What are certified pre-owned cars?

By: Bruce Newton

Buying a used car can be a fraught business. You can do all the checking, prodding and probing you like, but there’s always that nagging doubt.

You could be driving away with a whole lot of very expensive problems under that freshly polished metal skin.

But there are various ways to reduce the risk and one of them is buying a certified pre-owned (CPO) car.

One key difference is that they come with the backing of the brand that built them and are supported via that brand’s dealer network.

But used vehicles that have been certified by their manufacturer are not just about auto brands offering more affordable prices and being all-round good guys.

Of course, this is also a way for a brand to ensure you do two key things: that you keep coming back to the dealer to have the vehicle serviced, and that down the track, you might buy another car, preferably a new one.

Further, certified vehicle programs also vary across manufacturers in the benefits they provide.

So, let’s open up the bonnet and kick the tyres to better understand what we’re talking about here.

What exactly is a certified pre-owned car program?

There are multiple certified schemes offered in Australia and each has its nuances, but the broad concepts are the same.

Toyota and Nissan are two of Australia’s major brands that heavily promote their CPO programs. Many others don’t have them.

In fact, CPO programs are more popular among luxury brands such as BMW and Mercedes-Benz, primarily because this is a way for them to bring new, aspiring customers to the brand without them having to pay the full price of entry for a new car.

However, certified vehicle programs have also gained traction among mainstream manufacturers such as Toyota. Part of the reason for its success is that Toyota is also an aspirational brand for many buyers.

As with other brands, it’s a way to continue to involve people who can no longer afford the steadily escalating prices of new vehicles.

How does a used car become certified?

So let’s take a look at how one of Toyota’s vehicles qualifies to become certified pre-owned under their scheme.

The cars that are considered for the program are purchased by dealers in the normal way from multiple sources, including privately, via trade-ins, auctions and ex-lease.

The next step along the road to certification is age and mileage. In Toyota’s case the age limit is 10 years and the mileage limit is 160,000km.

That 10-year limit is high by the standards of other CPO programs. Most cutoffs are around five to seven years.

Toyota CPO vehicles also must be accompanied by a full service history and two sets of keys and pass an independent background check.

Finally, the vehicle must also pass a comprehensive 90-point quality inspection by Toyota technicians, who will perform any reconditioning required.

More generally speaking, to become a CPO candidate, a vehicle cannot be substantially modified – roof racks are okay but aftermarket suspension or exhausts are not. It should also not have been the subject of a major repair.

What are the advantages of buying a certified used car?

Slightly more peace of mind is one advantage here.

Apart from the pre-sale mechanical checks and repairs by authorised technicians, in Toyota’s case a certified vehicle will come with a specific one-year warranty, regardless of whether it is still covered by the standard five year/unlimited kilometre new vehicle warranty.

However, buyers should also bear in mind that any used car dealer in WA is legally obliged, under the Motor Vehicle Dealers Act, to abide by the provisions of a statutory warranty anyway.

The statutory warranty only lasts for three months for vehicles less than 10 years old with under 150,000km, however consumers also benefit from the provisions of the Australian Consumer Law.

The Toyota program, as with others, also gets one year of roadside assistance coverage. Other brands offer two-year warranties.

But, as already noted, these schemes do vary from brand to brand.

Nissan, for instance, ups roadside assistance to three years, throws in a seven day/1,000km exchange period and offers service benefits such as a loan car if servicing where the car was bought.

In the luxury space, Audi offers free scheduled servicing for two years. Of course, this servicing is not really free, and consumers should consider this against other used vehicle prices.

It is also worth noting a CPO’s warranty support is not limited to the specific dealership where a used car was bought. Because it is a manufacturer-backed scheme, it applies to the whole dealer network.

What are the disadvantages of buying a certified pre-owned car?

The purchase price is the major up-front impediment to buying a certified pre-owned vehicle. Consumers should also consider that a vehicle’s CPO status will be leveraged by dealers when the price is being negotiated.

Buyers should consider carefully whether the price premium that comes with a CPO vehicle, plus any associated restrictions (such as needing to have it serviced at the dealer to retain benefits like loan cars), are worth it.

Consumers may see more benefit in having a much cheaper used vehicle thoroughly inspected by an independent specialist workshop before purchase, and saving several thousand dollars.

Does being a CPO help a car retain its value?

As we’ve just pointed out, certified pre-owned cars generally cost more to buy.

But don’t presume that contributes to any boost in the value of the car when you sell it.

“Just because it is certified, when you sell it in two or three years’ time, it does not increase its value in the second-hand market,” according to Ross Booth, from vehicle valuation service RedBook.

However, some of the factors that go into determining if a vehicle is eligible to become a CPO are the same as those that will determine its future value.

We’re talking about the brand of car, its mileage, age, and service history. Also, whether it’s in good condition with well-maintained exterior and interior.

What’s the difference between CPO and new car warranties?

There are exclusions in some CPO warranties versus new car warranties. Basically it comes back to avoiding inheriting problems triggered during the previous ownership period.

Toyota’s CPO warranty excludes rust protection, whereas a new car warranty provides up to seven years coverage.

Genuine parts and accessories fitted to a Toyota purchased new have five years protection, but none under the used car program.

It’s worth noting too that the advantage of a CPO warranty is diluted in Australia because new-car warranties are so long. Remember, they are up to 10 years now for some brands.

That’s amongst the longest warranty coverage in the world. It helps explain why CPOs are more popular in the USA and Europe, where new car warranties are shorter.

Also, be aware some CPO warranties are transferrable to a new owner and others aren’t.

How do you find certified pre-owned cars?

The most obvious basic way is to walk into a used car dealership and look at the vehicles on offer.

Dealers will also promote CPO vehicles in their advertising.

Popular vehicle sales websites also have the capacity to flag CPOs.

Should you buy a certified pre-owned car?

So having done our due diligence, there is a definite theme emerging here: you get what you pay for.

“The whole discussion about CPO is not whether it’s a good thing or a bad thing,” is how Booth sums it up. “I think it’s a good thing because it provides something better for consumers.

“What it comes down to is, what am I prepared to pay as a consumer for a CPO program?”

Now, over to you.