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He may have been excoriated 10 years ago, but former GM Chairman Roger Smith might today be seen as a visionary for his comment that-for the same price-a typical consumer would rather buy a nice 3-year-old Buick than a new Chevrolet.

The sudden growth in factory-backed certified used-car programs may prove Mr. Smith right.

With the emergence of used-car superstores like CarMax, auto marketers have had to find a differentiating factor to set their dealers' used cars apart from the independent lots down the street.


Enter the certified used car-or "pre-owned," as factories prefer to call it. First established as a sanctuary for scads of vehicles coming off lease, the certified programs have become dealer profit centers.

Refurbished with a 100-plus point inspection, with low mileage, no dings, a fresh set of tires and a beefed-up warranty, these pre-owned cars have attracted buyers with Pontiac budgets but Porsche tastes.

Mercedes-Benz North America and BMW of North America started the wave back in the late '80s, but it seems as though most every manufacturer has one, or is at least testing the concept.

Tom Eastwood, Nissan Motor Corp. USA's VP-Nissan and Infiniti divisions, says the ultimate extention of a certified used-car program is to make mileage and model year perceived as no different an option as leather seats or a CD player.

"We can have new and near-new vehicles lined up right next to each other. Near-new will be like another model line," Mr. Eastwood says.

There are other benefits of the program. By shoring up the value of the used-car fleet by certifying them, the resale values on new cars increase. That means a lower cost of ownership as well as a higher residual value for leases, says Gregg Goolsby, product manager for pre-owned cars for Mercedes-Benz.

For the luxury brands, selling a line of pre-owned vehicles creates a new entry-level product. At Mercedes-Benz, pre-owned cars are priced between $20,000 and $30,000, creating a logical step before the $31,000 base price for a new C230 sedan.

"There's a lot of people aspiring to Mercedes-Benz, but maybe it's a bit out of reach. Pre-owned cars are bringing new people into our brand," Mr. Goolsby says.

Already, Mercedes-Benz dealers are selling 35,000 pre-owned cars annually.

The stereotype of the pre-owned car buyer is a younger person on a limited budget or with luxury tastes but value-oriented thinking.

But Peter Moore, BMW general sales manager for automobile sales, predicts that as boomers retire, they'll also be interested.

"They will jump at these pre-owneds because of the value. Their driving mileage won't be as high as during their working lives, so if the vehicle already has 24,000 miles on it, that will be seen as insignificant, especially with an added protection program," Mr. Moore says.

BMW is even looking at leasing the pre-owned vehicles.


Of course, there's always the worry from a used-car buyer about reliability. Since the dealer is providing the refurbishment, factory representatives may wonder if the dealer is doing a good enough job.

Toyota Motor Sales USA's Lexus division, for example, hires an inspection company to make surprise visits to dealers, and randomly look over four pre-owned vehicles on each lot to make sure they measure up, says Marv Ingram, Lexus' certified pre-owned and fleet manager.

"That's the biggest challenge any manufacturer has-making sure the certification standards are met. It's what the factory sets it at, not what the dealer sets it at," he says.


Mr. Ingram acknowledges the proliferation of certification programs could create clutter among various car marketers. That realization, he says, makes it important for these programs to differentiate themselves.

Part of Lexus' efforts to set itself apart is financing. The division offers interest rates as low as 2.9%, for a 24-month term. Other marketers, such as Infiniti, are also trying laddered interest rates on used vehicles.

There's also some argument as to whether these vehicles cannibalize sales of similarly priced new cars. This concern is especially important for volume brands: for example, would a buyer really cross-shop a new Honda Civic vs. a certified Accord?

Mr. Moore thinks not: "It can get muted and blurred with these late-model cars. But there clearly are people who want something new and crisp, while others want to get the feeling of value."

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