Certified Pre-Owned Vehicles - The Third Option for Consumers

Philly Murtha | Aug 19, 2016

NADA Used Car Guide and J.D. Power recently published a perspective on certified pre-owned (CPO) vehicle programs that provides information about these vehicles, premiums, brands that excel at selling these "special" used vehicles, and observations about the need for higher awareness of CPO vehicles, based on a survey of consumers visiting NADAGuides.com.

What's the 2.0 Definition of a CPO vehicle?

Automaker CPO programs have been around 20 years to give consumers a third option for purchasing a vehicle. NADA Used Car Guide's team defines options as: New, Used, and "Superior Used," or CPO. The definition of a CPO vehicle has expanded. For a premium, consumers can purchase a "Superior Used Vehicle" that includes:

  • Comprehensive 150-point+ inspection
  • Reconditioning to near-new standards (replacing worn tires, brake pads, etc.)
  • Extended bumper-to-bumper warranty

Elements added to make 2-4-year old, low-mileage vehicles even more attractive may now feature a free vehicle history profile, roadside assistance, free scheduled maintenance (oil changes, tire rotations, etc.), and lower finance rates.

What about Growth of CPO Program Sales?

Following the Great Recession of 2007-2009, CPO program sales began to take off, according to NADA's Used Car Guide team. In 2015, CPO sales in the United States reached an all-time high of 2.55 million unit sales. Growth has come from a larger supply of off-lease vehicles coming back to market, which gives consumers more choice.

Who are the Biggest Sellers of CPO Vehicles?

Four brands are making inroads in selling CPO vehicles: Kia, Subaru, Infiniti, and Land Rover, according to Automotive News data. Kia has grown its CPO sales by 200% from 2012-2015, according to NADA.

Among mainstream brands, Toyota has sold the most CPO vehicles this year, while CPO vehicle sales of Fiat Chrysler Automobiles US (FCA US) brands–Chrysler, Dodge, Jeep, and Ram–have grown the most, up 23% year to date, NADA's team reports. In contrast, General Motors' Chevrolet brand, second-largest CPO vehicle seller, saw its CPO vehicle sales decline year to date.

NADA reports that premium brands selling the most CPO vehicles are led by Mercedes-Benz and BMW. Lexus trails the two German brands, although its CPO sales grew significantly from 2015. Other brands for consumers to consider that have superior growth from their premium CPO vehicle programs are Cadillac and Infiniti.

What about the Premium for Buying a CPO Vehicle?

Besides looking at brand program performance, Used Car Guide's team finds that the average premium for more than two-thirds (68%) of luxury or non-premium CPO vehicles this year ranges from $800-$1,800. For instance, a 2011 Smart Fortwo CPO vehicle has a $400 premium, while an upscale 2015 Porsche 911 may carry a $3,500 premium vs. a non-certified unit.

Consumers should be aware that there is good value in CPO vehicles. Dealers make about the same profit on CPO vehicles today that they earned in 2013, according to NADA Used Car Guide's team. A dealer averages a profit of 10.4% on a mainstream CPO sale, while luxury profit averages about 6.9% per CPO vehicle, based on J.D. Power data.

What do Consumers Know about CPO Vehicles?

To learn what consumers know about CPO vehicles, NADA Used Car Guide's team recently surveyed 3,100 visitors to NADAguides.com. Only 9% of respondents said they had purchased a CPO vehicle. However, 39% of male respondents were moderately or extremely familiar with CPO vehicle programs. Females were less aware–60% expressed little or no familiarity with the CPO purchase option.

Although only 8% of respondents said they would only consider a CPO vehicle in the future, 27% said they would consider all three options. Among young (18-34 years old) respondents, 29% said they were "likely" or "extremely likely" to consider purchasing a CPO vehicle in the future. In addition, 39% of respondents said they were willing to pay up to $1,000 more for a CPO vehicle vs. a non-certified one. Yet, 31% said they weren't willing to pay a premium, while others would pay an extra $1,000-$2,000.

In conclusion, NADA Used Car Guide's team suggests that consumers need to be educated about the CPO vehicle purchase opportunity. As the price of new vehicles rises, CPO vehicles will be more desirable options, especially during the next few years, as the supply of off-lease vehicles is expected to rise by 64% in 2018 from 2015, according to J.D. Power, giving consumers a broader range of choices.

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