• by Karl Greenberg , October 22, 2010

The market for certified pre-owned vehicles was down earlier this year as automakers put their energies into selling new cars as part of their recovery plans. Now the CPO market is booming because the market is tight and there's a renewed focus by automakers. That could be good news if it means more potential brand loyalist consumers.

According to Edmunds.com, the average price paid in the U.S. for a used three-year-old vehicle last month was $18,832 -- up $1,471, or 8.5% from the month last year.

Edmunds.com analyst Joe Spina says sales programs around used cars that have been certified by automakers and come with new car-style warranties and service, not to mention ad campaigns, will keep used-car prices high because CPO cars sell for a higher price than comparable non-certified used cars, "raising the ceiling for the entire used car market."

The firm estimates that about 18.5% of used cars bought at dealerships are CPO, versus 13.8% this time last year.

"The used market, in general, is really strong right now with luxury cars in particular," he says. "It's really cars that are three to five years old. Luxury brands historically have pushed CPOs fairly hard because there is so much leasing in the segment that they need the CPO market to sell cars coming off lease; they need that channel."

Spina says the CPO market has suffered, with Toyota's problems and automakers like Chrysler focusing efforts earlier this year on rebranding, and rebuilding awareness by focusing marketing -- and deals -- almost entirely on new vehicles. But now, he says, sales are brisk and prices are strong. "They know consumers need cars and are buying used and they are refocusing those efforts."

Toyota, which has just announced a big recall, has been doing particularly well in CPO in recent months. "They and Lexus have had record-breaking months for CPO; they are doing extremely well because they are refocusing their efforts internally on that channel. And it's a lot of work to administer CPO because it means personally engaging dealers to make sure they are certifying cars and delivering the CPO experience to the customer. When a dealer just sells a used car that isn't CPO, the automaker has nothing to do with it."

It might seem logical that with each sale of a CPO vehicle an automaker loses a new-car customer. However, Spina says that is not the case. "I think they are capturing consumers who were going to buy used anyway and now happen to be certified." He adds that CPO sales, in fact, bode well for a brand because it starts a relationship with a customer.

And that can't happen with a traditional used-car transaction where -- from the owner's perspective -- the brand is just a badge on the car's chassis. "Manufacturers really see CPO as a stepping stone to getting consumers into a new car," he says. "So they want to make sure they can ensure the customer has the best experience possible through things like manufacturer's warranty."