Buying a CPO in a time of scarcity

  • Certified Pre-Owned (CPO) vehicles are a way to purchase a lightly used car, truck, or SUV from a dealership with fewer miles than you might see on a traditional used car lot.
  • Right now, with used car prices up 10% in May from already rising prices in 2021, it can be difficult to get an affordable used car of any type.
  • On the plus side, trade-in values ​​are up 72% from 2021, so you might get a deal on the other end of the deal if you have a car to sell.

    Today’s auto market is very similar to the housing market. Go anywhere across the country and you’ll find yourself in the same situation: it’s a good time to sell and a bad time to buy.

    New and used car inventories are a long way from returning to pre-pandemic levels at the start of 2020. On average, according to JD Power, a new car only stays at the dealership for 36 days before being picked up. As auto dealers report record profits and revenue despite lower volume – in April, dealers more than doubled their average margins from last year and are expected to earn $5,000 on every new car they sell – automakers don’t have that luxury. They’re eager to ramp up production, but since they can’t right now, they’re relying more on Certified Pre-Owned (CPO) sales that come with extended factory warranties.

    Used vehicles aren’t the usual value game, at least not right now. In May, according to the Manheim auction house, used car prices increased by 10% compared to last year, which then already recorded double-digit increases from 2020. Inflation is at its highest level in 40 years. So can you still get a deal?

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    Used car inventory is relatively plentiful, but you’ll get fewer cars for your money

    In 2021, Americans bought a record 40.9 million used cars. More than half were sold by dealerships (including non-franchise companies such as CarMax). JD Power said average trading values ​​jumped 72% in April. That, along with 2.2 million fewer new cars available for sale at the start of May, explains why your 2018 Toyota Camry is worth as much (or more) than the original sticker price.

    Looking at the raw numbers, buying used seems like the way to go for most people right now. According to Cox Automotive, in early May there were 2.5 million used cars and 1.1 million new cars in stock. CPO cars make up only a small fraction of total used car sales – on track to hit three million this year – but they’re often backed by low-interest financing that non-franchise dealerships don’t. can equal. For now, the used-vehicle market has a 48-day supply and average prices nearly $20,000 lower than a new car. When you consider that average new car prices are reaching $45,000, the average used car has nearly 70,000 miles, and interest rates have already jumped, your money in 2022 isn’t going as far as before.

    CPOs are turning to older, high-mileage cars

    Traditionally, CPO cars have mileage limits, so they seem more appealing to buyers coming in to buy a new vehicle and are in good enough condition that the automaker can warrant them for an additional year. These are usually late model, non-lease cars with less than 40,000 miles. But many automakers are expanding their definition of a CPO car.

    In the fall, Nissan will certify non-Nissan vehicles with a six-year/6,000-mile warranty, slightly shorter than the seven-year/100,000-mile warranty that Nissan products have. General Motors launches CarBravo, a new consumer CPO service that allows GM dealerships to certify any brand’s vehicle. “We’re going to be able to certify a used Toyota with 87,000 miles,” said Chevy dealership Automotive News. Ford sells all makes of vehicles under its Blue Advantage program with up to 120,000 miles and offers a 14-day/1,000-mile return policy. Honda certifies 10-year-old cars with no mileage limit under its HondaTrue Used program, although Acura now limits mileage to 80,000 miles. More automakers are likely to join the trend of aging and high mileage so they can take advantage of current demand.

    Fewer quality checks, potentially higher risk

    CPO cars are supposed to go through a lengthy inspection where dealership technicians check off nearly 200 items on a sheet of paper. The automaker sets the conditions and conducts field audits, but CPO cars are not inspected by factory employees. This is usually a technician at a dealership.

    That’s not to say that every CPO car is a potential hazard – after all, there’s a factory-backed extended warranty to cover any issues that aren’t inspected – but it’s a hectic time when dealers are scrambling to sell cars as fast as they come so keep that in mind if you’re tempted to put all your trust in a checklist, and keep your eyes peeled. To make matters more confusing, automakers with high-mileage CPO programs now have multiple levels of CPO cars with distinct names, and they each have wildly varying certification requirements. For example, Honda now has three CPO labels (HondaTrue Used, HondaTrue Certified, HondaTrue Certified+) all with different warranty coverages and age limits. Ford has a 139 point inspection on Blue Certified vehicles versus 172 points on Gold Certified vehicles. Not all are suitable for all buyers, and you might be better off with a newer, non-CPO car without the added warranty coverage.

    All that to say: this is the most discouraging buyer’s market in decades. But if you need to replace a vehicle and think CPO is the way to go, make sure you know what to expect. The terms and conditions of the economy have changed.

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