forecasts & Market Intelligence Roundtable,” NADA’s Jonathan Banks estimated that 100,000 vehicles were lost as a result of the storm – a figure Edmunds.com’s John Giamalvo pegged at 200,000 units. With losses prompting increased demand for replacement vehicles by those affected, Banks and Giamalvo both predicted a disruption in supply and temporary upward pressure on used and CPO vehicle pricing. Banks suggested there would be a 1% increase and Giamalvo predicted an average increase at of $1,000, but both agreed it would be temporary.
“You’ll see dealers trying to recover from [the storm] and bring up a lot of inventory from places like Texas and Florida,” causing pricing and inventory levels to even back out, Giamalvo said.
Overall, it was clear that dealers and manufacturers alike are seeing more value in CPO than ever.
“You have to commit to it, but that’s easy to do because the numbers bear it out,” said John Nissen of Earnhardt Ford on the “Best of the Best” panel. “It’s an easier sale for the salesperson, especially the new-car salesperson.”
“Whether it’s on the front-end gross side of the business or new revenue in fixed ops,” Nissen continued, “the cost of certification pays for itself – and then some.”
For more coverage of Used Car Week, visit autoremarketing.com.