Certified Pre-Owned Cars: Buying a CPO in an Age of Scarcity

Certified Pre-Owned Cars: Buying a CPO in an Age of Scarcity

  • certified pre-owned (cpo) vehicles are one way to purchase a gently used car, truck, or suv from a dealership with fewer miles than you might see on a traditional used-car lot.
  • right now, with used-car prices up 10 percent in may compared to already climbing prices in 2021, it can be hard to get an affordable used car of any kind.
  • on the brighter side, trade-in values are up 72 percent over 2021, so you might be getting a deal on the other end of the transaction if you have a car to sell.

    the present car market is much like the housing market. go anywhere across the country and you'll find the same situation: it's a jolly great time to sell and an awful bad time to buy.

    new- and used-car inventories are an agonizingly long way from recovering to pre-pandemic levels in early 2020. on average, according to j.d. power, a new car sits at the dealer for only 36 days before it's snatched up. while car dealers are swimming in record profits and revenue despite less volume—in april, dealers more than doubled their average margins since last year and stand to make $5000 on every new car they sell—automakers don't have that luxury. they're eager to ramp up production, but since they can't right now, they're relying more on certified pre-owned (cpo) sales that come with factory extended warranties.

    used vehicles aren't the usual value play, at least not right now. in may, according to auction house manheim, used-car prices were up 10 percent versus last year, which by then were already seeing double-digit rises from 2020. inflation is at a 40-year high. so can you still get a deal?

    used-car inventory is relatively flush, but you'll get less car for the money

    in 2021, americans bought a record 40.9 million used cars. more than half were sold by dealerships (including non-franchised companies such as carmax). j.d. power said that average trade-in values surged by 72 percent in april. that, along with 2.2 million fewer new cars available for sale at the start of may, helps explain why your 2018 toyota camry is worth as much (or more) as the original sticker price.

    looking at the raw numbers, buying used looks like the way to go for most people right now. according to cox automotive, as of early may there were 2.5 million used cars and 1.1 million new cars in stock. cpo cars are a small fraction of total used-car sales—on track to hit three million this year—but they're often backed by low-interest financing that non-franchised dealers can't match. for now, the used-vehicle market has a 48-day supply and average prices that are nearly $20,000 less than a new car. when you consider that average new-car prices are cresting $45,000, the average used car has nearly 70,000 miles, and interest rates have already jumped, your money in 2022 doesn't go as far as it once did.

    cpos shifting to older, high-mileage cars

    traditionally, cpo cars have mileage limits so they appear more attractive to buyers coming in for a new vehicle and are in good enough shape that the automaker can warrant them for an extra year. they've usually been late-model, off-lease cars with less than 40,000 miles. but many automakers are stretching their definition of a cpo car.

    by the fall, nissan will certify non-nissan vehicles with a six-year/6000-mile warranty, a bit shorter than the seven-year/100,000-mile warranty that nissan products get. general motors is launching carbravo, a new consumer cpo service that lets gm dealers certify any brand's vehicle. "we're going to be able to certify a used toyota with 87,000 miles on it," one chevy dealer told automotive news. ford is selling all brands of vehicles under its blue advantage program with as much as 120,000 miles and offers a 14-day/1000-mile return policy. honda is certifying 10-year-old cars with no mileage limits under its hondatrue used program, although acura now limits mileage to 80,000 miles. more automakers are likely to join the aging, high-mileage trend so they can cash in on the present demand.

    fewer quality checks, potentially higher risk

    cpo cars are supposed to undergo a lengthy inspection where the dealer's technicians check off nearly 200 items on a piece of paper. the automaker sets the conditions and performs field audits, but cpo cars don't get inspected by factory employees. it's usually a tech at a dealer.

    this isn't to say that every cpo car is a potential hazard—after all, there's a factory-backed extended warranty to cover any issues that go uninspected—but it's a frenetic time when dealers are scrambling to sell cars as fast as they come in, so keep that in mind if you're tempted to put all your trust in a checklist, and keep your eyes open. to make matters more confusing, automakers with high-mileage cpo programs now have multiple tiers of cpo cars with separate names—and they each have wildly varying certification requirements. for example, honda now has three cpo labels (hondatrue used, hondatrue certified, hondatrue certified+) all with different warranty coverages and age limitations. ford has a 139-point inspection on blue certified vehicles versus the 172 points on gold certified vehicles. not all are right for every buyer, and you may be better off with a newer, non-cpo car without the extra warranty coverage.

    all this is to say: it's the most discouraging buyer's market in decades. but if you have to replace a vehicle and think cpo is the way to go, make sure you know what's in store. the economy's terms and conditions have changed.

    source:caranddriver.com

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