What Are Certified Pre-Owned Vehicles?
Once upon a time, buying a used car could be risky business; there was no telling what kind of wear and tear a vehicle had seen. The second-hand automobile didn't come with a warranty, let alone a manufacturer's seal of approval. And there certainly weren't any cut-rate financial incentives to entice the unfortunate used-car shopper.
But times have changed. Today, the era of the manufacturer certified pre-owned vehicle is in full swing. In fact, some experts say CPO is now a legitimate third automobile category, joining traditional stalwarts new and used.
For those who haven't yet been exposed to the CPO marketing blitz from leading auto manufacturers, the basic concept of the certified pre-owned vehicle - automotive speak for reconditioned used cars - is relatively simple. Automobile manufacturers take their late-model used vehicles (usually less than five years old), put them through a fairly rigorous inspection process, attach an extended warranty and other perks, and sell them at a premium to the used-car-buying public.
The benefit to consumers is clear: Many find themselves getting a like-new car with new-car-like peace of mind. Not only do they get these benefits at a used-car price, but they're often able to enter a vehicle segment (luxury, sport utility vehicle, etc.) they otherwise couldn't afford. For manufacturers, certification programs allow them to drive up used-car values, extend their brands and increase turn rates on used vehicles.
Certification programs were pioneered by luxury nameplates, such as Lexus and Mercedes-Benz, as a marketing tool to sell off-lease vehicles in the late 1980s and early 1990s. As the decade wore on, leasing grew. Leases accounted for 24.4 percent of all new-car deals in 1999 - the highest lease rate in history. More auto manufacturers, which used to send such vehicles to rental car companies or used-car lots, saw the benefit of selling them directly to consumers. When that glut of almost-new vehicles began to flood the market, manufacturer-certified used-car programs quickly became the cost of doing business for all automakers. The number of manufacturer-certified used cars sold jumped from around 450,000 in 1997 to 1,375,000 in 2004, according to CNW.
While leasing has dropped since then, increased acceptance of and interest in CPO vehicles by consumers - fueled by increasingly aggressive marketing campaigns from auto manufacturers - have solidified the status of the certified used car.
"It's gotten to the point where [the certified pre-owned car] is a legitimate third type of vehicle," said Tom Kontos, vice president for industry relations and analytical services at Adesa Corp., an Indianapolis-based global vehicle re-marketing firm. "It gives the retailer a third opportunity to sell a car. And it gives customers certain elements of peace of mind, and they can avoid the depreciation loss that comes when buying a new car."
Certified Programs Are Here to Stay
As a result, it's probably not surprising that CPO programs are increasingly popular. Certified used cars account for 41 percent of all used-car dealership sales according to a study by Westlake, Calif.-based J.D. Power and Associates.
