Motor Mouth: The best kept secret of buying a used car

We Canadians are a frugal lot. We cross-border shop, we consider American outlet malls religious sanctuaries and we’ll scrounge, sometimes all weekend long, to save a few cents a litre on 91 premium. We can quote invoice pricing verbatim, always scour the Internet for the best deals and woe be the salesperson who thinks he/she can out-haggle a 51-year-old divorced Montreal grandmother on bien-etre social.

And yet we pass up on the best automotive deal of all.

Oh, we buy lots of used cars: No nation on earth understands the benefits of depreciation better than we of the Great White North. Indeed, last year, while automakers were loudly boasting about selling a record 1.85 million new vehicles, Canadians quietly bought 2.8 million used cars, vans and light trucks, trading the certainty that comes along with a new-car warranty for the depreciated savings of the lovingly pre-owned.

The thing is, we didn’t have to.

Read more: Here’s a novel idea: Buy a car you can actually afford

This may come as a surprise to most Canadian used-car shoppers, but you don’t have to forego the new-car warranty — or even automaker-backed financing — when buying a used car. Almost all automakers offer something called Certified Pre-Owned (CPO) vehicles, essentially the best of their lease returns and trade-ins that are thoroughly inspected, fully warrantied and, as the final sweetener, often offered with factory financing and leasing packages.

Yet, despite being almost 25 years old — Lexus and Mercedes-Benz started their programs in the early ’90s — CPO programs are perhaps the best kept secret in the automotive business. Less than one-third of used cars are resold through dealerships (the vast majority being sold privately or through independent used-car lots) and fewer than a quarter of those are CPO. Do the math and it turns out that less than 5% of Canadian car shoppers are taking advantage of the best deal in town.

A diagnostic technician uses a laptop computer to diagnose and repair the brake system on a 2010 Toyota Prius in the repair shop of a Toyota dealership.
Steven Senne, AP Photo

And when the numbers are crunched — especially with an eye to the total cost of ownership — certified really is the best way to buy used. Automakers, on the hook for any reliability issues, insist all CPO vehicles must be of recent vintage and relatively low miles. Indeed, dealers choose only the very best of their returned leases for their certified programs, keeping the cherriest for themselves and then wholesaling the rejects.

Then, every single CPO car, regardless of brand, undergoes a thorough inspection, with everything from brake pads to tire wear thoroughly scrutinized. And it is in the dealers’ best interest to ensure that the scrutiny is truly thorough, since all CPO cars carry a factory-backed warranty. Being administered by the automaker itself, rather than the dealer, means the warranty will be honoured in all the brand’s dealerships. “Factory-backed is better than an independent warranty,” says George Iny, president of the Automobile Protection Association (APA). “It’s the most valuable component of any CPO program.”

Over the years, CPO programs have been further expanded to include roadside assistance, Carproof reports and, in some cases, the first oil change. Some programs even offer an advantage not available to new-car buyers — the ability for dissatisfied customers to exchange their recently purchased “new” vehicle for another CPO car. Tally it all up and Mazda Canada estimates the certification process has a value of $4,143, while BMW Canada pegs it at even more, saying all the benefits — factory-backed warranty, “new-car”-like financing, roadside assistance, etc. — are worth $7,930.

If you’re not satisfied with your current car, and are in the market for a new one, you’re in good company.
Mohamed Messara, EPA

Which makes most CPO programs well worth the premium. Automakers are naturally reluctant to make direct CPO versus non-CPO comparisons, but AutoTrader.com noted that American used-car buyers surveyed were willing to pay, on average, US$2,085 more for a certified car.

Even that relatively small premium can be misleading. CPO programs typically offer “new car” financing options, their interest rates far more aggressive than traditional used-car financing through banks, where higher rates prevail. Finance a used car through a CPO program and monthly payments may not be significantly more than the lower-stickered independent option.

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Factory-backed financing also allows the budget-conscious to move up a snack bracket, parsimonious luxury intenders able “to step up in vehicle class without stepping out of the comfort zone in terms of price point,” said Rick Wainschel from AutoTrader.com. A four-year-old BMW 328i xDrive may cost as little as a new Honda Civic, and even a fairly low mileage 2011 550i xDrive luxury sedan can be had for the price of a new Toyota Avalon.

Indeed, it is with these more expensive models that CPO purchases make the most sense. “Their higher purchase cost makes interest-rate savings more attractive,” says Iny, “and the higher cost of repairs and more frequent breakdowns make the comprehensive warranty very attractive.” Considering the investment — and their comparative unreliability — it’s hard to believe anyone would buy a used European luxury car without the protections a certified pre-owned program offers.

When it comes to used cars — especially used luxury cars — how you buy is just as important as what you buy. Why take a chance on someone else’s troubles when you can get a fully depreciated, factory-backed “treasure?”