Buying a used car means taking a chance. Choosing a certified pre-owned vehicle from a franchised dealership has reduced that risk since 1989.
In 2004, overall franchised used-car sales were down 1.3 percent, according to Tom Kontos, vice president of industry relations and analytical services at ADESA, a car-auction operation. However, certified used-car sales increased 7 percent, according to Auto Executive magazine.
Certification began with luxury brands. Mercedes-Benz was first, followed by Lexus and Porsche. Today, all but a handful of automakers offer a certified pre-owned vehicle program. Saturn goes so far as to certify other brands.
The idea behind certification is simple. A used vehicle that meets various conditions-that it’s less than a certain age and has fewer than a certain number of miles-is carefully inspected and warranted, and the shopper pays substantially more for the guarantee.
To keep reconditioning costs down, most dealers will disqualify a car if it needs major mechanical work. If the engine has problems that can’t be remedied easily or the transmission is misbehaving, that vehicle is not a prime candidate. A dent or two won’t cause rejection, but heavy body work will.
Like engine repairs, body work can get expensive in a hurry, sending the dealer’s investment beyond a profitable level. Unless a dealer foresees that a customer is likely to cover its costs and then some, a vehicle will probably go on the lot “as is”-without the certified label-or be sent to the wholesale auction.
“For example,” said Dan Crowe, certified pre-owned manager for Acura/Honda, “if one or more of the fenders has rust or the paint may be faded or blistered, the dealer may elect not to repaint the vehicle due to the cost involved.” Or if the dealer technician detects oil sludge in the engine and suspects the vehicle has not been properly maintained, the vehicle probably won’t be certified because it could signal engine failure for the next owner, he said.
Some high-end dealers might spend $1,600 to recondition a car, said Chris Little, director of used-vehicle operations at Hendrick Automotive Group, based in Charlotte, N.C. It has dealerships in 23 towns in nine states. Little was speaking at the recent National Remarketing Conference. Mainstream models aren’t likely to get nearly that much reconditioning.
Jaguar certifies more than 65 percent of the used cars sold by its dealers, said national remarketing manager Miah Bradbury.
Lexus also certifies a large proportion of its vehicles, said Art Spinella, president of CNW Marketing Research in Bandon, Ore. Infiniti is close to half and growing, and Cadillac certifies 45 percent. Dealers for mainstream makes certify only about 20 percent of their used models. Off-lease vehicles are prime candidates, and it’s getting “harder and harder to get the vehicles that are certifiable,” Spinella said. With fewer vehicles coming off-lease, the number of prime, late-model vehicles is down.
Jeff Heichel, director of used vehicle activities for General Motors, said its largest sales volume dealers certify 50 to 75 percent of their used vehicles, and some sell all of their eligible vehicles in the certified program.
“Some of the manufacturers are trying to certify more cars every day,” said Ricky Beggs, managing editor of the Black Book valuation guide, provided they’re in good enough condition. “The key is, how much more does it cost [versus] what you get.”
“Certified cars are usually the better cars,” said Charlie Vogelheim, who until he recently joined J.D. Power and Associates was executive editor of the Kelley Blue Book, another valuation guide. “Dealers are picking the low-hanging fruit.”
At the same time, shoppers tend to assume that a higher-end car is virtually certified, even if it isn’t in a certification program. “You expect some of the work to be done” even without official certification, Vogelheim said.
CNW’s Spinella notes that among mainstream models, “standard sedans tend to be the mainstay,” including the Toyota Camry, Honda Accord, Chevy Impala and Ford Taurus. These cars attract “an older audience–55 plus.” These customers want a new-car warranty without paying a new-car price.
Certified programs are pretty competitive, said Acura/Honda’s Crowe. The key elements, such as the inspection and warranty, are standard. Like many programs, Acura and Honda include a CarFax vehicle history report.
IntelliChoice, which evaluates vehicles based on cost factors (depreciation, fuel cost, insurance costs, etc.), studied 24 certified pre-owned programs in 2004 to produce a list of the top ones. Among luxury brands, Jaguar ranked first, followed by Cadillac, Volvo, Lexus and Audi. Volkswagen headed the non-luxury brands, followed by Honda, Mazda, Chrysler and Ford.
At three months/3,000 miles, General Motors has the shortest warranty term of any certified program. Packing the cost of a longer warranty into the vehicle’s price makes it less affordable, Heichel said.
Customers who want longer coverage can purchase an extended warranty.
Mitsubishi and Suzuki are the latest entrants in the certified derby. Mitsubishi’s program began in October. Suzuki started with a pilot on program in the fall and is expanding into more dealerships. Suzuki went into certification as part of its goal of tripling overall vehicle sales by 2007.
“We fashioned our program around Honda and General Motors,” said Tom Carney, Suzuki’s marketing director. “The momentum is already there.”
CNW’s Spinella calls certification a steppingstone. About 30 percent of certified-vehicle owners will buy another one. Another 60 percent will move up to a new car. There’s a natural price progression from used to certified to new, said Jaguar’s Bradbury.
J.D. Power has determined that the buyers of a certified luxury automobile would be willing to pay an additional $1,594 for certification, versus $1,029 for non-luxury models. In reality, the luxury-car buyer paid a premium of $2,838, while the non-luxury buyer paid an extra $1,007.
When a late-model car has a high residual value, the certified pre-owned price can come close to that of a new model. (Residual value is an estimate of what a new vehicle will be worth after a specified amount of time, expressed as a dollar amount or a percentage of its original price.) Some high-end manufacturers say they can sell a year-old car at a price higher than that of a comparable new model. This can happen when a car has a high residual value.
According to Beggs, the used-car dealer knows what his competition is, including new vehicles. Because people base their decisions on financing and monthly payments, that’s where he has to differ. He knows what the finance programs will be on both, and he has to find a $75 or $100 difference that makes the used car more appealing.
When the certified-car price gets close to that of a new model, we’ll sell them a new one, said Acura/Honda’s Crowe. If the salesman has done his job, the customer will understand the value of the certified car and be willing to pay the premium, Crowe said.
Used-car price guides haven’t altered their valuations to reflect certification. Editor Mark Brueggemann says the Kelley Blue Book, which develops used-vehicle values, has been working on the figures for a year.
Even after the purchase, according to the J.D. Power 2004 Used Vehicle Sales and Certification Study, 60 percent of buyers said they turned to certified mainly because the vehicle they like was certified. At least 63 percent of certified-vehicle buyers knew nothing of certification until they reached a dealership.
“Awareness of it continues to increase,” said Spinella. About half the people who know of certification will consider such a vehicle, but only 20 percent of shoppers know about the programs.
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Like new
Used-car certification has three elements, according to Charlie Vogelheim, who recently moved to J.D. Power and Associates from the Kelley Blue Book: Inspection with an “equal degree of confidence”; reconditioning, mechanically and in appearance; and a warranty. Comparing inspection procedures isn’t easy, because steps are counted differently, depending on what a manufacturer specifies. So Vogelheim suggests asking: “What are the exclusions?” This chart offers a simple guide to certified used cars. Because manufacturers state their certification terms in different ways, thus making direct comparisons difficult, consult their Web sites or a dealer for complete details. Most certified cars include a vehicle history report. Nearly all warranties are transferable to a second owner, but some automakers charge a fee. Close to half of warranties have a deductible, an amount that you must pay for each warranty-related service visit. Saturn is the only automaker whose dealers can certify other makes. N/A indicates the coverage is not available.
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MAKE MAXIMUM AGE/ INSPECTION WARRANTY MONTHS/MILES ROADSIDE ASSISTANCE
MILES (1) POINTS NEW-CAR–TOTAL–POWERTRAIN MONTHS/MILES
Acura 6/80,000 150 12/12,000–60/62,000–84/100,000 12/12,000
Audi 5/70,000 300+ 24/50,000–100,000–N/A 72/100,000
BMW 5/60,000 182 24/50,000–N/A–N/A 24/50,000
Cadillac 4/50,000 110+ 24/50,000–72/100,000–N/A 72/100,000 total
Chrysler/Dodge/Jeep 5/65,000 125 3/3,000–60/44,000–96/80,000 96/80,000 total
Ford/Mercury 5/50,000 115 36/39,000–N/A–72/75,000 72/75,000 total
General Motors (2) 7/60,000 110+ 3/3,000–39/39,000–N/A 3/3,000
Honda 7/80,000 150 12/12,000–48/48,000–84/100,000 Limited towing
Hyundai 4/48,000 120 12/15,000–72/75,000–N/A Full period
Infiniti 5/70,000 142 (4) — N/A–N/A 36/100,000
Jaguar 5/60,000 140 24/50,000–72/100,000–N/A 72/100,000 total
Land Rover 7/75,000 140 12/12,000–N/A–N/A 12/12,000
Lexus 5/60,000 160+ 36/50,000–100,000–N/A Full period
Lincoln 5/50,000 141 24/25,000–72/75,000–N/A 72/75,000 total
Mazda 5/62,000 100 12/12,000–N/A–84+/96,000 Full period
Mercedes-Benz 8/90,000 130+ 12/50,000–100,000–N/A Unlimited
Mitsubishi 5/60,000 123 12/12,000–72/72,000–10/100,000 Towing for
warrantable conditions
Nissan 5/72,000 128 12/40,000 (3) –N/A–72/100,000 72/unlimited
Porsche 8/100,000 110+ 24/50,000–72/100,000–N/A 72/100,000 total
Saab 4/60,000 110 24/50,000–72/100,000–N/A 72/100,000 total
Saturn 4/60,000 150 12/12,000–48/50,000–90/3,000 Towing only
Suzuki 5/70,000 144 12/12,000–N/A–100,000 N/A
Toyota 6/65,000 160 12/40,000 (3)–72/100,000–N/A 72/100,000 total
Volkswagen 5/75,000 112 24/24,000–N/A–N/A 24/unlimited
Volvo 5/80,000 130+ 24/50,000–72/100,000–N/A 72/100,000
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(1) Method for determining maximum vehicle age varies slightly among manufacturers.
(2) Includes Buick, Chevrolet, GMC and Pontiac.
(3) Powertrain coverage.
(4) 36-month (from date of purchase) or 100,000 miles (total).
Tribune illustration by Dennis Odom
Source: Automakers
