CPO Perspective

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  • 1.May 2014 Certified Pre-Owned Vehicles: Accelerating Forward

2. Perspective | May 2014 NADA Used Car Guide | 8400 Westpark Drive | McLean, VA 22102 | 800.544.6232 | nada.com/b2b 2 2014 NADA Used Card Guide TABLE OF CONTENTS The Genesis of Certified Pre-Owned ........................................................................................... 2 Consumer & Dealer Sentiment Aligned....................................................................................... 3 Late Model Supply Helping to Drive CPO Sales ........................................................................... 4 CPO Premiums: Consumer Expectations vs. Actual .................................................................... 6 Conclusion.................................................................................................................................... 7 At NADA Used Car Guide ............................................................................................................. 9 Certified Pre-Owned Vehicles: Accelerating Forward The Genesis of Certified Pre-Owned It might come as a surprise to many consumers that manufacturer-sponsored certified pre-owned (CPO) used vehicle programs have been around for the better part of 20 years now. Conceived as a means to protect residual values and address the large number of off-lease vehicles hitting the used market, manufacturers promoted CPO vehicles as a cost-effective alternative to purchasing new. Manufacturers encouraged consumer demand for certified vehicles by reconditioning them to like-new standards and extending bumper-to -bumper and powertrain warranties to reduce repair cost fears. In short, CPO gave consumers a third option for auto purchases in addition to new and used: superior used. After growing rapidly through its infancy stage at the beginning of the 2000s, CPO sales experienced just incremental gains in the years that followed. Hindered by higher costs and limited awareness, CPO sales increased by only 200,000 units from 2003 to 2011 and deliveries consistently fell between 1.5-1.7 million units over the period. 0.5 0.7 1.3 1.5 1.6 1.6 1.6 1.7 1.7 1.5 1.6 1.7 1.8 2.1 0.0 0.5 1.0 1.5 2.0 2.5 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 CertifiedPre-OwnedSales(millions) Calendar Year Manufacturer Certified Pre-Owned Vehicle Sales Source: Autodata 3. Perspective | May 2014 NADA Used Car Guide | 8400 Westpark Drive | McLean, VA 22102 | 800.544.6232 | nada.com/b2b 3 2014 NADA Used Card Guide CPO sales began to take off in 2012, however, due in part to recovering auto demand in general as well as increased awareness of, and consideration for, CPO units among the more value-conscious post-recession consumer. CPO sales reached an all-time high of 2.1 million units in 2013, up 15% from 2012s figure of 1.8 million. With both late model supply and consumer awareness growing, sales are on pace to hit another record this year. In fact, CPO sales through April stood at nearly 750,000 units, up 11% on a prior-year basis and well ahead of the 3% rise in both new and used vehicle sales. To get a better understanding of certified pre-owned sales trends and whats fueling growth, Mays edition of NADA Perspective reviews consumer and dealer sentiment toward CPO vehicles, how manufacturer sales have unfolded, and CPO pricing trends. Consumer & Dealer Sentiment Aligned Certified pre-owned vehicles benefit consumers and dealers in a variety of ways. Consumers are able to purchase a fully reconditioned used vehicle with warranty coverage similar to a new one, but at a much lower price. These attributes form the basis of CPOs value proposition for consumers. AutoTrader.coms 2013 study, Certified Pre-Owned: Understanding the Customer, revealed that the number one reason why perspective CPO buyers consider buying certified is because of peace of mind. This point goes hand-in-hand with the second most cited reason, CPOs attractive extended warranty coverage. AutoTrader.com also points out that new vehicle affordability and economic concerns are major reasons driving buyers to CPO units. Another benefit is access to low rate financing as most manufacturers offer reduced interest rates as an incentive to buy CPO vehicles. This increases affordability and offsets a portion of their higher upfront costs. As for dealers, CPO sales support current and future profitability and strengthen customer loyalty. Since a CPO vehicle is under warranty, consumers are more apt to return to their original dealer for maintenance and repairs than go to an independent repair shop. 0 500,000 1,000,000 1,500,000 2,000,000 2,500,000 2007 2008 2009 2010 2011 2012 2013 2014 NumberofPages Calendar Year Google Search Results for "Certified Pre-Owned Car" The number of pages returned for the phrase "certified pre-owned car" by calendar year. Source: Google +109% since 2011 4. Perspective | May 2014 NADA Used Car Guide | 8400 Westpark Drive | McLean, VA 22102 | 800.544.6232 | nada.com/b2b 4 2014 NADA Used Card Guide This increases service and parts business and presents the dealer with an extended audition to leave a favorable impression so the customer keeps coming back whether for service or another vehicle purchase after the warranty has expired. Further, data shows that certified vehicles remain on dealer lots for far less time than non-certified ones. Dealers have consistently reported in NADA surveys that CPO vehicles sell 12 weeks faster than otherwise; this not only increases throughput, but also reduces the amount of money dealers have to allocate to floor plan expenses. Late Model Supply Helping to Drive CPO Sales The sharp increase in CPO demand that has occurred over the past two years has come at an opportune time for manufacturers. After years of declines stemming from the falloff in new vehicle sales during the recession, late-model supply or the primary pool from which CPO vehicles are derived finally started growing again in 2013. Per NADA Used Car Guides used vehicle supply forecast, late-model supply is expected to grow by 8% in 2014 and another 9% in 2015; combined, the 17% increase in used supply through 2015 will act as an additional catalyst supporting a continued increase in CPO sales. Brands experiencing the largest increases in late- model supply have also realized some of the biggest gains in CPO sales. For example, NADA estimates that late-model supply for Kia and Subaru grew by 17% and 13% in 2013, respectively, figures exceeded only by VWs 20% rise. Kia and Subaru were also at the top of the non-luxury CPO sales growth leaderboard last year, as deliveries for the two increased by 72% and 45%, respectively. As for VW, CPO sales rose by a more modest 9% in 2013. So far in 2014, 12 of the 15 mainstream brands reviewed have reported gains in CPO sales on a prior- year basis. Sales for the top three performers Kia, Subaru and Hyundai are up by 44%, 37%, and 26%, respectively. Not coincidentally, NADA estimates that late-model supply will grow the most for Kia and Hyundai this year, while supply growth for Subaru is expected to be among the industry leaders. -30% -25% -20% -15% -10% -5% 0% 5% 10% 15% 20% 25% 30% AnnualChange Annual Change in Mainstream Brand Used Vehicle Supply Vehicles to 5 years in age CY 2013 CY 2014 CY 2015 Source:NADA Used CarGuide -15% -10% -5% 0% 5% 10% 15% 20% 25% 30% AnnualChange Annual Change in Luxury Brand Used Vehicle Supply Vehicles to 5 years in age CY 2013 CY 2014 CY 2015 Source:NADA Used CarGuide 5. Perspective | May 2014 NADA Used Car Guide | 8400 Westpark Drive | McLean, VA 22102 | 800.544.6232 | nada.com/b2b 5 2014 NADA Used Card Guide Late-model supply for luxury brand Land Rover is expected to grow more than any other premium nameplate this year and so far the brands year-to- date CPO sales improvement of 66% is ahead of other luxury makes. Following closely behind, CPO deliveries for Jaguar and Infiniti are up by a combined average of 61%, while Lincoln has increased CPO sales by 20% year-to-date. It will be interesting to see if Lincoln can maintain its solid CPO performance as NADA expects that late-model supply for the brand will rise by a relatively mild 5% this year. BMW, Mercedes-Benz and Audi have grown CPO sales by 14% apiece and NADA estimates that supply for the group will increase by respective figures of 8%, 11% and 15% over the course of the year. Certified growth for Lexus and Acura has lagged other luxury brands, with sales for the two up by 3% and 2%, respectively. NADA expects used supply to be flat in 2014 for Lexus, which is likely playing a role in holding back CPO sales growth. It should be noted that while growth has been mild, more than 24,000 Lexus CPO vehicles have been sold so far this year, third most among luxury brands. Things should improve for Lexus in 2015, as NADA estimates that late-model supply will be 8.4% higher than this years expected level. 0 50 100 150 200 250 300 350 400 UnitsSold(Thousands) MainstreamBrandCPO Sales Calendar Years 2011 - 2013 2011 2012 2013 Source: Autodata 0 20 40 60 80 100 120 UnitsSold(Thousands) Luxury Brand CPO Sales Calendar Years 2011 - 2013 2011 2012 2013 Source: Autodata Mainstream Brand CPO Retail Sales 2013 v. 2014, YTD Make 2013 YTD 2014 YTD % Change Buick 9,055 11,175 23% Chevrolet 83,582 93,017 11% Chrysler 8,285 9,036 9% Dodge 18,311 21,531 18% Ford 62,390 77,672 24% GMC 16,258 20,471 26% Honda 78,567 77,980 -1% Hyundai 23,953 30,278 26% Jeep 12,433 15,658 26% Kia 9,625 13,830 44% Mazda 11,518 13,533 17% Nissan 36,858 43,783 19% Subaru 10,320 14,150 37% Toyota 120,220 115,598 -4% Volkswagen 31,988 29,393 -8% Source: Autodata Luxury Brand CPO Retail Sales 2013 v. 2014, YTD Make 2013 YTD 2014 YTD % Change Acura 13,116 13,439 2% Audi 12,311 14,016 14% BMW 26,314 30,011 14% Cadillac 6,316 6,705 6% Infiniti 3,629 5,802 60% Jaguar 1,172 1,894 62% Land Rover 2,258 3,750 66% Lexus 23,388 24,186 3% Lincoln 6,