You may have noticed that many vehicles formerly known as "used" are now termed "Certified Pre-Owned" or "CPO." These programs originated in the Luxury category due to the high rate of off-lease vehicles populating the market in the past five years. Because these vehicles were in such great shape and had lower mileage, manufacturers took a serious interest in ensuring that they delivered a positive purchase and ownership. As a result, they began to "refurbish" the vehicles and add warranties and special financing. This trend has been growing year by year and is quickly spreading to the majority of manufacturers who market their cars in the U.S.
CPO vehicles are selling at a growth rate of around 21% per year. The interesting thing about this is that only 25% of car buyers started out intending to buy a CPO vehicle. The majority of CPO buyers end up purchasing these vehicles as either a lower priced alternative to a new car, or because the used vehicle they found just happened to be a CPO.
Probably the best argument for purchasing a Certified Pre-Owned vehicle is that most new vehicles depreciate at a rate of approximately 20% per year. With this in mind, the additional cost involved in the inspection, refurbishment and warranty may still add up to a smart purchase. In any case, Certified Pre Owned vehicles are here to stay and for many have provided an excellent alternative to new car buying.
2. What are the Advantages of CPO?
A variety of organizations have jumped on the bandwagon. Dealers and several third-party suppliers have also begun offering certified programs. The following features reflect only the automotive manufacturer's CPO programs, which we believe offer the most benefits to car buyers today.
Most programs:
1. Include only vehicles that are under 5 years
2. Have mileage limits of under 100,000
3. Use only vehicles that have had no major bodywork from prior accidents
4. "Refurbish" the vehicle after a multi-step inspection (75 to 305 inspection points)
5. Provide an extended warranty
Additionally, some programs offer:
6. Consumer cash incentives
7. Low interest loans
8. Lease programs
9. An exchange policy
3. What are CPO Vehicles Priced?
Since CPO vehicles represent the "cream of the crop" of recently used vehicles, you may be hard pressed to find a newer used vehicle with low mileage and no body damage that is NOT offered as a CPO. That said, the added value of the refurbishing and warranty creates an opportunity for dealers to sell these used vehicles at a higher price. Currently, it can be as much as $3,000 more for high-end vehicles, but the average additional cost per vehicle is around $1,100 according to a recent study by J.D. Power & Associates.
Kelley Blue Book conducted an online survey among car buyers and found that the average value a consumer perceives a CPO car to have is $1,596 per vehicle. Each of the programs, however, must stand on its own merits along with the marketability of the automotive brand itself.
4. What Should You Look for in a CPO Program?
According to our study, the trait perceived to be most valuable in CPO programs is the peace-of-mind that comes with a multi-level vehicle inspection and refurbishment. The addition of an extended warranty is perceived to be the second most important trait among car buyers.
When checking out the CPO programs available, here are some tips to insure your own peace-of-mind in the transaction:
Tip #1: Inspect the points of the inspection
Each program boasts anywhere from 75 to 140 points of inspection. It is safe to assume that the vehicle has been refurbished in these areas if it passed the inspection through to certification. The key to looking at these points is in identifying the major fixes that would have otherwise cost you a bundle. Remember, many of these points would be covered in a tune up, detailing or might even be part of a state safety inspection required for all used cars sold by dealers.
Each CPO programs offers a specific, non-negotiable warranty. When reviewing the warranties offered, research whether the particular model has a history of maintenance issues or transmission failures and make a judgment call from that perspective. If the make of the vehicle is known for quality and low maintenance, it might justify a shorter warranty. Most programs offer an extended warranty beyond the CPO warranty, but each program differs in cost and features. You also may want to research whether the vehicle still has any of the original warranty left on it - this will only add to the length of the warranty overall.
Tip #3: Look for special incentives and finance deals
One of the most unique features of CPOs is that finance and lease deals are being extended to a used vehicle. This was virtually unheard of in the past. This one key fact has turned many new car shoppers into used car buyers and continues to drive sales of CPOs at dealerships across the country.
