Yahoo Autos Five Reasons CPO Vehicles Can Be Smart Buys
Let me put a simple proposition in front of you. If I could show you a way you could drive more car with more equipment for less money, would you do it? Well, that in a nutshell is what a Certified Pre-Owned (CPO) vehicle offers you. And that is why more consumers than ever are considering and buying CPO cars, trucks, and vans. They can be very smart choices.
Here are five reasons why:
1. Lower Depreciation Costs
You may have heard that a car loses a huge chunk of its value the second you drive it off the dealer’s lot. The first owner of a new vehicle takes the brunt of the vehicle’s depreciation or, in plainer terms, loss of value. Carfax says a typical vehicle will lose 20 percent of its value in the first year of ownership. That means the car you buy for $30,000 new will be worth $24,000 one year later. Depreciation continues through the vehicle’s life, but the curve starts to flatten after the first year, and after the fifth year the rate of depreciation slows considerably.
“CPO vehicles offer a good value for consumers because they are not paying for the vehicle’s full depreciation,” said Jonathan Banks, J.D. Power vice president of vehicle valuations and analytics. “A lot of the depreciation has already occurred.”
Here’s an example: If you were to buy a 2018 Honda Pilot EX-L with navigation, it would cost around $40,635. If you were to buy a 2016 version of the same vehicle, with the same trim, as a CPO, it would cost around $32,925. Now, how much depreciation cost you really save depends on how long you hold the vehicle, but you have the potential to save a substantial amount of money.
2. More Car and More Luxury for the Money
The cash you save in avoiding some of the vehicle’s early-life-span depreciation can enable you to buy a bigger and/or more highly equipped vehicle for the same expenditure. For instance, $29,345 will buy you a very nice 2018 Toyota Camry XLE, but that same $29,000 will buy you a well-equipped Certified Pre-Owned Mercedes-Benz C300.
Want the same make and model with more equipment? Buying a CPO can be your ticket to ride on that score. Think what an extra $6000 to $9000 could get you in goodies on a vehicle with an MSRP of $30,000. That’s what you might have available to spend if you opt for a three-year-old CPO vehicle versus a new version of the same model.
3. Lengthy Warranty Coverage
Through the years, an important factor in persuading consumers to buy a new vehicle is its warranty coverage. The typical new car will be warranted by the manufacturer for not less than two years or 24,000 miles. Many manufacturer warranties offer lengthier coverage, and very often the powertrain-engine and transmission-is warranted for an even longer period. If bad stuff happens during the warranty term, the manufacturer is on the hook to fix it, not you.
CPO vehicles offer similar, and at times even better, warranty coverage compared with new vehicles. That means the risk you take buying an “as is” used car essentially vanishes. The total effective warranty length and coverage in some manufacturers’ CPO programs is significantly better than for their new vehicles. Some car manufacturers will throw in additional perks such as free maintenance and roadside assistance for at least a portion of the warranty period.
4. Special Financing Offers
Financing rates for used vehicles are typically higher than the rates for new vehicles. There are a couple of reasons for this. Used-car values are somewhat harder to pin down than new-car values, because each used vehicle is partly the product of how it has been maintained, whereas one brand-new car is pretty much like any other brand-new car of the same make and model with the same equipment. Also, used-car buyers, in the aggregate, are a bit less likely to repay their car loans. The higher rates allow finance institutions to cover those additional risk factors.
The good news for CPO buyers is that car manufacturers frequently subsidize the CPO finance rates to give consumers an additional incentive to buy a Certified Pre-Owned vehicle. They do this because it is in their best interest to maintain the sales and thus the resale value of their brands’ used cars. Because of this, you can frequently finance a CPO vehicle at the same rate as a new car and, in some instances, even a bit more cheaply.
5. Less Fear of Used-Car Problems
Many consumers are afraid to buy a used car for fear of getting a lemon. It’s a legitimate concern, because if you purchase a used car and then find it needs expensive repairs, you have two unappealing choices: fix it at your expense or sell it at a significant loss while disclosing its flaws. Certified Pre-Owned programs enable you to escape that potential pain point.
When you buy a CPO car, odds are you’re buying a high-quality used car that should be trouble-free for years to come. The typical manufacturer-backed CPO car is among the best-maintained and lowest-mileage members of its breed. Before certification, it is inspected by manufacturer-trained mechanics. If something does go wrong, the manufacturer will pay for the repair during the lengthy warranty period. Yes, a few consumers have had bad experiences with shoddy CPO vehicles, but then a few consumers have had bad experiences with shoddy new cars, too.
“CPO cars are by far the best deals,” lemon-law expert Don Fuller told us. “The reason is that the depreciation on a new car is worst at the beginning. But, a couple of years later, that is still a fairly new car. And a huge chunk of the depreciation has been wiped off it.”
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