With the proliferation of CPO programs among high-end automakers over recent years, owning a late-model luxury car no longer requires an astronomical payment. Thoroughly inspected, meticulously reconditioned and comprehensively warrantied – yet much more affordable than a brand-new model – a CPO premium model might just be the most financially painless route to a prestigious ride.
Luxury brands Mercedes-Benz and Lexus pioneered the CPO concept in the 1990s, and other major manufacturers soon followed suit. Lately, even ultra-luxury brands such as Lamborghini, Bentley, Maserati and Ferrari have started offering CPO vehicles at prices substantially lower than those of equivalent new models – often 40% to 60% below the original retail price for a 2-year-old vehicle, for instance.
CPO programs make sense for luxury auto manufacturers and dealers, as these types of vehicles are often leased rather than bought due to their lofty price tags. And off-lease vehicles – typically, recent models with low miles – make excellent candidates for certification.
For luxury automakers, CPO plans also help introduce otherwise-priced-out drivers to their brands. And because the often-image-conscious buyers of new premium cars tend to frequently trade up to the latest model, there’s a steady supply of nearly new, swanky CPOs hitting dealer floors.
“CPO programs exploded for a simple reason,” said Joe Wiesenfelder, executive editor at Cars.com. “They're a win/win/win for consumers, dealers and automakers,”
In keeping with their brand images – and to help maintain them – many luxury CPO programs offer greater warranty coverage than those of more mainstream marques.
“In general, luxury CPO programs offer a longer comprehensive warranty but a shorter powertrain coverage,” explained Eric Anderson, ownership database supervisor at IntelliChoice. “Most luxury CPO programs offer an additional two years/50,000 miles of comprehensive coverage, while mainstream programs will offer one year/12,000 miles of comprehensive coverage or less.”
For example, the Porsche Approved Certified Pre-Owned Vehicles Program, which IntelliChoice awarded 2013’s Best Premium CPO Warranty, mirrors the German manufacturer’s new-car limited warranty up to 72 months/100,000 miles if purchased while still under this warranty or, if purchased outside of the new-car warranty, offers 24-month coverage from the date of CPO sale and 100,000 total miles.
Buyers of luxury CPOs also often enjoy perks not normally associated with pre-owned vehicles.
“For example, when a luxury model is being serviced at a dealership, the owner is much more likely to get a loaner car as a matter of policy,” Wiesenfelder said. “So to a buyer who otherwise couldn't afford or wouldn’t take a chance on a luxury model, it would seem like moving up from coach to first class.”
A case in point is Lexus CPO coverage, which includes a complimentary loaner car from the dealership for warranty repairs expected to take more than eight hours.
Cadillac, a brand synonymous with luxury American motoring, announced a major revamp of its CPO program in May. This now equalizes Cadillac’s pre-owned service with its new car care in many areas, adding an additional two years or 20,000 miles to the original factory four-year/50,000-mile comprehensive warranty.
One aspect of the new Cadillac CPO program Wisenfelder considers particularly wise is the free three-month trials of OnStar and Satellite radio. “This exposes the owner to the service and increases the chance they’ll continue the subscription,” he said. “This seems another win/win/win, and I expect many other brands to follow suit.”
With the high cost of parts for and maintenance of luxury vehicles, the luxury CPO warranty and pre-certification inspection, which is meant to reduce future mechanical problems, might well have greater value compared with those of non-luxury brands.
“However, the CPO premium on luxury vehicles is higher than mainstream vehicles, so a consumer is paying for that coverage,” Anderson said.
One of the huge pluses of buying any CPO vehicle is skipping the first few (and steepest) years of a new vehicle’s depreciation. New cars lose about 20% of their value the moment they leave the lot, with roughly 15% depreciation in each of the second and third years of ownership. So a car can lose half of its original value within three years on the road.
But not all luxury vehicles depreciate equally. According to KelleyBlueBook.com, a 2012 Audi A5 will have a resale value of 64.7% at 36 months, a 2012 Lexus RX will hold 64% of its value at 36 months, and a 2012 Infiniti FX will have retained 58% at that age.
While models with better depreciation rates may well be priced accordingly as CPOs, potential buyers should also consider that these same models will likely continue to better hold their value. According to KelleyBlueBook.com, the 2012 Infiniti FX will still retain 44% of its new value after five years – a drop of only 14% compared with its resale value at three years.
Though the economic downturn in the wake of the 2007-08 global financial crisis has contributed to reduced used car inventory as cautious consumers delay the purchase of a new vehicle, more CPOs should become available as America’s thawing economy draws drivers back into dealerships.
“Currently, luxury CPO sales are flat, but that is not surprising given the lack of available inventory,” Anderson said. “I would expect CPO sales to pick up in the next several years as supply levels increase.”