Certified cars offer peace of mind, but do they still offer value?
If you're in the market for a used car, you know better than most just how expensive they have become. Insiders have been expecting the bubble to burst for years. First, it was blamed on record numbers of upcoming lease returns. Looking ahead, rideshare programs are expected to make an impact. But where does that leave the buyer who needs a car right now?
According to analysts at companies such as Black Book, used car values are holding and expected to do so for the foreseeable future. Dealers know this, thanks to the data they now have at their fingertips.
In this world where the space between new- and used-car values is shrinking, a spotlight is being shined on the middle-ground: Certified Pre-Owned (or CPO) vehicles. They're cheaper than new, certainly, but more expensive than the equivalent used car. With the price gaps narrowing, is there still value in a CPO purchase? Here are some things you should consider before you make that call.
Better understanding the certified pre-owned car
A certified pre-owned vehicle is essentially no different from a plain-old used car of similar age and mileage. Most CPO vehicles are on offer at the same dealerships where they were sold brand-new (which has its advantages, especially if the dealer and customer have a documented service history).
Most certified cars are "off-lease" (previously leased and since been turned in). They're generally no more than three years old and usually have 36,000 miles or fewer on their odometers (based on typical leas terms).
Translation? Traditionally, this has meant that a CPO vehicle has already taken the biggest hit to its value (in other words, it has already undergone a significant portion of its depreciation). Why? Cars lose a huge chunk of their initial value the second they are sold to their first owners. Beyond this point—whether five seconds or five years pass—it is a "used" car.
This means that certified pre-owned cars can serve as "like-new" alternatives for customers who want to throw away less money and are willing to accept a slightly less-new vehicle to accomplish that goal.
What's the upside?
This is where CPO vehicles differ most significantly from their generic used brethren. While a used car that is only a couple years old may still be under some portion of its factory warranty, it is often nearing its end. In addition, some long-term factory warranties are not completely transferable to subsequent owners.
CPO cars not only retain whatever is remaining of their factory warranties, but they also typically include an additional warranty term that guarantees the car against defects for an additional time period. For example, the new-vehicle warranty on a Mercedes-Benz vehicle covers the first 48 months or 50,000 miles of ownership.
The Mercedes-Benz CPO warranty then picks up where that new-vehicle warranty ends, tacking an additional 12 months onto the warranty period and extending the total mileage to 100,000 miles.
This isn't free, of course. CPO vehicles carry a premium. In some cases, a CPO vehicle may even cost nearly as much as a brand-new equivalent if the manufacturer is offering heavy incentives for whatever reason (such as the end of a model year). Before buying CPO, you may want to look into this. Whether it's worth it is really up to you. Don't worry: your dealer will be equally happy to sell you a brand-new car.
But on the flip side, vehicles that are selected for CPO status are likely to be in better shape than those that are not—the better to ensure that the manufacturer will not have to incur the costs of repairs.
Not all CPO programs are created equal. Don't mistake an aftermarket "extended warranty" provider for a factory-backed CPO program. Take care when considering vehicles advertised as "certified" that are offered at the dealership level rather than the factory level—especially if the "certified" vehicle is not being offered for sale by a dealership that normally sells them new. Keep in mind, however, that many dealerships are part of larger retail chains which may accept lease returns for others within their network. Do your research.
Sketchy, home-brew "certified" plans are usually found at generic used-car dealerships, rather than dealers that hold manufacturer-affiliated franchises. Often these vehicles are sold with the aforementioned aftermarket warranties that can be far less comprehensive than those offered by manufacturers, and frequently the owners is required to foot the initial bill for repairs before applying for reimbursement through the warranty provider. And of course, the cost of that warranty is passed on to you—the consumer—in the purchase price.
Leftlane's bottom line
Certified pre-owned cars have a lot to offer, and with a record number of buyers opting to lease rather than finance new vehicle purchases, these programs are more commonplace than ever. As with any major purchase, the buyer should learn all he or she can about buying a CPO vehicle before pulling the trigger.