Used Car Buying Tips - Part 5: Certified Pre-owned Vehicles Make Sense?

by golbguru on July 26, 2007

In response to part 3 of this guide (How to Inspect a Used Vehicle), a reader asked this question:

Is taking the car to a mechanic necessary when you’re buying a “Certified Used Vehicle?”

Let’s start this post by answering that question with a resounding YES. You must get a certified used (”pre-owned” is the preferred term) car inspected by an independent mechanic (after you have inspected it yourself). There is no reason to treat a certified pre-owned car any different than a normal used car.

An obvious question follows: Why is it necessary to have a *certified* car inspected; it comes with a factory warranty, doesn’t it?

We will try to answer that question as we go along.

First things first; what exactly are “certified pre-owned” vehicles?

These are used cars that satisfy all the conditions in a given manufacturer’s quality checklist. The checklist consists of various inspections (exterior, interior, engine, transmission, etc.) that need to be performed to deem a car *fit enough* to be sold as a certified vehicle [check out Honda's 150-point inspection list or Toyota's 160-point inspection list].

The vehicles that successfully pass such checklists are backed by the corresponding manufacturer’s warranty and then sold as “certified pre-owned”. So, the key words for any certified pre-owned car are: inspection and warranty. Sometimes, certified cars are also eligible for great financing rates (like new cars) so that’s an additional advantage.

Note that we are talking in terms of manufacturer-certified used vehicles here ~ which are only sold in branded dealerships that are associated with a particular manufacturer. For example, a Honda-certified car can only be sold in a Honda dealership. If you see *certified* cars being sold by a non-manufacturer-associated (non-branded) dealer, then those cars are essentially *bogus* in the sense that the certification is not manufacturer-backed (and hence the warranty won’t be backed by the manufacturer). Keep this in mind if you are looking for certified used vehicles.

Understanding the warranty that comes with certified pre-owned cars

There are two different types of limited warranty coverages offered on most certified pre-owned vehicles:

  1. Non-powertrain equipment warranty (sometimes called as comprehensive warranty or bumper-to-bumper). This warranty is usually short-term: 3 months to 1 year with mileage restrictions from 3000 miles to about 12000 miles. Manufacturers cover different things under this warranty so make sure you check out the details. For example, Honda covers the following under it’s 12 month/12000 miles “non-powertrain warranty” :
  2. - Steering
    - Suspension
    - Electrical
    - Air Conditioning
    - Heating and Cooling
    - Fuel System
    - Switches
    - Audio Repairs (Honda audio systems only)
    - Sensors

    Toyota offers a 3 month/3000 miles “comprehensive warranty” and GM offers a 3 month/3000 miles “bumper-to-bumper” warranty on certified used vehicles. This warranty covers “any repair or replacement of components which fail under normal use due to a defect in materials or workmanship“. As far as I know, Ford does not offer such a separate coverage for Ford-certified vehicles. The only time that a used Ford will have a comprehensive warranty coverage is when it is within the original factory warranty period (3 year/36,000 miles).

  3. Powertrain warranty coverage. This warranty usually covers the engine, drive system and transmission and generally, it’s a long-term warranty: 5 years to 10 years with a mileage restrictions from 60,000 miles to 100,000 miles. The most important thing to remember about this warranty is that the coverage starts from the car’s original date of sale, NOT from the time you buy the used vehicle.

It is important to understand the difference between the two types of warranties. Make sure you compare apples to apples when you compare warranty coverages. Don’t compare a 3 month comprehensive warranty to a 6 year powertrain warranty and then conclude that the 3 month deal is not as good as the 6 year warranty.

A good certification program should offer both warranties.

Look out for terms like “balance of original warranty” - this means the warranty coverage started from the date the car was first sold.

Check the resources at the bottom of this article for an extensive list of warranty details provided by different manufacturers on certified used cars.

So with all these goodies - warranty coverages and thorough inspections, why is there a question whether certified used cars make sense or not?

Well, here comes the juicy part. :) The question arises because of the following issues.

  • Issues with inspection: it should be noted that inspections are done at the dealership level only, even if they are *supposedly* done according to manufacturer specifications. These cars are not like certain used electronic goods that are sent back to the factory to be “factory-refurbished”. Because of this dealer-level, there is a human element involved which makes the outcome of the certification process uncertain. It all depends on the honesty of the particular mechanic (or the vested interest of the dealership) who inspects your car.

Plus, it is not necessary that mechanics think alike and hence it is quite possible that one mechanic thinks that a car is good enough to be certified while the other doesn’t think it’s good enough. So, there is a very high chance that a given car, that has been an accident (which has not been reported in the CARFAX report), with some body work done on it, is given the go-ahead by a mechanic who thinks that it is worthy enough to be sold as certified. That’s why you must have certified cars inspected by an independent mechanic. In fact, independent inspection becomes even more crucial if you are not getting a comprehensive warranty coverage with the car.

Also, don’t get sold out on “160 point” (or whatever other number of points) inspection. Many of those points are trivial and it doesn’t require any amount of skill (or equipment) to have them checked.

  • Issues with warranty: as explained above, coverages for certified used cars can be deceptive. For example, you could buy a certified 2003 Toyota with 84,000 miles on it. It will be advertised with a “7 year/100,000 miles” powertrain warranty. However, the warranty coverage started when the car was first sold as new. So, you should realize that although it has three more years of warranty, you have only 16,000 miles to go before the warranty expires (probably another year at max). So, if you are paying a very high premium for buying such a car, you are not getting a good deal in spite of the warranty. Also, keep in mind that most warranties (even the comprehensive ones) DO NOT cover normal wear and tear items (brake pads and shoes, belts, etc.) - so buying a certified car doesn’t mean you won’t have to worry about replacing all those items (think expensive maintenance) within a year of buying the car.
  • Cost of certification: all that warranty and those inspections come at a premium, sometimes as high as $2000 (probably even more; it all depends on how much profit the dealer wants to make - there are no limitations on how high the dealer can set the price). At times, you can justify the extra premium with the cost of inspection, the replacement cost of certain wear and tear items, the cost of general servicing, etc., but generally the premium goes much beyond what can be normally attributed to the cost of reconditioning. Consumers should do their own research (just as described in these articles) and check out the fair price of a certified used vehicle before hitting a dealer’s lot (and of course you can haggle when you are there).

Sometimes, buying a certified car just doesn’t make any sense due to the cost factor. For example, here is how a 2006 Honda Civic (LX, 4 door, 15000 miles) evaluates according to Edmunds.com (check the price listed for the certified version at the very bottom of the image) - says $17,332!

certified used honda civic 2006

Now, a 2007 brand new Civic with the same configuration comes to $17,577, a difference of just $245. There is no reason why you should buy a certified used vehicle in this case - just go for the new one. A non-certified Civic can be negotiated to almost near the private party value of $15,502, but the *certified* version won’t go much lower than $17,332.

Also, there is no reason why the certification premium should be so high for a one-year old vehicle ~ you can be pretty sure that the dealer didn’t have to do anything significant in reconditioning such a car (the original tires will be good enough and everything else should be in pretty much “as-new” condition). Plus, the original factory warranty of the car still has a long way to go before it expires and you certainly don’t need any additional warranty that comes after certification.

Another time when buying certified used vehicles don’t make much sense is when the vehicles are near the limits of their warranties. There is no wisdom in paying an extra couple of thousand dollars as premium for a certified car that’s run about 84,000 miles and whose powertrain warranty will expire within an year (after the next 16,000 miles). You could argue that you are getting a “comprehensive” warranty with the purchase, but if that’s just 3 month/3000 miles, then you are still paying way more than what that peace of mind is worth it.

So consider all these cost factors before you jump for a certified pre-owned car.

  • certified used vehicle !Horror stories: Check this discussion on New York Times and see what readers had to say about their experiences with certified used vehicles. The photograph alongside is from another article in New York Times and shows a damaged Chevrolet Monte Carlo. Would you believe that parts of the damaged car in the photograph were used in a “GM certified vehicle”? :)

Here is an excerpt from the writeup that goes along with the image (here is a link to the article, but it requires subscription to NY Times):

After a mechanic put the car on a lift and saw the welds, Ms. Day learned that it included pieces from the front of one Monte Carlo and the rear of another, both seriously damaged in crashes.

This just goes to say that no matter how stringent the manufacturer’s certification requirements are, lemons can always be sold as certified vehicles.

Bottom line: “certified pre-owned” does not mean “no worry” and not all certified cars are worth the extra premium. Do your own research as you would have done with any other used car (follow these rough guidelines that I mentioned in part 2, part 3, and part 4 of this series) and then decide whether it’s worth the additional cost. Pay attention to the warranty when you are looking at old certified used cars and pay attention to the cost when you are looking at almost-new certified cars.

And, always remember - it is absolutely essential that you have a certified pre-owned vehicle thoroughly inspected by an experienced mechanic.

Resources:

Related Articles:

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{ 14 comments… read them below or add one }

1 SHAHID 11.07.07 at 5:44 am

Dear Sir I Want a taken Honda Civic
Please Give me Quatation
thank you sir

2 Beany 02.01.09 at 5:48 pm

I’m a first time car buyer and had a question about buying used/certified. Re: the mechanic. Do the dealers have some sort of return policy during which I can the used car off the lot to a mechanic? Or do I bring a mechanic with me to the dealership to do the independent inspection. Sorry for the silly question, but I genuinely know nothing about cars.

3 May 08.20.12 at 7:56 am

I’m a first time car buyer and had a question about buying used/certified. Re: the mechanic. Do the dealers have some sort of return policy during which I can the used car off the lot to a mechanic? Or do I bring a mechanic with me to the dealership to do the independent inspection. Sorry for the silly question, but I genuinely know nothing about cars.
Copied from Beany.Beany 02.01.09 at 5:48 pm

I have the same question above .

4 Property Marbella 05.01.13 at 4:27 am

You should always have an expert in an approved garage to check the car before you buy it. He can find so many errors and give you an estimate on repairs.

5 Kathryn 05.01.13 at 11:46 pm

Besides from the price tag, we should also consider the history of the vehicle and the condition of its engine with the performance status. So true, seeking for an advice will definitely help to maximize your investment at buying used vehicle.

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