Bob grew up with a driveway full of older cars and trucks, vehicles which were well-maintained but never at the forefront of high-tech advancement. Bob’s father always said that if other people were willing to absorb the depreciation for you, let’em. So Bob waits patiently and snaps up cars only after they’ve aged like a fine wine.
Bob’s newly espoused, Mary, is of a different mind altogether. Mary’s family enjoyed the benefits of full warranty coverage, but also felt it was important to drive the latest, safest, and greatest. Mary, therefore, never believed that sacrificing features and comfort was worth the savings. Besides, what about all those times Bob’s instrument panel blinked mischievously as though inhabited by dozens of electronic gremlins?
Years after setting their car-buying ideologies in stone, Bob and Mary are now tempted by the exact same car, a sure sign this marriage is destined for decades of bliss. The car isn’t new, a fact which makes Mary uncomfortable, yet it hasn’t fermented, either. It’s not cheap as dirt – the five-digit price tag is making Bob more than a little squeamish – but the car has lost thousands in value each year since new. Mary feels a measure of confidence in the brief but consequential warranty and Bob’s enjoying the whispers from the sales consultant who’s already indicating the price is negotiable.
Bob and Mary clearly aren’t in the neighbour’s driveway. This is the domain of certified pre-owned vehicles. Anecdotes over, it’s time to examine why real-life versions of Bob and Mary are tempted by refurbished, painstakingly-inspected, pricey used cars when less money buys traditional second-hand cars and more money finds fresh, thoroughly-protected vehicles from the factory.
Certified pre-owned (CPO) cars aren’t new, shocking as that may sound. BMW, however, says it’s CPO vehicles have, “passed the same rigorous inspections and quality controls that new BMWs go through”, a statement similar to what you’ll hear from other factory-driven CPO programs. Thankfully,
Warranties, often referred to as protection plans, vary even more widely than they do when vehicles are new, so painting CPO programs with the same brush would be misleading.
CPO cars aren’t heavily-used. Most companies won’t certify cars older than five model years or with odometers reading more than 120,000 kilometres. The vast majority of CPO cars don’t come close to those eligibility milestones.
Apart from inspections and refurbishments, the main purpose of spending hard-earned dough on a CPO automobile is peace of mind; a level of assurance that you’re protected in case of breakage. Warranties, often referred to as protection plans, vary even more widely than they do when vehicles are new, so painting CPO programs with the same brush would be misleading. BMW requires a $50 “handling charge” for each repair but covers much of the vehicle for two years or 80,000 km after the BMW’s original warranty expires. Toyota, meanwhile, requires no deductible but the company’s main CPO coverage is for one year/20,000 km but is powertrain-only.
That’s not a bad place to be yet it is altogether different from Toyota’s warranty for 2011 models which basically covers the whole car for three years or 60,000 km and the powertrain for five years or 100,000 km. “Remember, even at 0% interest,” The Globe & Mail’s Joanne Will points out, “you’ll be driving a used vehicle as soon as you leave the lot, and quickly see the value of your asset depreciate”. The new car warranty will be the only new thing remaining.
Depending on your angle, whether you’re a Bob or a Mary, you’re either gaining newness or losing it. You’re either increasing or decreasing the length and depth of protection. Like the decisions behind most transactions, the final straw is financial. Will you save money?
If so, how much? Tom Kontos, Executive Vice-President at Adesa Corp., told Cars.com that, “manufacturers tack on anywhere from 2 to 8 percent of the original used-car price for that certification sticker.” Still, unlike most other used car purchases, the savings provided by purchasing used from a CPO-participating dealer aren’t hamstrung by the need to find cash or borrow money at high interest rates. Rates on used vehicles can change with the wind, of course. Nevertheless, Toyota’s recent CPO advertising includes rates as low as 3.9% while BMW’s dipped as low as 2.9% on five-year finance arrangements for 2007 3-Series sedans.
Paired with prices that were less than new MSRPs to begin with, these rates may provide low monthly payments but fail to take into account post-coverage repairs, events which necessitate calculated risks when acquiring any used car. Still, hypothetically speaking, if $200/month can be saved in payments, this means $7200 is saved in three years.
That’s $7200 you would need to spend on maintenance before the fully warranty-backed used car crossed the threshold to become the “expensive” choice. Winner? The CPO car.
It’s possible to make the case for always buying used all day long. Buy New Believers could do the same. If purchasing via certified pre-owned programs could be summed up in any way, it may be as the happy medium designed to settle the New vs. Used argument. As for forming a firm conclusion, thrifty buyers of traditional pre-owned cars ought to view CPO vehicles as justifiable upgrades, or at least a justifiable upgrade they can recommend to like-minded used car devotees.
Avid new car buyers ought to consider the butt that has been in that chair before as a seat-warmer. If you can’t, take solace in the fact that new cars have to be purchased at some point or there won’t be any used cars to certify.