Millennials may be fertile market for CPO

on Apr23

Dealers have an opportunity to draw in millennial vehicle-buyers through certified pre-owned programs and make plenty of money doing so, data from Cox Automotive show.

A millennial-focused sales strategy could help as CPO car sales soften amid a broad market shift to crossovers and other light trucks.

Among millennial shoppers, 74 percent are willing to pay more for a CPO vehicle vs. a non-CPO used vehicle, compared with 62 percent of older drivers, according to a 2016 Autotrader study. Autotrader is a unit of Cox Automotive.

Furthermore, younger buyers appear to be willing to pay more for CPOs than their parents and grandparents. The study finds millennials — also known as Generation Y, the 75 million-plus group born in the U.S. between the early 1980s and late ’90s — place $3,800 more in value on a CPO vehicle than a noncertified version of the same model. That compares with $2,700 for older buyers.

Krebs: “Level of piece of mind”

Michelle Krebs, an analyst with Autotrader, says the findings make sense considering the average income of younger buyers and the large array of options available through CPO programs. 

“Millennials gravitate toward used cars because that’s where they can afford them. I think it has to do with many of them not having shopped for cars before. I think it’s a level of peace of mind with getting a certified pre-owned that is backed by the manufacturer,” Krebs said. “In my own personal experience with helping young people buy cars, that’s the way they go.” 

CPO programs also give dealers an opportunity to create a returning customer, the Cox data show. According to the Autotrader study, 69 percent of CPO owners are “likely” to buy their next vehicle at the same dealership, compared with just 37 percent of those who buy a non-CPO used vehicle. 

“If you latch onto that first customer, you may have them for a while,” Krebs said. “There’s a great potential to move millennials as they gain income into a new car, and they may well stick with your dealership and your brand. There’s so much potential there.” 

Certified pre-owned vehicles tend to sell faster than their noncertified used counterparts. A 2016 Cox study found that a CPO vehicle spent an average of 30 days on a dealer’s lot from the moment it was “frontline ready” to the day it was sold, vs. 35 days for a noncertified used vehicle. 

Automakers have been urging their dealers to invest in their CPO programs as a way to move used vehicles. Used-vehicle supply is on the rise as increasing numbers of off-lease vehicles return to market, putting downward pressure on prices and pressuring dealers to move used vehicles off their lots faster. 

“A lot of savvy buyers go CPO, especially right now with so many off-lease vehicles that are nearly new and yet you can get them for significantly less than a brand-new car,” Krebs said. 

CPO sales at the 15 largest auto-makers that have U.S. CPO programs rose 3.5 percent to a record 2.6 million vehicles in 2016, compared with a 0.3 percent rise in new light-vehicle sales, to 17.5 million, according to the Automotive News Data Center. 

It was the sixth-straight year of record CPO sales. 

In the first quarter of 2017, certified pre-owned sales inched up 0.1 percent from the year-earlier quarter to 647,373. 

Toyota Motor Sales U.S.A. remained the leader in CPO sales, with 119,505 in the first quarter. That was down 3.2 percent, despite a 2.6 percent gain in Lexus’ CPO sales. General Motors’ total CPO sales ranked second at 97,360, down 11 percent, although sales by its Cadillac brand surged 41 percent to 10,570. 

Ford Motor Co. and Volkswagen Group of America also posted sales declines, while CPO sales grew at the other 11 automakers tracked. 

In early March, Tom Webb, Cox Automotive’s chief economist, said, “CPO weakness relative to the overall market reflects the lack of potential gross profit lift for certain brands and market segments.” In other words, with new-car sales tumbling as shoppers swarmed to crossovers and other light trucks, some dealers decided it wasn’t worth paying to certify a used car which would then have to be priced at a discount. 

Through February, Webb noted, CPO sales were down 5 percent for cars but up 5 percent for light trucks.

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