The auto industry’s love for leases created the ‘certified pre-owned car’ — and now the popular option is eating into new vehicle sales

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When it was time for Dan Prescott to replace his increasingly unreliable old jalopy, he figured he could scrape together enough money to buy a base-model Toyota Camry. But after doing a bit of homework, he said, “I realized I could have a gorgeous Mercedes coupe, instead.”

Granted, he had to accept that where the Toyota would have been brand new, his Mercedes-Benz E 350 would have 25,000 miles on it. But it was still in great condition, had undergone a thorough inspection, with service items like tires and wiper blades replaced, as needed, and, most importantly, said the San Diego-based technical writer, it carried a like-new factory warranty.

In a typical year, Americans buy anywhere from two to three times as many used cars as new, according to industry data. Prescott is just one of the millions of American motorists who, in recent years, have turned to a booming segment of used cars, the certified pre-owned (CPO) programs now offered by virtually every automaker.

CPO sales hit a record 2.8 million vehicles in 2019, nearly double the volume at the beginning of the decade, according to Cox Automotive, one of the country’s largest auto auction and tracking services. Prior to the coronavirus pandemic, which has slammed overall US car sales, Cox analysts saw the certified market on track to set another all-time high in 2020.

You won’t find one at an independent used car lot. They’re only available at the appropriate franchise dealers and typically are late models in good condition with low mileage. The majority recently came off lease, meaning they likely were well maintained to avoid penalties when turned in. They’ve gone through extensive inspections and, where needed, have been brought up to virtually new-car levels. And while there are plenty of aftermarket warranties available, these products carry more inclusive factory warranties.

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Like regular used cars, CPO models will be cheaper than similar new products because they’ve already taken the biggest depreciation hit. That said, they do run a little more money than a non-certified offering — Prescott spent an extra $2,000 over a regular used Mercedes. But he felt the included warranty alone was worth the difference.

Frank Startari, who works in the produce business in northern New Jersey, “usually purchased new” before discovering the CPO programs at Subaru and Mazda. Now he’s on his fourth certified vehicle and is “not likely to go back.” It was the extended warranty, on top of the savings that convinced him, said Startari.

While CPO sales may dip along with the rest of the auto market this year, such vehicles could yet capture another record share, according to industry analysts such as George Augustatis, director of economic and industry analysis at auto sales website CarGurus.

“We know that the current recession is hitting people in the lowest price buckets hardest,” he said during a recent media webinar. “These are consumers who have not fully returned to the new car market,” often because of strained household finances. For them, the lower price of a CPO vehicle can …read more

Source:: Business Insider

      

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