While maintaining its forecast for overall used-car sales, Cox Automotive has trimmed its projections for certified pre-owned vehicle sales, as competition for acquiring CPO-worthy inventory intensifies.

Analysts with the company said in a presentation this week that they are now projecting 2.8 million CPO sales for 2022, down from the 3.0 million unit forecast they made earlier this year.

Cox Automotive chief economist Jonathan Smoke says the revised forecast comes, “as we expect so much competition in nearly new vehicles including from rental car companies, that like last year, in the second half of the year, the CPO market will struggle with setting a record.”

However, Cox is sticking with its projection for 39.3 million overall used-vehicle sales and 20.7 million used vehicle sales from dealers.

Smoke explained that, “the supply challenges in new will support demand for used, even with a slowing economy and tighter credit conditions expected.

“We had already expected that the market would struggle to see any improvement in volumes compared to what was achieved in 2021, especially because of the record volumes specifically in the spring of 2021,” he said. “That said, this spring should be the strongest quarter of the year, in 2022, as well.”

During the Q&A portion of the presentation, analysts were asked if rising prices on CPO vehicles were holding the segment back, and whether those high prices were leading some consumers to choose new instead, due to a narrowing price difference.

It’s a fair point, with certified sales softening last year as values increased.

“But I don’t believe it was quite the issue of the buyer being on the fence between a certified pre-owned and a new, and because of the price basically going back to new,” Smoke said. “Because I believe you still have the fundamental issue that actually more people are considering certified pre-owned because of the lack of the ability to get the new vehicle.

“And when you take into account what consumers are really paying versus just the MSRP, I still think certified pre-owned is attractive, relatively speaking,” he said.

“And because of the nature of those programs being supported by the captive finance companies offering interest rates that are much better than the typical used vehicle interest rate and you tend to have consumers that are well qualified so the net result is, there’s quite a bit of a payment difference and if there’s any part of the used retail market that can absorb that, it would be those kinds of buyers who are able to get those attractive programs.”

What really caused CPO sales to slow down in the later stages of 2021, he said, was “intense competition” in wholesale for the vehicles that typically comprise certified inventory.

Not to mention, dealers were often making a “deliberate decision” to sell those cars wholesale or directly to the rental car companies, who were paying close to retail for those units given their own supply challenges.

“So, the dealers were able to move that inventory even more quickly and efficiently,” Smoke said. “That played a bigger role than actually the vehicle values did.”

The certified supply challenge is likely to remain this year, as the market is two years beyond the leasing peak, Smoke said, so the competition for that pool of vehicles should linger.

It’s possible there may be “more of an evolution to slightly older vehicles in the programs,” he said, where the focus for CPO is on 4- to 5-year-old vehicles instead of 2- to 3-year-old cars.

In the overall used market, a softer 2022 is likely being driven not by lack of supply, per se, but rather the mix and prices of that supply.

According to the Cox Automotive data, the average list price of retail used inventory in March 2022 is $27,398 and the average mileage is 70,824.

In March 2021, the average price was $21,493 and the average milage was 67,010.

And the higher-priced units are commanding a greater share of the market. In March 2021, used vehicles between $20,000 and $25,000 had the greatest share of the market, coming in north of 30%. Next were vehicles priced between $15,000 and $20,000, and their share was also above 30%.

In March of this year, the greatest share is for vehicles  price $35,000 and higher (at approximately 30%).

The $15K-20K vehicle has a share of less than 15%, while the $20K-25 car is roughly 15%, according to the Cox data.

“Two main factors come to mind when considering retail inventory here: The first one is that consumers that otherwise would consider buying a newer vehicle have kept their older ones longer, preventing those more affordable units from actually entering the current market,” said Chris Frey, who is senior manager of economic and industry insights at Cox Automotive. “And two, the supply-demand imbalance has led to far more units being priced higher than normal.

“As noted, before, there isn’t so much a supply issue in retail, and while it’s down, it’s likely there’s a larger age and mix issue that’s keeping many buyers out of the market.”

This trend is affecting the aforementioned forecast for overall used-car sales. And while it hasn’t changed from the original projection, it’s down from a rather robust 2021.

“While we anticipate larger-than-normal tax season values with higher-than-average refunds — especially for households that are more likely to be car buyers — (with) inflation that’s causing less affordability and uncertainty about the conflict in Ukraine, we’ve reduced our forecast,” Frey said.

“Overall, compared to new, the used-vehicle market continues to be very healthy, with good volume, but that persistent age-mix challenge,” he said. “Dealers continue to be quite optimistic, despite all the hurdles they’re facing at the moment.

“To summarize, supply constraints remain a factor in 2022, especially in the first half of the year. We expect sales to improve on the new side, which in turn, will impact the used market and after a record-breaking 2021, we expect the used market to continue being strong in the spring of this year, but to struggle in the back half.”