Certified Pre-Owned Programs

Whether you call it Starmark, Select Edition, or anything else, certified pre-owned programs are finally changing the face of auto sales, as almost all of the major manufacturers now offer a version. While many manufacturers were skeptical at first, fearing that such programs would cannibalize new cars sales, the benefits are now very apparent and have proven to outweigh any loss to new sales. CNW Marketing Research pegs the total number of certified used car sales in 2003 at 1.3 million.

These programs have been cropping up since the mid-nineties as something manufacturers were doing for dealers to get a "second shot" at a car and to grab some of the (big) used car business (Tom Kontos, VP industry relations and analytical services at the Adesa Corp. estimated that 48.7 million used vehicles will be for sale in 2007, from 43.6 million in 2003). Upon second glance, however, by adding value – through an inspection and extended factory warranty – companies can reach entirely new customer demographics and price points with their "discounted" cars. Additionally, many car producers are interested in controlling the residual value of their brands, which they can do by regulating some of the used sales. Even Ferrari, the Italian sports car maker known for its ultra-exclusive, ultra-expensive vehicles which command a premium even as a used car, now certifies their pre-owned cars.

Another reason for the turnaround in mindset concerning pre-owned sales is that the popularity of leasing has increased steadily over the last decade. Lease expiration floods the market with often only "slightly" used late model vehicles (according to CNW Market Research, 3 million leased vehicles were returned to dealers in 2003 with an additional 2.6 million off-lease vehicles due in 2004. As most lease terms are two to three years in duration with mileage allowances ranging from ten to fifteen thousand miles, many are in "like new" condition with the original factory warranty intact. In the past, the majority of these cars would be snapped up by wholesalers who would auction them off and many would find their way to a used car lot eventually anyway. With extended warranties costing the dealerships anywhere from five hundred to two thousand dollars, you can expect to pay a slight premium to have a certified car over market price.

One final benefit individual dealerships are finding with their programs is that they provide a place to put new vehicles that haven't sold during their model year on the new car lot. By designating the car a "loaner" or "used," the dealerships can flip the car into the CPO program and still make a decent profit by charging the certified premium, in lieu of trading the car away or selling at (or below) invoice.

Any way you slice it, there are certainly like-new vehicles available at like-used car prices, which is good for consumers and dealers alike. Though manufacturers may not receive anywhere near the premium they get from new car sales, the protection of residuals and payback they derive from CPO sales is certainly better than nothing.

To compare certified pre-owned programs, visit IntelliChoice.com.

Comments

[Taylor]

Great site and great information.

Taylor