Car Buying Articles
Certified Pre-Owned Gains Traction With Buyers
Solid Inspections, Warranties Make Used Cars Less Risky
When Americans think of a used car, they usually think of a rolling heap of metal barely fit for the road. "Buyer beware" seems to be the name of the game. But the game is changing, and it's changing for the good. Certified pre-owned (CPO) or "certified used" vehicles are more popular than ever. Now, it's "buyer be aware."
CPO sales, including those by independent dealers, grew 132 percent between 2001 and 2006, according to AutoData. Although certified pre-owned vehicles sold by manufacturer-backed dealers are still a small segment of the total market — about 1.7 million — dealers and industry analysts believe that this portion will continue to increase as the market grows.
Higher Price but Higher Value
According to Edmunds data, CPO status adds an average $1,542 to the buying price of a used car (compared to non-CPO used cars). However, all CPO vehicles come with an extended warranty, alleviating the buyer's fear of inheriting someone else's problems. And those warranties are getting stronger. In February of 2007, GM changed its CPO warranty from three years/36,000 miles to five years/100,000 miles. Since then, Chrysler upgraded its powertrain warranty to eight years/80,000 miles. Ford, Hyundai and Mazda have followed suit by enhancing their powertrain warranties to the 100,000 mile mark. Additionally, Kia and Mini have launched their own CPO programs with powertrain warranties of 100,000 miles. But keep in mind that the time limit may vary between those warranties, so check our comparison page to get all the details.
Meanwhile, CPO cars are still significantly less expensive than new cars and help consumers avoid the "depreciation blues" that come with buying brand-new vehicles. Here's one example: For the price of a brand-new base-level Toyota Highlander, one could purchase a certified pre-owned Lexus RX 400h. Warranty coverage will be similar, and the price of a CPO 400h will be thousands of dollars less than that of a brand-new 400h.
The CPO Process
There are no specific industry standards for certified pre-owned vehicles; manufacturer-approved CPO vehicles are usually two to six years old and have at least a 100-point inspection. General Motors covers 117 inspection points; Honda covers 150 points. Inspection sheets, which you should ask to see when considering the purchase of a CPO vehicle, list everything from pitted wheel covers to the transfer case to engines, brakes and suspensions. The dealership mechanic either issues a "pass" for the inspection point or repairs or replaces it to meet the manufacturer's standard.
The number of miles these vehicles have on them also varies: Porsche CPOs have less than 100,000 miles on them, Toyota CPOs have less than 85,000 and CPOs from General Motors and Lexus will all have less than 75,000 and 70,000 miles, for example.
Why Dealers Like CPO
According to J.D. Power, certified pre-owned vehicles generate several hundred dollars more profit for dealers than like-quality vehicles that are not part of the certified program. And certified vehicles sell 8-10 days faster, which is an important measurement of sales success. So many dealers offer the same services and perks they give to their new-vehicle customers such as courtesy transportation, road service, car care clinics complete with wine and cheese or three months of free satellite audio. Dealer financing rates for CPO vehicles fluctuate just like new car rates, and they generally differ by model.
And competition among CPO brands is hotter than ever. IntelliChoice publishes an annual survey of CPO programs. In its 2008 version, Volvo came in 1st, Jaguar tied with Cadillac for 2nd place, Saab was 4th and Lexus 5th. "Volvo edged out Cadillac on the basis of a strong compliance program, which means their effort to ensure that a customer anywhere in the country will get what they are paying for in terms of inspection, warranty, after-sales service and benefits," said James Bell, publisher and editor of Intellichoice.com. Kia has just thrown its hat in the ring by launching a new CPO program, to begin in 2008.
Where CPO Cars Come From
An issue for car dealerships, of course, is getting good used vehicles that they can certify and stand behind during the warranty period. Dealers sell certified pre-owned vehicles from their own brand, but also sell vehicles that customers have traded in. They also regularly buy at auction from a pool of vehicles that come from expired leases and rental companies' turn-ins.
"CPOs are in incredible demand because there are so few used cars in the three-to-five-year-old age bracket," says Art Spinella, president of Oregon-based CNW Market Research. "Auto companies are boosting their marketing support for new-car leasing so they can rebuild their inventories of [very profitable] certifiable used cars."
How To Buy Peace of Mind
Because certified vehicles cost more than non-certified vehicles, the trade for the buyer is "higher price for peace of mind." Still, not all "certified" vehicles are created equal.
Edmunds recommends that CPO vehicles come with the manufacturer-backed warranty built in to the purchase price. Independent dealer certification is not equal to manufacturer-backed certification. The key is to know who is responsible for the warranty coverage. A manufacturer warranty will allow you to get service at any of its dealerships, so if you're traveling and your vehicle breaks, you can get help. But an independent dealer warranty might limit your service to his or her dealership or to certain geographic areas.
Before you purchase a certified pre-owned vehicle, find out if you need prior authorization for repairs or towing. If you do, ask how long authorization can take and if it is available 24/7. Also be sure to review the contract to see if you have specific responsibilities to maintain, like adhering to a schedule for routine maintenance. And always keep your receipts if you encounter any problems on the road — you may need to submit them for reimbursement.
Buying a CPO vehicle means you're far less likely to buy someone else's problems; and if there is a major issue, the warranty should cover it. Yes, it's critical to be thorough when looking at the vehicle, the warranty and the inspection process. But after your purchase, you'll have the peace of mind of both an extended warranty and the knowledge that you've saved a whole lot of money over the cost of a new car.
For comprehensive information on certified used vehicles, including details on manufacturers' CPO programs, see our Certified Cars area.