In a tough car market, more Americans are turning toward this Goldilocks option

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Americans bought fewer used cars in May than they did one year before. But the number of certified pre-owned (CPO) car sales rose.

Overall used car sales fell 3.4% compared to last May. But CPO sales rose 5.6%.

The increase comes despite a slow year for CPO sales.

“CPO sales usually experience a significant surge from January to May, with a sharp increase in sales during the spring selling season,” said Chris Frey, senior manager of Economic and Industry Insights at Cox Automotive. “However, this year’s increase has been less dramatic than we usually see.”

Cox Automotive is the parent company of Kelley Blue Book.

About certified pre-owned cars

Most car sales are used car sales. Most years, Americans buy more than twice as many cars used as new. Buying used lets you pay less and avoid much of the depreciation penalty that robs a new vehicle of significant value early in its life.

But a used car can break down and cost significant money to repair. A new car comes with a warranty to help prevent that.

CPO cars are the Goldilocks option between new and used. CPO cars are usually two to six years old, thoroughly inspected by the dealership that sells them, and have a warranty covering repairs if something goes wrong early in the car’s life.

Nearly all manufacturers offer a certification program backed by the factory that builds their cars.

Related: More Americans are snapping up used electric cars

A tough used car market

Warranty or not, the used car market is challenging in 2023. Overall used car sales are down, and prices are up – the average buyer paid more than $27,000 last month.

Our analysts say a short-term drop in used car prices may be coming soon – dealers have been paying less for used cars at auction for several months. A decrease in wholesale prices usually means a drop in retail prices about six to eight weeks later.

But the underlying conditions of the used car market are bad for shoppers and likely to remain that way for several years. Pandemic-related production slowdowns mean manufacturers built 8.1 million fewer cars over the last two years than expected. Those cars will never reach the used car market, keeping prices high.

Also see: In this high-price car market, use these tips to keep the car you have running longer

High interest rates, tight credit standards

“While CPO outperformed total and retail used-vehicle sales in May, CPO sales are most likely muted due to continued high prices, declining credit availability, and high interest rates,” Frey noted. “In fact, CPO loans saw the most tightening in May both month over month and year over year.”

Borrowers with distressed credit increasingly have nowhere to go — subprime and deep subprime loans were nearly a quarter of the market as recently as 2018 but are barely 8% today.

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