We’re often asked how much one can save by buying a Certified Pre-Owned vehicle (CPO) in lieu of a new vehicle. While the lower price point of the pre-owned vehicle may be attractive, there are a number of additional factors that can make a new car a better overall value.
In this article, we’ll run through the pros and cons of new vs. pre-owned vehicles and then run some numbers on sample vehicles to see how they compare.
What is a Certified Pre-Owned Vehicle?
A Certified Pre-Owned vehicle is a used car sold by an authorized dealer that has been through an inspection program (typically designed and outlined by the manufacturer) to verify that it is in sound condition. Additionally the manufacturer will offer a limited extended warranty that usually covers the vehicle for about two years beyond the original factory warranty.
The programs were initially developed by luxury manufacturers in the 1980s and 90s who saw an opportunity to sell the increasing number of lease return vehicles directly to consumers faster and for a higher price. Since then the idea has become widely adopted and most major auto manufacturers offer a CPO program.
Would you rather drive a new or used car?
There are a number of advantages to driving a newer car, especially with the rapid advance of technology in recent years. These include:
- Advanced Safety Features: Manufacturers are constantly making new cars safer. Today’s technology not only helps you walk away from an accident, but actively prevents you from being involved in an accident to begin with. The more advanced safety features in newer cars can be worth far more than their cost.
- Fuel Efficiency: The average fuel economy for passenger cars has risen to a high of 24.5 mpg in January 2013 from an average of 21.3 in 2009. Between the cost of gas and long California commutes, this can add up to hundreds of dollars in savings each year.
- In-car Technology: Technology can improve the new car driving experience in a number of ways—innovations like in-car Pandora radio, integrated app suites, and WiFi hotspots can make the drive from Point A to Point B much more enjoyable.
How can a new car cost about the same as a CPO?
While manufacturers and dealers want to move their CPO inventory, they still offer their most aggressive discounts and rebates on their new cars. There are several factors that can contribute to the overall cost of a new car being a better value than that of a certified pre-owned vehicle. These include:
- Manufacturer Incentives: The special rebates and incentives offered on new cars can reduce their cost considerably. In addition to rebates, manufacturers will often offer low financing rates on new cars only that can significantly reduce the total amount paid over the term of the loan.
- Leasing: Leasing can be a fantastic way to decrease monthly payments on a new car and/or decrease the total cost of car ownership—especially if you like driving a newer model. Leasing also offers a significant saving on sales tax which is only applied to the amount of the lease rather than to the entire cost of the vehicle.
- Maintenance: Even though Certified Pre-Owned vehicles come with a factory warranty, when that warranty expires they will need more repairs and maintenance than a newer vehicle. Slightly older cars will be more likely to require a larger investment in maintenance such as new tires and brake pad or belt replacement.
- Residual Value: Perhaps the most overlooked source of value in comparing new and used cars is what the car will be worth when you’re ready to sell it. A six year old car with 60,000 miles will be worth thousands less than a similarly equipped three year old car with 30,000 miles. If you’re intending to keep your car for five years or less, residual value should be an important part of your decision.
We’ll look at three example vehicles and compare buying a new vehicle, leasing a new vehicle, and buying a low-mileage, three-year old, pre-owned vehicle. Colors and options are kept as consistent as possible to create a fair comparison. In each case, the vehicle is driven for three years at 12,000 miles per year, kept in very good condition, and then traded in (or returned at the end of the lease). The incentives and finance rates used are current as of the time of writing, but are subject to change with time.
Example 1: BMW 328i
We’ll look first at a 2015 BMW 328i sedan in Imperial Blue Metallic with heated Black SensaTec seating and a moonroof. MSRP as configured is $40,550. We found a similarly configured CPO 2012 BMW 328i offered in the San Francisco Bay Area for $32,800.
| Buy New Car | Lease New Car | Buy CPO | |
| MSRP | $40,550.00 | $40,550.00 | $32,800.00 |
| Down payment | $2,500.00 | $2,500.00 | $2,500.00 |
| Monthly payment (inc. tax) | $695.00 | $410.00 | $535.00 |
| Total of payments made | $26,825.00 | $16,850.00 | $21,225.00 |
| Balance due | $16,680.00 | n/a | $12,840.00 |
| Maintenance & repairs | $0.00 | $0.00 | $1,000.00 |
| Estimated trade-in value | $22,275.00 | n/a | $13,000.00 |
| Equity remaining | $5,595.00 | n/a | $160.00 |
| Lease disposition fee | n/a | $350.00 | n/a |
| Total cost | $21,230.00 | $17,200.00 | $22,065.00 |
The lease is the lowest cost option here, saving a little over $4,000 over buying the new vehicle and selling it three years later. Buying the new car and the CPO cost roughly the same with the pre-owned car costing a little over $800 more than the new car over a three year time period.
Example 2: Honda CR-V
Next, we’ll look at a 2015 Honda CR-V EX-L in Crystal Blacl Pearl with an MSRP of $30,275; our CPO is a comparable 2012 Honda CR-V EX-L available locally for $24,900.
| Buy New Car | Lease New Car | Buy CPO | |
| MSRP | $30,275.00 | $30,275.00 | $24,900.00 |
| Down payment | $2,500.00 | $2,500.00 | $2,500.00 |
| Monthly payment (inc. tax) | $525.00 | $385.00 | $430.00 |
| Total of payments made | $20,875.00 | $15,975.00 | $17,550.00 |
| Balance due | $12,600.00 | n/a | $10,320.00 |
| Maintenance & repairs | $300.00 | $300.00 | $800.00 |
| Estimated trade-in value | $18,165.00 | n/a | $13,325.00 |
| Equity remaining | $5,565.00 | n/a | $3,005.00 |
| Lease disposition fee | n/a | $350.00 | n/a |
| Total cost | $15,610.00 | $16,625.00 | $15,345.00 |
In this example buying the new and pre-owned vehicle cost roughly the same amount of money. The lease is about $1,000 more than the new vehicle (at the time of writing, buying is incentivized by the manufacturer more than leasing).
Example 3: Volkswagen Jetta
Finally, we’ll look at a 2015 Volkswagen Jetta 1.8T SE in Reflex Silver metallic and an MSRP of $21,625; we compared this with a similarly outfitted CPO 2012 Volkswagen Jetta 2.5L at a local dealership for $14,985.
| Buy New Car | Lease New Car | Buy CPO | |
| MSRP | $21,265.00 | $21,265.00 | $14,985.00 |
| Down payment | $2,500.00 | $2,500.00 | $2,500.00 |
| Monthly payment (inc. tax) | $315.00 | $200.00 | $250.00 |
| Total of payments made | $13,525.00 | $9,500.00 | $11,250.00 |
| Balance due | $7,560.00 | n/a | $6,000.00 |
| Maintenance & repairs | $300.00 | $300.00 | $800.00 |
| Estimated trade-in value | $10,500.00 | n/a | $6,100.00 |
| Equity remaining | $2,940.00 | n/a | $100.00 |
| Lease disposition fee | n/a | $350.00 | n/a |
| Total cost | $10,885.00 | $10,150.00 | $11,950.00 |
Leasing is again the lowest cost option in this example saving $700 over the three year period. Buying the CPO costs a little over $1,000 more than buying the new vehicle and keeping it for three years.
These examples illustrate that the overall costs of buying a new car, leasing a new car, or buying a pre-owned vehicle can be roughly the same. For a similar investment, most people would prefer to have the additional features and fun that come with driving a new car. Your Cartelligent agent can help make sure than you get a below-market price on any new car.
No matter what type of new vehicle you’re considering, Cartelligent can help you get a great deal on exactly what you want. Call our team of car-buying experts at 888-427-4270 or get started today.