Which is the Better CPO Buy: Luxury or Economy?
The first factory-certified pre-owned cars were luxury models, starting with Mercedes-Benz in 1989 and followed by Porsche in 1991 and Lexus in 1993. Later Acura, BMW, Cadillac, Jaguar, Toyota, Saturn and Volvo joined in. Now, nearly every automaker offers a program.
Early on, certified pre-owned cars were seen as alternatives to new cars and, for the most part, were low-mileage cars coming off a lease, said Rob Gentile, director of web product development for Consumer Reports.
"These were 2- to 3-year-old cars with less than 50,000 miles on them. Now most everyone offers certified cars," Gentile said. "And now we have 5- to 8-year-old cars with more than 60,000 miles on them because there were only so many low-mileage cars out there and people only had so much money to spend on them."
So, is it best to buy a certified luxury car or a certified economy one?
"The rate of savings is the same, but the amount of the savings is greater with a luxury car because of all the money you save on depreciation," Gentile said.
"Smaller and off-brand cars, like Isuzu for example, depreciate quicker than luxury models because there is a very hot market for pre-owned luxury vehicles," said Art Spinella, president of CNW Marketing Research.
Spinella said that even when you factor in new-car incentives, consumers save about $3,200 in buying a 2- to 3-year-old car; all that money comes in the form of depreciation that the original owner had to absorb.
"If it's a luxury certified pre-owned, the savings on depreciation is even greater, usually three times that on a non-luxury car, because you are starting from a higher base," he said.
You can expect to pay from $800 to $1,300 more for a factory-certified pre-owned car than a non-certified vehicle of the same make and model because the price is kicked up to defray the cost of inspection, repairs and warranty.
That added cost is offset by the fact that you save about $2,000 in depreciation on a certified pre-owned 2- to 3-year-old car than a non-certified one, Spinella said.
"Because it isn't inspected and repaired, the non-certified car usually has more miles that bring more wear and tear, plus older, worn components that will need repair," he said.
Few people notice when a luxury sedan is more than 2 or 3 years old, so many buyers who want the image and prestige of a luxury car without that initial big price tag favor certified cars.
One of the reasons for buying a used car is to avoid absorbing the huge chunk of depreciation you will when buying a new car.
"When buying new, you might have to pay $30,000, but depreciation on that car is 20 to 40 percent in the first two to three years, depending on whether it's a luxury or an economy car," Gentile said. "So if you wait two to three years to buy the car rather than pay $30,000, you might only pay $20,000.
"So why buy used? To save money. And with a certified used car you not only save money, you get a vehicle that was inspected, repaired and given a factory warranty, so you save money and get added value."