So, you are interested in a replacing your ride. What is it going to be New or Used?
Well, over the last couple of years, consumers in the crowded automotive industry have had a third choice, and that is "Certified Pre-Owned," which at least manufacturer says provides all the reliability of new, but the affordability of used.
Sales of CPO vehicles has grown over the last several years to about 1.5 million units annually.
During the excess of the late 1980's, leasing became very popular among automotive consumers as it allowed your average Joe to drive and above average car with enough money left over to fill the closet with white suits and pastel T-Shirts.
The leasing craze, however, provided an eventual legacy the manufacturers weren't entirely ready for, which was lease returns (vehicles).
After a relatively short 2 to 4 year lease, most vehicles are simply returned to the manufacturer with the "owner" choosing for a new vehicle in lieu of actually taking advantage of the end of lease purchase opportunity. This led to a glut of "somewhat" used vehicles coming back into the marketplace, some of which could go straight to wholesale or sales on a new car lot as used. But for many, it is the luxury vehicles that make up the majority of lease deals, which represent a significant profit center in the used car marketplace.
The only issue was, the demographic typically interested in these vehicles was also interested in a like-new vehicle with some factory support.
And so the Certified Pre-Owned category was born.
Every manufacturer now has a program that generally offers two distinct things. The first is an inspection of the vehicle, often coined as "rigorous" and inclusive of X number of physical checks. It is then understood that any problems or imperfections will then be addressed by the certifying dealership. The second offering is a factory-backed warranty, which typically extends the vehicle warranty for an additional two years and (again typically) 50,000 more miles, whichever comes first.
Two recent CPO vehicles, however, have become very high profile recently and are simultaneously featured on the front page of the NY Times, which has shed some light on issues stemming from CPO programs. One woman purchased a certified Chevrolet only to find out that the vehicle was really a "hybrid" unbeknownst to her. And if you thought you couldn't get a hybrid Monte Carlo, you might want to check out this article.
Maybe even more fitting to the Hybrid moniker than a vehicle with two power sources, this woman's car was actually two previously used (and obviously crashed) Monte Carlos that were fused together and sent back out on the lot for another go.
One of the issues at hand here is that manufacturers outline the specifics of a CPO program, but it is the individual dealers that implement and administer it. With more than 21,000 new car dealers out there, you can imagine that there is a wide interpretation of the fine print.
It is the dealership that decides which vehicles to certify and which ones to sell simply as used or wholesale. They make this decision based on whether or not that vehicle might bring the extra money as CPO.
Dealerships "pay" the manufacturer several hundred dollars to certify the car, then they charge the customer a fee, sometimes as much as an additional $2,200 for the CPO vehicle. This creates both a real incentive to certify cars, but also a conflict of interest as it is the dealer's responsibility to fix these small items that ensure the vehicle passes inspection.
An additional lynch pin in the whole process is the Carfax or report of the vehicle's history. Carfax is the company that keeps and sells vehicle histories, which have become the industry standard in used and CPO sales. Unfortunately, it has been shown that Carfax information can be incomplete or otherwise forged (or information withheld, etc...) as was published in this NY Times article. A Carfax is supposed to document major accidents/damage as well as flood damage (an issue made more relevant post-Katrina), though it is yet to be determined who is actually responsible when a car with a "clean" history actually has had significant work.
Industry insiders seemed to be split on the issue with some saying the factory warranty is definitely worth the added money and to pay for a vehicle, which is backed up to 100,000 miles through a CPO program is comparable to what an aftermarket warranty would cost. The others argue that with newer vehicles 100,000 miles is generally an easily achieved lifespan without significant problems anyway and that the cars are often no different from other used cars with the exception of price premium.
Either way, almost all agree that when purchasing a used car which is not certified, it pays to spend the extra time and money required to get a third (neutral) party to inspect the vehicle in addition to a Carfax report. As far as CPO programs, not all are created equal, though they are ranked by companies like IntelliChoice. How much peace of mind is worth is really up to you, but be sure to choose both a brand and dealer you trust.
Excellent info, I liked it.
Posted by: Anderson | June 30, 2007 at 09:56 AM