CLEVELAND -

KeyBanc Capital Markets likes the used-department outlook not only for the publicly traded dealerships groups its analysts watch closely, but also for the majority of franchised stores — especially the ones that move certified pre-owned vehicles.

According to its July Dealer Survey, KeyBanc said its industry observers continue to believe franchised dealers will outperform the overall used-vehicle industry.

The firm projected that franchised dealers will grow their used retail sales volumes in the mid- to high-single digits annually “for the next few years.”

KeyBanc explained that growth will be driven by the increasing supply of off-lease vehicles, estimated to increase by about 20 percent annually during the next several years. Analysts contend that should provide franchised stores with the inventory to spark CPO sales.

“Franchised dealers have the first hand pick at the highly desired, low-mileage, off-lease supply, and CPO sales are exclusive to the franchised dealers,” KeyBanc analysts said.

And franchised stores can increase their CPO inventory beyond what they can certify through their parent automaker by leveraging the capabilities of CarMark Certified, a warranty program that provides CPO warranties to all vehicle brands. The program, launched in 2010 as a complement to manufacturer-based CPO programs, is administered nationally by NAC (National Auto Care) of Westerville, Ohio.

The CarMark Certified limited warranty provides either a 12/month-12,000-mile warranty from sale date or a 72-month/100,000-mile warranty from in-service date. More details can be found at www.carmarkcertified.com.

Certified sales continue to be a growing portion of store performance. According to KeyBanc, 20 percent of used sales volume at Lithia Motors comes from CPO turns. It’s estimated to be even higher at Asbury Automotive (25 percent) and even more dramatic at Sonic Automotive (25 percent to 30 percent), Group 1 Automotive (30 percent), AutoNation (30 percent) and Penske Automotive Group (35 percent).

“We believe Lithia, Asbury, and Penske are likely to outperform the industry and their peer group average driven by company specific actions, such as the multi-sourcing of inventory, the retail-first approach, improved Internet presence, as well as an established track of proven execution on these initiatives,” KeyBanc analysts said.

Beyond just CPO sales, KeyBanc is bullish on the used market in general, again aided by an acceleration of off-lease supply relative to first half of the year. The firm arrived at that assertion despite CNW Research indicating a 6-percent year-over-year pullback in used sales in July, leaving the year-to-date reading flat compared to the same point in 2013.

“However, used-car demand drivers, such as the job market and financing availability remain on a positive trend supporting a positive used-car demand outlook,” analysts said. “We believe the relative weakness reported by CNW in the first half of the year was largely a result of the disruptive weather conditions during the winter months and elevated pricing during the spring months as demand began to recover.

“Based on our survey results, used-vehicle volume growth in July averaged in the mid-single digits,” KeyBanc continued. “Moving into the second half of 2014 and beyond, we anticipate an inflection in off-lease supply of late model used vehicles which would alleviate some of the pricing pressures and improve the availability of used cars in the supply-constrained used vehicle industry, all of which should drive volume. Off-lease volumes are expected to increase at an annual rate of 20 percent through 2016.”

Dealer survey results provided KeyBanc with the backing to make those assertions since 91 percent said they experienced used sales upticks in July. A total of 36 percent said that increase was between 5 percent and 10 percent while another 18 percent posted jumps of double digits.

And fueling those July sales is the availability of financing, which dealers told KeyBanc is becoming more available or at least remaining stable compared to the previous month.

A total of 55 percent of dealers told KeyBanc that they’re seeing commercial banks and finance companies becoming more aggressive with the remainder of dealers questioned seeing no change.

The story is similar in the subprime space, too, as KeyBanc’s survey showed just 10 percent of dealers noticing any tightening in underwriting practices to buyers with bruised credit histories.