SAN FRANCISCO -

The tie between certified pre-owned sales and off-lease volumes is two-fold — and perhaps more interrelated than you might think.

That was evident when Cox Automotive chief economist Tom Webb explained during a press conference why he is confident CPO sales will break a record for the fifth straight year.

“I can confidently predict that because the growing off-lease volumes create both the need and the ability to make these programs go higher,” Webb said at the recent NADA Convention & Expo in San Francisco. “With respect to this relationship between CPO and leasing, No. 1, as you can well imagine, an off-lease unit is an ideal candidate to go in a CPO program”

The “vast majority” of the off-lease cars, Webb continued, go directly back to the dealership where they were leased. Not to mention, they all would meet CPO program requirements for age/mileage, he said.

And most are in good enough shape to where they don’t require a whole lot of reconditioning from the dealership to meet CPO standards, so the dealer likes to put them through the certification, Webb added.

“The other aspect is that since leasing is primarily controlled by the captive lessors, the CPO programs allow you to protect residual values,” he explained. “And in fact, you can tweak your CPO programs to help you over some bumps that you may have in terms of off-lease volumes.”

For instance, Webb notes in Manheim’s 2015 Used Car Market Report that “the lessor has further opportunities to moderate the residual risk by providing additional marketing muscle or incentives (like reduced rate financing) behind the CPO programs.”

And here’s another interesting nugget that he shared during the press conference: certified sales last year were actually higher than off-lease volumes. Granted, off-lease volumes were well above 2 million, as Manheim Consulting data indicates, but they did not match the 2.34 million industry-wide CPO sales reported by Autodata Corp. 

And for 2015, Webb expects CPO sales and off-lease volumes will be roughly even with each other at 2.5 million unit apiece.

“As opposed to that last wave of off-lease units in 2002, when CPO programs were basically still in their infancy and there was, indeed, a very negative impact in terms of used-vehicle residuals during that cycle,” he said.

In fact, Webb says in the Used Car Market Report that “the CPO market was less than 40 percent as big as total off-lease volume” in 2002.

Flash forward to 2015, and at least on the retail used-car transaction price front, franchised dealers seemed to be enjoying the CPO/off-lease market dynamics during the year’s first month  

In CNW Research’s analysis on January used-car sales, firm president Art Spinella said increased certified sales and off-lease volumes actually drove pre-owned retail prices higher for franchised stores.

“Transaction prices for franchised dealers’ used-car operations saw a significant increase in January, climbing more than 27 percent versus a year ago and 3.34 percent versus December 2014,” Spinella said. “The vast bulk of the gain can be traced to A) higher CPO sales and B) a growing inventory of fresh off-lease vehicles.”

Editor's Note: This is just the first in a story series Auto Remarketing will have on off-lease and the relationship to residual values. We will share additional viewpoints and analysis from experts at NADA Used Car Guide, Black Book and Experian Automotive. Additionally, our look at off-lease and CPO ties will continue with lease pull-ahead programs and one particular company that is helping in that space, plus additional CPO and leasing insights.