Sales of certified pre-owned vehicles in the U.S. closed 2010 with 10 straight months of year-over-year improvements, with no fewer than 13 brands posting full-year CPO sales records (according to Automotive Digest). But who are the drivers behind these remarkable statistics?
“Usually the certified pre-owned buyers are the type of customers that are between the new car and the used car buyer,” said Al Joseph, general sales manager (used cars) with Galpin Motors. “Right now they’re increasing in their demographic in terms of their income and credit scores. More affluent people are looking at certified pre-owned vehicles than ever.”
The impressive inspections and warranties that back certified pre-owned cars have, for many drivers, conquered traditional fears about the quality and dependability of used vehicles.
“Anybody who desired a used car because of the affordability but were reluctant to get one because of the possible problems is exactly who should buy a CPO,” said Charlie Vogelheim, executive editor at Intellichoice.com, a Campbell, CA.-based company that has been assessing certified pre-owned programs for 13 years.
With input from a pair of CPO experts, we looked at who’s buying certified pre-owned vehicles — and whether you should join them.
The bargain hunter
Choosing a CPO will certainly save you money over a similarly equipped new vehicle. This is because of the rapid depreciation in the value of automobiles in their first few years of ownership.
“You lose at least 20% to 25% of the [new] vehicle’s value as soon as you drive off the lot,” Vogelheim explained. “A three-year-old car is about 30% to 40% down in value.”
These numbers will vary considerably from car to car depending on model, condition and market fluctuations, but a CPO will always cost less than a comparable new car simply because someone else has already taken its initial depreciation hit. This also means that drivers who like to change their ride every couple of years will, in the long-term, enjoy huge savings by repeatedly buying CPOs instead of brand new cars.
But due diligence is always recommended. In certain cases, the savings from buying certified pre-owned versus new may not be as impressive as expected. The recent shaky economy has resulted in many drivers holding on to their cars longer, which has in turn produced a shortage of used cars in the marketplace. This has meant that popular brands like Toyota, Honda and Mini are holding their value remarkably well as CPOs.
“In the current climate we’re seeing some used cars bringing very close to what a new car costs,” Vogelheim warned. “You want to make sure you understand what the new car costs before you invest in a used car.”
If you broaden your search to include less popular brands and models, however, there are some serious CPO bargains to be had. “For example, second-tier Japanese brands — Suzukis, Mazdas and Mitsubishis — can be very good values,” Vogelheim explained.
The warranty lover
If you don’t like being surprised by sudden, costly auto repairs, the comprehensive warranties offered with CPOs are a major selling point. Even at dealerships, regular used cars are often sold “as-is”.
“Some [CPO warranties] cover everything, bumper-to-bumper, maintenance items included,” Vogelheim explained. “But that’s really where the variety occurs between the CPO programs.”
Ford, for example, offers a three-year, 36,000-mile bumper-to-bumper warranty with new cars, but only three months or 3,000 miles with a CPO.
Some CPO warranties, including Ford’s powertrain coverage, are transferable, which should boost your vehicle’s value when the time comes to sell or trade-in.