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Certified Pre-Owned vs. Off-Lease Cars: Where Is the Value?

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author photo by Mark Elias July 2017

Keeping up with the Joneses is a daunting proposition these days, but there is still hope, especially when it comes to Certified Pre-Owned and Off-Lease or "gently used" automobiles and SUVs. With the price of new cars approaching what some of our parents paid for their houses a generation ago, there are still options that will help you buy your aspirational, latest-and-greatest vehicle for not as much as you may think.

That brings to mind the automotive chestnut, that states, "you can't drive your house, but you can always sleep in your car."

First Step: Time for Some Homework

Let's say you find your next dream car on the lot of your local Autoplex. It's almost a no-brainer, but the smart set knows to ask the dealer for a look at the vehicle history report. If it's not readily available, the car's bona fides are always available through sites like Autocheck.com, Research.com and CarFax.com, which provide detailed information on a vehicle's priors, so you can have a sense of confidence before you buy.

CPO Is Not a Star Wars Character

A Certified Pre-Owned (CPO) vehicle is one that appears to be gently used by the previous buyer, with two or three years of mileage on it (typically 24,000 to 36,000 miles) but almost new in every other way. All CPO vehicles undergo extensive, manufacturer-required, multi-point inspections and repairs, as needed, to restore all functions back to factory settings. This gives the buyer the utmost confidence that they are buying the best the brand has to offer when it comes to a pre-owned vehicle. The CPOs will have extended warranties that provide protection for additional years, and in many cases unlimited mileage, during the time the second buyer has the car.

Lexus was the first brand to offer a CPO category of vehicles starting in 1993. It elevated their brand of used vehicles to stand out when viewed against the competition. Here, a customer could choose between a pre-owned BMW, for example, with limited warranty, or a Certified Lexus that had been reconditioned by factory-trained technicians and came complete with an extended warranty. According to Jim Dunn, vice president and general manager of JM Lexus in Margate, Florida, the original Lexus Certified warranty extended the original new car four-year/60,000-mile warranty to six-years/unlimited mileage.

While Lexus was first, many others have joined the cause, offering factory-certified vehicles. Their ranks include Honda, Hyundai, BMW, Volvo, Audi, Mercedes-Benz, Ford, Porsche, Cadillac, Kia, Acura and Chevrolet. Most of these programs offer extended years and unlimited mileage, service loaners and 24-hour roadside assistance in an effort to sweeten the deal.

"Some cars may have a factory warranty left on it," says JM's Dunn, "but if it's a car that failed to meet the L-Certified standards, we would send it directly to auction. Our CPO franchise is such a strong brand, that's what we feel most comfortable in dealing with. Our dealership is most proud of the fact that when we recondition our cars, we do it to the letter of the brand."

Off-Lease Cars

An Off-Lease vehicle is an alternative to the typical price premium that exists with a CPO vehicle. Let's say a driver returns their Audi following a 3-year, 36,000-mile lease. They intend to lease again, but want to change it up by looking into something new from MINI. That Audi will remain on the MINI Pre-Owned lot, not as an Audi CPO vehicle, but as an off-lease car. Still, there are benefits to seeking out off-lease vehicles, including being able to drive a car with the latest in technologies and features at a fraction of the price of a new vehicle.

Just because it sits at an off-brand dealership, doesn't mean it will be uncovered when it finds a new home. Most dealers with pre-owned lots will offer extended warranties that, in some cases, could be better than those originally offered when the vehicle was brand new. Others are specialists dealing exclusively in off-lease vehicles. Novak Motors in Farmingdale, NY is just one such dealer. In addition to their Long Island location, they also have stores in New Jersey and Texas that specialize in "lightly pre-owned," off-lease vehicles.

"We have the cars looked over by licensed independent inspectors -- per New York law -- who determine the condition of the vehicle," says Amy Doberman, director of Finance and Insurance (F&I) at Novak Motors. "We are not a CPO program in that sense, but after the inspector has gone over it, we again inspect over 100 points according to our checklist," she said.

Vehicles can come in with around 20,000 miles on the odometer, but with potential savings of $15,000 to $25,000, which someone else has already depreciated for you. If you plan to keep a car for a long time, the CPO warranty might not be the route to take because it will typically include six years of warranty from the original date of sale, meaning a car turned in after a three-year lease will only have three more years of warranty life left on it. In most cases, both CPO and Off-Lease dealerships can offer extended warranties that prolong the life of the warranty for the new buyer. Unless you're buying from a large dealership group like CarMax or Autonation, that extended warranty might only be good at the dealership where you bought the car.

SUVs are the big thing at Novak's New York location. Doberman claims to have no cars in the showroom at present. In a market where the SUV is King, the few cars that are in demand are all-wheel drive. There's no price dickering, either. "We do our due-diligence, and as a result the window sticker is our lowest price," she said. This is a trend among some larger dealerships: One price or "no haggle" pricing means you just buy the car for the price they're asking (kind of like a TV or a sofa) -- there's no negotiating. Hopefully, the dealer has set a reasonable price. It's easy to figure that out -- nearly everyone has a smartphone or internet access, and using a pricing site like KBB.com or others will quickly tell you if the price is fair or not.

Market analysis is another factor in properly pricing a vehicle. Many retailers -- CPO and otherwise -- will look within a 150-mile radius for mileage, condition, etc. of a comparable car, with the desire to be the lowest of all of those. Typically, if a warranty problem crops up, the customer can go to any licensed mechanic or dealership and will then be paid instantly via credit card from warranty administrators, so the consumer does not have to lay out any of their own money.

"Our theory here," said Doberman, "is that it may be pre-owned, but it's new to you as the consumer, and it's always going to be presented that way."

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This image is a stock photo and is not an exact representation of any vehicle offered for sale. Advertised vehicles of this model may have styling, trim levels, colors and optional equipment that differ from the stock photo.
Certified Pre-Owned vs. Off-Lease Cars: Where Is the Value? - Autotrader