Used car sales booming in the certified pre-owned market

March 21, 2009/Steve Tackett

MOTOR MATTERS FREEWHEELING BY EVELYN KANTER

There’s a bright spot in the sadly sagging automotive industry. It’s the booming sales of used cars, more specifically “Certified Pre-Owned vehicles. While sales of new vehicles have fallen off a cliff, these CPO cars and SUVs are enjoying surging popularity, for the simple reason that they just may be the best value at a dealership.
“Our program continues to grow — 2008 was a record sales year,” said Matt Kaleba, CPO manager at Lexus, adding that, “sales were up 10.3 percent the first two months of 2009” compared with January and February the year before. Sales of Mercedes-Benz certified pre-owned vehicles were up 28 percent for the same time period; BMW up 12.5 percent, even Ford was up 10.8 percent, according to J.D. Power and Associates.
Most vehicles, especially luxury cars and SUVs, depreciate most during the first two years. So, you get more car for your money by trading-up to a two-year-old CPO for much the same price as a factory-new budget model without the same comfort, appearance, reliability or power, safety or technical innovations — or brand cachet. Sure, CPOs cost more than plain old used cars. That’s because a used car, even from a dealership, is WYSIWYG — what you see is what you get — with all its bumps, bruises and toddler stains on the backseat for you to repair at your own cost.
CPOs undergo a 100-plus checkpoint, ranging from the performance of the transmission to the condition of the upholstery, including a new set of tires if the used ones are worn or mismatched. Most importantly, though, CPO vehicles are sold with a factory-backed warranty that is as comprehensive as a new car warranty.
Are CPOs stealing from new car sales? Of course, but not many, said Stephan Schroeder, market analyst for J.D. Power and Associates, who believes the benefits to buyer, dealer and manufacturer more than outweigh any “cannibalizing.”
“It’s a win, win, win for everybody,” said Schroeder, adding that CPO sales have been increasing each year for a decade. You drive home a used car with a new-car warranty backed by both the dealer and the manufacturer. The dealer makes a sale, and builds a relationship with you for that factory-backed maintenance and other service, and the manufacturer keeps the dealer’s mechanics working, thanks to those extended warranties.
The dealer and manufacturer hope the CPO ownership experience builds customer loyalty to the brand, and to the dealership, the next time you are in the market for a car — new or used.
Norm Olson, manager of Toyota’s CPO program reports 43 percent of CPO buyers are first-time owners of a Toyota or Scion. Kaleba said 80 percent of first-time owners are driving a CPO, adding “it’s a great tool for dealers to introduce buyers to the Lexus brand,” at an affordable price.
CPOs are overwhelmingly vehicles that had been leased, and turned back into the dealership at the end of the lease. Since leasing requires upkeep and maintenance to avoid costly penalties at turn-in time, these vehicles tend to be in better condition than the same model, which was purchased outright.
Not every used car is accepted into a manufacturer’s certified program. Most brands reject vehicles that are more than five-model-years old or with more than 75,000 miles on the odometer. Toyota also rejects any vehicle with frame damage, if more than three panels have been re-painted, or if a detailed “VHR” — vehicle history report — indicates a problem or accident the owner neglected to mention, and makes unannounced spot check of dealerships to ensure certification standards are being met. All of that “gives the customer further protection and confidence,” said Olson of Toyota.
Toyota has just launched a specific program for hybrids, Toyota Certified-Used Hybrid, and is supporting the program with large green stickers and other signage at dealerships.
“Last year we sold 8,000 CPO Prius hybrids,” said Olsen. Prius — the world’s top-selling hybrid — and Camry and Highlander hybrids undergo more than a dozen checkpoints specific to hybrid technology. Plus, the battery gets an 8-year/100,000-mile warranty.
The higher purchase price of a CPO compared to a used car can be offset by lower financing costs. “A finance company sees less risk, so buyers get new car rates for financing”, said Olson.
With some nameplates offering zero-interest financing, and BMW offering to make your first two months of payments, if you haven’t considered a CPO before, you should. All of this, said J.D. Power’s Schroeder, makes certified pre-owned “a compelling value.”

Copyright, Motor Matters, 2009