Why now is the time for CPO to shine

At the start of June, new-vehicle inventory levels were down by one-third compared with a year ago. The situation is expected to get worse before it gets better, as automakers struggle to get production consistently up and running.

Not all vehicles are affected, but certain segments such as midsize trucks are dwindling rapidly in supply. Although millions of Americans are facing financial hardship, many still need vehicles, and they will be looking for value messaging similar to the 0-percent-for-84-months incentives widely promoted in the early days of the COVID-19 pandemic.

Unfortunately for consumers, these blockbuster incentives are waning as inventory contracts, forcing shoppers to search for value in other avenues. This presents a unique opportunity for certified pre-owned programs to enter the fray.

CPO programs largely have stayed out of the spotlight; their share of franchised used sales has idled at 23 percent for the past four years. Meanwhile, off-lease inventory has grown by 33 percent over the same time period.

The opportunity is ripe for dealers to certify more vehicles, and for automakers to offer attractive finance rates as an alternative for new-car shoppers.

Beyond inventory, CPO has a greater chance of success in today’s environment. History shows that consumers tend to shift their focus to the used-vehicle market during times of financial distress.

During the Great Recession in 2009, more than 8 in 10 vehicles sold in the U.S. were used. Online car-shopping behavior indicates this trend is picking up again. Used-vehicle traffic to Edmunds has skyrocketed, and May saw the highest number of shoppers filtering for CPO-only vehicles when doing an inventory search on Edmunds this year.

Near-new used vehicles are an increasingly attractive alternative for cash-strapped consumers. This is largely because of the steady rise in new-vehicle prices: The average transaction price for a new vehicle is $38,464, whereas the average transaction price for a 3-year-old used vehicle is $22,993. The price gap has never been wider, presenting an opportunity for dealers and automakers to tell a compelling value story.

Consumers have already shifted toward purchasing near-new used vehicles instead of new. In the past five years, the share of consumers opting to purchase near-new used vehicles (zero to 4 years old) vs. new grew by 17 percent. And first-quarter data from Experian shows that record-high numbers of consumers who have either super prime or prime credit scores are choosing used vehicles.

CPO is neither a new solution nor a panacea for declining car sales. But it’s a viable solution that can be activated swiftly to help automakers and dealers weather the months ahead. The market is slowly picking back up after hitting the bottom in April. But because sales remain depressed across the board, it’s safe to say that every sales opportunity matters now more than ever.

Jessica Caldwell is executive director of Insights at Edmunds.

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