Buying a used car instead of new is a fabulous idea, and buying a certified pre-owned car can allay concerns about the reliability of a used car.
But the dirty little secret of the used-car business is that not all certified pre-owned cars are created equal. You could be paying extra for certification that provides good value or virtually none at all. That’s because there’s no standard for what “certified” means.
Buying a used car is a good idea because you don’t take the tremendous depreciation hit of a new car the moment it leaves the dealership’s lot. And cars are so much more reliable nowadays that a 2- or 3-year-old vehicle is likely to be quite dependable.
For those who are willing to pay for added assurance and often an added warranty, buying a certified pre-owned vehicle can be worthwhile.
How much extra will you pay? Certified vehicles on average cost $1,680 more than other used cars, said Tom Gauer, director of a 2006 J.D. Power & Associates research study on used vehicles. That’s a steep price, but some buyers will find value in paying the premium, he said.
“When you buy a new vehicle you may have problems, but you know you have a warranty and you’re protected,” Gauer said. “That’s basically what the certified pre-owned vehicle brings to the table. It’s that peace of mind that buyers are really interested in.”
Buyers seem happy with their certified vehicles, which often are cars coming off expired leases. Consumer Reports in December reported that nearly 90 percent of certified-vehicle buyers in its survey said they were either “very” or “completely” satisfied with their purchases. And certified used cars are becoming wildly popular. About half of all used-car sales today are certified pre-owned, up from one in three used cars in 2002, Gauer said.
BMW, for one, recently has been pushing its certified used-car program and has seen sales rise 20 percent during the first quarter compared with last year. “No matter how you cut it, there’s more value in a pre-owned car,” said Bill Bates, manager of pre-owned sales for BMW. “But the consumer should definitely do his or her homework.”
Here are some issues to watch for:
Learn what “certified” means. Anybody can slap a certified label on a car. In general, vehicles certified and backed by a manufacturer are superior to those certified by an independent dealer.
Look for a warranty. An extended warranty is the most valuable of the certified benefits. Ask how much more of a warranty you get, above the new-car warranty. Equally important, what does the warranty cover? Then, if you have a problem, where can you get a repair–at any dealer or just one? Do you get the repair for free or do you have to pay and later get reimbursed?
Ignore the points. A detailed inspection of the car is the other main advantage of buying a certified car. You’re supposed to get the cream of the used-car crop–low miles and great condition.
But automakers often tout the number of inspection “points” that their certified cars must pass. That means little. For example, one manufacturer has five checklist items for seat belts, while BMW has just one checklist item for all seat belts, Bates said. It’s more important to know what the inspection involved, such as simply checking the coolant level versus testing a sample of the coolant, he said.
“Any customer who buys a certified pre-owned vehicle and doesn’t insist on looking at a copy of the checklist is nuts,” he said.
Ignore roadside assistance. This throw-in benefit in certified programs duplicates what many people have from their auto insurance or AAA, and if not, it’s cheap to obtain. Don’t make it a deciding factor. Similarly, a professionally detailed cleaning and free oil changes are minor considerations in the scope of spending thousands of dollars on a car.
Consider a la carte. You may be able to spend less on a detailed inspection and extended warranty separate from a certification program, if that’s all you want from a certified used car.
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Bring your haggle hat. Just because it’s a certified vehicle doesn’t mean you negotiate the price less vigorously. If you don’t like the deal on a car, walk away and hop on the Internet. You’ll find plenty more just like it.
Can you finance the whole thing? Some finance companies will balk at loaning you money to cover the added cost of certification, so you might have to come up with that money yourself. On the other hand, many certified pre-owned programs offer favorable financing terms.
Ultimately, the decision comes down to your risk tolerance. You may get a better price if you buy a regular used car, especially from a private party. But if the warranty and inspection let you sleep better at night, a legitimately certified pre-owned vehicle can be an excellent alternative to buying new.
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Gregory Karp is a personal finance writer for The Morning Call, a Tribune Co. newspaper in Allentown, Pa. E-mail him at [email protected].
For additional discussion on spending wisely, see the Spending Smart blog at http://blogs.mcall.com/spendingsmart/.