When my daughter informed me that her Toyota Matrix was too small for her growing family, I found myself extolling the virtues of certified pre-owned vehicles (CPO). I knew her budget didn’t warrant a new car, and didn’t want my daughter and her young family riding around in just any pre-owned vehicle.
The first hurdle was to convince my daughter and her husband to buy from a dealer instead of purchasing a vehicle privately. I told them that time is money, that they have a busy life, and buying a car privately can involve time-consuming phone calls, test drives, mechanical inspections, and other tasks.
On the other hand, buying from a car dealer is usually one-stop shopping. You can literally walk onto a dealer’s lot and drive off in your next vehicle a few hours later, which is what my daughter and her husband eventually did. Dealers can take care of the financing and complete all the paperwork, saving you a trip to the DMV. Buyers will often pay a premium for this option, but it’s well worth the price to many people.
Why a CPO Program
Once I had my daughter convinced that their life was simply too busy to buy their next vehicle from a private seller, the next step was to educate them on certified pre-owned vehicles. I explained that CPO vehicles meet a higher standard. To qualify as a CPO vehicle, it can only be a few years old with a limited number of miles. It must pass an extensive mechanical inspection with any deficiencies fixed. Then the manufacturer--not the dealer--adds an extended warranty. If something does go wrong, the buyer is protected.
In addition, there are usually other benefits that can include roadside assistance, trip interruption service, a free vehicle history report, and other goodies.
A Pricing Premium
It’s true that CPO vehicles generally cost more to buy. However, the added value usually offsets the increased cost. Let’s follow the example of a 2007 Honda Civic LX sedan as it makes its way through a car dealer’s used car system. I’m using Kelly Blue Book figures on a 4-door Civic with standard features, 45,500 miles, and in excellent condition. Pricing is based on a car located in the San Francisco Bay Area.
The car makes it into the dealership as a trade. KBB says a dealer will allow $10,525 for this car in excellent condition. Just for comparison, KBB says a similar vehicle sold by a private seller would probably fetch $12,150.
Once the dealer has the Civic listed in its inventory, the car is run through the shop and put through a detailed inspection. All problems may or may not be fixed. If sold as a regular pre-owned vehicle, the dealer sets an initial selling price of $13,950. This is the asking price before negotiations or dealer mark downs.
If the car is certified a more stringent inspection is needed with full repair work done. The initial selling price as a CPO vehicle is $14,400. Again, the last two retail prices are not necessarily the actual selling price, but what the dealer initially asks for.
In the end, the actual premium you pay on a certified vehicle will be determined by how good a negotiator you are. Savvy shoppers who know how to get more than a good deal on the selling price don’t lose any CPO benefits. So make a great deal and reap all the rewards. My daughter and her husband did.