A Compromise Between New and Used Cars?

With the economy at a low ebb, there is little doubt that consumers are going out of their way to seek value, so it is not surprising that certified pre-owned cars are growing in popularity. But their current popularity might actually represent a wave of the future -- a wave that could well keep rolling even after the economy improves. 

One piece of evidence to that effect is the result of a recent online poll. It asked whether a teen’s first car should be new or used. The response was that the first car should be a used car, and by a very large margin. In fact, only 3 percent of respondents said that a teen’s first car should be a new car. That result wasn’t surprising given the tenor of the times, nor was the fact that 11 percent of respondents who said teens shouldn’t own cars at all. A substantial percentage of respondents -- 28 percent -- said the choice of a first car should depend upon what that particular teen can afford. Yeah, OK, we get that too.

But the interesting part is a potential trend the poll showed: 30 percent of respondents said a teen’s first car should be a certified used car -- in industry speak, a certified pre-owned (CPO) vehicle. In comparison, just 20 percent of respondents said that a teen’s first vehicle should be a traditional, non-warranted, non-certified used car.

What these results suggest is that CPO vehicles are gaining visibility and credibility with the public. It indicates that many consumers are increasingly interested in the financial benefits of purchasing a CPO vehicle over a new vehicle. They like the peace of mind provided by the inspection process and warranty coverage. Plus, because it is impossible from a visual point of view for most consumers to tell the difference between a two-year-old model and a brand-new edition of the same car these days, the choice of a CPO vehicle becomes ever-more compelling. Today’s CPO cars offer virtually all the style, quality, amenities and safety items as new cars, and their useful lives extend far beyond the time a second owner would typically keep them. The major difference is the price. If you say to yourself right now that you’ll never drive a used car, you should consider the fact that you’re driving a used car right now, even if you bought it new.

The current era of high unemployment, pay cuts and downsizing has put new-car ownership out of the reach of many more Americans, and that’s another good reason for consumers to consider a pre-owned vehicle. What this could imply for the future is a smaller new-vehicle market than we have traditionally seen and a more robust and profitable nearly-new market populated by CPO vehicles and other well-maintained, low-mileage recent-model-year vehicles.

One question is, if large numbers of buyers shift to late-model used vehicles, who will buy the new vehicles that will turn into those used cars?