Certified Pre-Owned Vehicles

Advertising Supplement

[an error occurred while processing this directive]

Most manufacturers offer certified pre-owned vehicle programs. Hyundai is among the latest manufacturers to introduce such programs. Shown is a 2003 Hyundai Tiburon.

By JEFFREY STEELE, Advertising Special Sections Writer

Most manufacturers now have CPO programs

Not many years ago, car buyers had two choices. One option was to buy a new car. With that purchase would come soothing peace of mind, along with the daunting realization that the new car had shed several thousand dollars in value the instant it rolled off the lot.

The other was to visit a used-car dealer to haggle with a silver-tongued salesperson. The satisfaction of netting a bargain on the used-car special would soon be displaced by sleepless nights fretting about how soon the engine or transmission would expire.

But with the dawn of certified pre-owned (CPO) vehicle programs several years ago, buyers finally were offered something of a middle ground. At long last, they could enjoy something near new-car satisfaction without having to pay new-car prices.

The CPO movement, which began in the 1990s, was spurred by the growth of luxury vehicle leasing programs, said Kevin Considine, vice president of national sales with Chicago-based Cars.com, an online automotive resource.

Leased luxury cars were being returned to dealers in great numbers at the end of lease terms, and carmakers needed a way to remarket the cars. Considerable life remained in the vehicles, but dealers had to overcome the stigma linked to the term “used car.”

Thus CPO programs were born, providing a way to break free of the “used” label and market the erstwhile leased luxury vehicles.

But the programs did more than just move cars once driven by someone else, said Matt Stone, executive editor of Los Angeles-based Motor Trend, one of the world’s best-known car magazines. They also helped attract buyers who wouldn’t have been able to afford a new Lexus or Mercedes-Benz, fostering brand loyalty that in many cases helped convert CPO buyers into purchasers of new cars of the same brand.

“They turned a negative into a positive,” Stone said.

As leasing became more popular among manufacturers of mainstream vehicles, they too began embracing the CPO concept.

Today, with the recent addition of Subaru to the CPO stable, virtually every manufacturer offers such a program. The notable exceptions are Kia, Mitsubishi, Mini, Hummer and a handful of very high-priced luxury cars, according to Phil Reed, senior consumer-advice editor with Edmunds.com, an online resource for automotive information.

HOW CPO PROGRAMS WORK
CPO programs entice buyers with several lures: a multipoint inspection process, a warranty and appealing financing terms. But the extent of these inspections, warranties and financing terms can vary substantially from one manufacturer to another.

To be eligible as a CPO vehicle, used cars must fall within the age and mileage limits specified by the carmakers. For most manufacturers, those thresholds are five to six years and about 80,000 miles, according to Considine.

Once a car is deemed eligible, it undergoes an inspection at the dealer level. Every vehicle maker has its own inspection checklist. Many include between 112 and 125 points of inspection. Some lists extend all the way to 300 points, Considine said.

“They literally will check everything,” he said. “Does the car run well? How about transmission, hoses, belts, brakes and exhaust system? Do the doors close firmly? Do the windows seal? Is the interior in good condition? It’s everything from the mechanics to the paint condition.”

These checklists haven’t grown much longer since CPO programs came into being, Reed said. Moreover, he doesn’t believe they need to grow.

“If it’s a 140-point versus a 120- point [list], that’s not the most important consideration,” he said.

“There are probably 40 vital [points] and a number of electives that go beyond that.”

If a car requires too much remedial work, it will not be accepted, according to Considine.

If minor work is needed, those vehicle components that fail to pass muster are repaired or rehabilitated, and then the vehicle is deemed ready to be backed by a warranty.

The mileage provisions of most CPO warranties add from 30,000 to 40,000 to the existing warranty, according to Considine.

To further sweeten the deal, many CPO programs provide financing terms that are considerably more tempting than those offered on other used cars, Stone said.

CPO versus traditional used The chief benefit of buying a CPO vehicle versus the traditional used car is an enhanced comfort level. Buyers are comforted by the fact that their vehicles have been inspected by factory- trained technicians specializing in specific makes, Reed said.

“The CPO program makes inspection very official,” he said.

“You can ask for the inspection report and see the work that’s been done. In certain instances, you may be interested to see how much of the brake pad is left, or how much of the tread [on the tires] is left.”

Many people don’t request lots of details about the car they’re considering, Reed said. But, they are content to know the vehicle has been inspected, recognizing that the manufacturer is standing behind the car.

CPO versus new car
The biggest advantage of buying a CPO vehicle rather than a new one is price. The savings may not be truly significant unless the vehicle is more than 2 years old, but the prices are negotiable, according to Reed.

“There’s a lot of wiggle room in there,” he said.

To find out how much, he suggests visiting his company’s site, www.edmunds.com. There, four prices are listed for every used vehicle extending back 14 years.

Those prices are the trade-in value, private party value, dealer retail value and, if the vehicle is recent enough to be included in a CPO program, the CPO price.

Armed with that information, a shopper for a CPO vehicle can determine if the dealer is charging more than it should be and negotiate accordingly, Reed said.

Another benefit of purchasing a CPO vehicle is the feeling of buying a new car while actually purchasing a used car, Stone said.

For instance, a person who buys a 3-year-old Lexus from a Lexus dealer will receive a Lexus financing packaging and a Lexus warranty. This is a close approximation of the new-car-buying experience, and Lexus hopes the buyer will enjoy the experience so much that he will eventually buy a new Lexus.

Moreover, because vehicles are better built and more durable than ever, it’s possible for a buyer to purchase a CPO vehicle with 25,000 miles on the odometer and get almost as long a life from the car as he would from a higherpriced new vehicle, Stone said.

One additional advantage of purchasing a CPO as opposed to a new car is that some vehicle models haven’t changed much in appearance over the last few years.

“The CPO car you buy that’s 3 years old may be virtually identical to the new one at a lot less money,” Stone said.

All this comes at a cost, however.

If lower price is the benefit of a CPO purchase when compared to a new car, higher price is the disadvantage when compared to a used car, Stone said.

“You know that CPO price is going to be from one to several thousand dollars more than the comparable used car,” he said. “You’re not likely to get the best bottom-line deal buying CPOs.

You may get a very good overall value, but you’re not going to pay the lowest price.”

To give a sense of the price differences, a search of prices of used and certified pre-owned 2005 Toyota Camrys was conducted on www.edmunds.com on Oct. 4, using zip code 90012 as the center of the search field.

Prices on CPO models ranged from $15,990 to $21,888, while prices on other used models ranged from $13,675 to $21,998.

Trends in CPO programs The certified pre-owned landscape hasn’t changed greatly over the last few years, but it has changed. One of the trends has been a steady growth in the number of manufacturers offering CPO programs.

Nissan and Infiniti introduced their programs about two years ago, Considine said.

Hyundai was a holdout long after many others had launched their programs, but it eventually joined the fold. In addition, Subaru recently unveiled its first CPO program.

Another trend that may be emerging is greater warranty coverage.

On Sept. 29, Toyota announced it was adding one year and 20,000 miles to the power train warranty on its CPO vehicles, Reed said.

“The car business has been so riddled with incentives in the last four years that that’s really hurt the used-car business,” he said.

“Toyota’s move indicates [it’s] trying to draw more buyers to the CPO program.”

For his part, Considine sees Toyota’s move as a harbinger of things to come. He predicts manufacturers will increasingly compete for CPO buyers through extended warranty coverage.

Toyota is in the vanguard of what may be another trend taking shape in CPO programs. The automaker recently announced it will begin accepting slightly older, higher-mileage vehicles (up to six years and 85,000 miles) into its CPO program, Considine said.

Yet one more development is the use of increasingly attractive financing rates on CPO models as a means of enticing buyers, Considine said. In late September, the rates ranged from 1.9% (for a Volvo) up to 4.9% (for many manufacturers), he said.

The rates for conventional used cars are typically 5% or more, according to Considine.

“There were some financing incentives about a year or two ago [for conventional used cars], but not many,” he said.

The most important trend? Consumer awareness of CPO programs is steadily growing.

“We can see by the activity on our site that certified pre-owned cars get more consumer activity than [other used cars],”Considine said. “They’re searched more often and chosen more often.”

Jeffrey Steele is a freelance writer based in Chicago.

Advertising Supplement

[an error occurred while processing this directive]