- The Washington Times - Friday, April 5, 2002

Buying a used car is a daunting task. How do you know if the preowned vehicle is any good, or if it will die as soon as you drive off the dealer's lot?

Carmakers are aware of the trepidation most used-car buyers feel. To take some of the anxiety out of this experience, several auto companies have created certified preowned-vehicle programs designed to guarantee satisfaction with a used car.

Certified programs are becoming increasingly attractive to consumers, said Bill Bates, preowned-marketing manager for BMW of North America. He cites a recent BMW/Dohring survey that reveals more than half the surveyed population said they would consider buying a certified preowned (CPO) vehicle. And 52 percent of those said they have a favorable impression of CPO programs.

It's not a one-way street. Mr. Bates said CPO vehicles give dealers a second franchise to complement new-car sales. He notes that BMW dealers sold 39,803 CPO vehicles in 2001. That's slightly down from the 44,773 sold the previous year, but Mr. Bates terms that a hiccup in a strong upward trend. The volume slip last year was due to fewer leases maturing, but he said that will be reversed this year. Mr. Bates forecasts BMW sales of CPO vehicles will increase by 15 to 20 percent in 2002 because he expects lease maturities to increase by 37 percent.

CPOs are attractive because they have relatively low mileage, have been rigorously inspected and include a warranty. Those features are so attractive that buyers are willing to pay about $3,000 more for a CPO, on average, than for an uncertified used car.

Much of the extra $3,000 is associated with the costs of reconditioning a car. The warranty also adds to the dealer's expense. But Mr. Bates emphasizes that the BMW inspection should be judged not just on the number of points inspected. In fact, he declines to quantify the number of inspection points. Instead he notes the importance of the quality of the inspection. Inspectors are told that if there is any doubt, leave it out (of the CPO program).

Toyota is the current industry leader with almost 197,000 CPO sales. Lexus adds another 34,000 units. GM is second when Cadillac and Saturn are included. And the automaker expects geometric growth in CPO sales in 2002 and 2003. Honda is third with about 109,000 CPO sales. Mercedes-Benz is just a shade behind BMW with about 38,000 CPO units.

Dave Klemm, who heads GM's CPO program in the Northeast, said the company is targeting 200,000 CPO sales this year. GM expects to double that number in 2003. Like BMW, buyers of GM CPOs get a three-day, 150-mile money back guarantee. That means buyers can return the vehicle within that limit for any reason. If they keep the car, they get a three-month, 3,000-mile bumper-to-bumper warranty. There's an array of options available to buyers who want extended warranties at extra cost, of course.

Mr. Klemm said about half of GM's Northeast dealers are now signed up to sell CPOs. "I'd like to have most of our dealers signed up by the end of next year," he said. But he concedes that some dealers may not opt for the certification program. "I can respect that they don't want to bother."

Dealers who do certify used cars enjoy extra profit margins of between $500 and $1,000 per used car or truck.

CPO sales are significant when you consider that BMW sold about 213,000 vehicles last year. In addition, 75 BMW dealers will get new franchises for the Mini Cooper car that will provide about 20,000 additional sales this year. Sales of CPOs that average $30,000 a unit produce a total volume of $1.3 billion for BMW dealers. That's about three times the expected annual retail gross for the Mini Cooper.

BMW dealers are encouraged to certify every car they can and two-thirds of leased maturities come back as CPO units. But supply and demand also applies to used cars. If a dealer has too many of the same model in the same color, he may decide to auction the unit off rather than spend money on inspection and reconditioning.

While BMW is seeking to significantly increase its CPO program, Mr. Bates notes that the company's volume can't come close to that of the mass-market brands.

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