Understanding Certified Pre-Owned Cars

Knowing What You're Getting into Can Reap Financial Rewards

Growing up in Connecticut, I used to hear TV ads for a jeweler known as Mr. P.O.M.G. - "Peace of Mind Guaranteed." (Talk about a great tag line - I remember it 35 years later.) Car manufacturers are now selling P.O.M.G., but they're calling it Certified Pre-Owned. Here's my P.O.M.G. overview on understanding certified pre-owned used cars.

The Origins of Certified Pre-Owned

Luxury car makers began the programs in the early 1990s to sell cars coming off lease or being traded in for new models. Just like everything else in the car business, it's trickled down to the point where every manufacturer has some form of the program.

Manufacturers love certified pre-owned for two major reasons: they maximize revenue from vehicles they have sold once already and it creates brand loyalty. Once you buy certified pre-owned, the thinking goes, you'll come back for a new car if your pocketbook permits and you've had a good experience.

Dealers love certified pre-owned for a couple of reasons, too. The profit margins are greater on certified pre-owned and repair costs are borne by the manufacturer.

What Is Certified Pre-Owned?

Certified pre-owned are cars that have been through a special inspection process by car dealers. (Manufacturers set the standards.) Certified pre-owneds come from a variety of places including lease programs, trade-ins, and vehicle auctions.

Certified pre-owned used cars -- when purchased properly -- are a great deal for you. Financing can be cheaper. The cars are typically in better shape and some manufacturers offer generous warranty protection.

Once a used car gets its certified seal of approval, it gets an extended warranty and the dealer tacks on a higher price because the consumer gets perceived peace of mind. In effect, certified pre-owned can be defined as reconditioned new cars at less-than-new prices.

There are no regulations on what defines certified pre-owned. New car warranties are covered by federal law. Used car warranties fall under the laws of the 50 states. California has some annoying motor vehicle standards but its Car Buyer's Bill of Rights for certified pre-owned vehicles is good and should be adopted by other states. Check with your state motor vehicle or consumer protection departments for info specific to your state.

Manufacturer vs. Third Party

Typically, manufacturers allow vehicles that are 5 years old or newer with 60,000 miles or less to be certified if they pass inspection. (The number of inspection points can range from 169 for Ford to 300 for Audi. Porsche sells certified pre-owneds up to 6 years old and 100,000 miles. Ford cuts off sales at 4 years and 50,000 miles. Kelley Blue Book has an overview of all the manufacturer's programs. Double check the info, though, because I found an error in the Porsche listing.

There are also third party certified pre-owned programs. Take caution. These are not associated with manufacturers. They are extended warranties that you pay extra for. When something goes wrong (and notice I didn't say "if"), your car may or may not be covered. These are a real crapshoot because there's always the risk the company backing the warranty could fold its tents and steal away into the night. The risk of that happening with a manufacturer is minimal.

Don't Be Fooled by Certified

No matter what it says on the outside, always get a used car inspected before purchase. The sales rep is going to claim it's a cream puff. "There's nothing to worry about," he'll say. "I can't hold the car because somebody else wants it. Don't you trust me?" All a sales rep wants to do is close the deal. Walk away. You'll be glad you did.

A good certified pre-owned dealership will give you the keys to get the car checked out. Hand your mechanic a manufacturer's checklist along with the keys. There is a good checklist available at the Audi certified pre-owned website.