Luxury Cars No Great Shakes in Value Retention

By Stuart Johnston

Right now,  luxury cars are probably the worst “investment” you can make, when it comes to buying a new set of wheels.

According to Gavin Spiller, an evaluator at well-known auction house Aucor, luxury cars in the high-end of the sedan segment, ranging from performance-orientated Mercedes C-Class and BMW M cars, as well as the RS models from Audi, take a huge drop in value in the first few years after leaving the dealer floor. This applies even more so to Merc S-Class sedans, the similar 7 Series from BMW, and the Audi A8.

Big luxury SUVs are less affected, as there is more demand for these cars on the used market. But still, percentage-wise, these cars too lose a huge amount of value once they leave the showroom floor.

“I have noted that at auction, some of the big luxury sedans only command about 60 per cent of their initial value after a year or two, whereas a basic Corolla, Golf or Ford Focus, as examples hold values close to their dealer price listings.”

Various theories as to why this phenomenon occurs have been put forward. One theory is that new-car dealers “put a huge amount of money on the bonnet” of the new more luxury-orientated cars, SUVs and even double cabs.

“The new-car dealer is often obliged, by the factory or importer, to take a range of dealer stock that can include quite a number of luxury, high-priced models”, says Mike Bruce, a director of Keitzman Auto Exchange, located in the famous “luxury-belt” of used car dealerships on Bram Fischer Drive in Randburg.

Dealer discounts on new cars partly to blame

Bruce, who has had experience as a Dealer Principal at a Nissan dealership, has headed up Lamborghini sales in South Africa when these supercars were still marketed here by Investment Cars, and has had plenty of used retail experience, reckons that right now, with the economy stagnant, dealers are offering huge discounts, as well as very high trade-ins, to move high-priced new stock.

“It is a matter of supply and demand, and right now, the guys with a bit of serious money are not laying out a lot of it on expensive cars. This same applies to the exotic end of the market, which has traditionally been seen as an investment market.

“So, what happens is, with the new cars selling up to R70 000, or even at R100 000 cheaper than their list price, if you factor in high trade-ins, and the money-back offers as broadcast right now on television, this hurts the used market too. Why shell out at a full dealer price for a year-old used M-Class Merc or X5, or whatever, when you can buy one new at the same price?”

This disparity between luxury vehicles that are out of their warranty and maintenance plan periods applies even more. But Bruce’s theory of supply and demand holds true in that more people seem to be keen to buy a used luxury SUV than a used luxury sedan.

This is apparent when browsing AutoTrader’s used car ads, where, say a low-mileage  2012 BMW X5 has typically lost some 50 per cent of its market value, whereas as an equivalent Toyota Corolla still retains some 70 to 80 percent of its new price.

Complexity an issue

There is also a theory that people are wary of buying used expensive cars because of their complexity. Cars laden with electronic options, and running engines with up to eight or even 12 cylinders, are going to more pricey to maintain, should failures occur.

“There is definitely a feeling that the complex cars carry more of a risk”, says Shannon Winterstein,  of WH Auctioneers in Johannesburg. “The thing is, buyers of an S-Class or a 7 Series are prepared to take the knock, and trade up to a new model after just a year or two. These are guys who drive their cars daily, they don’t mothball them and they want that luxury and hi-tech that these cars offer as part of their reward for a high-pressure career.”

Full Service history is very important

“Generally if a car has been maintained by a dealer with all the services, the risk is not so bad,” says Spiller, who adds on a personal note that he would prefer to risk his money on a seven-year-old petrol model before he opted for a diesel equivalent.

List prices, even dating back six or seven years, are also misleading because often the luxury cars offered for sale now are laden with options that cost the equivalent of R200 000 to R300 000 today.

“Approved  franchised used dealers often mark a used car up according to its options fitted, but in my evaluations I tend not to do that, and at auction, fitted options usually count for very little in the prices achieved on a Saturday morning ,”says Spiller.

Bargains are there, as long as buyers are informed

Nevertheless, bargains are there for the taking, and if a car is well-researched, and has been well-maintained with low mileage, it is indeed very tempting to opt for a mint-condition Merc, BMW or Audi, often for new Corolla or base-line Golf money!

“Of course, we offer after-market warranties, which impart a degree of peace of mind,” says Mike Bruce. “One thing I would never do, is buy a used luxury SUV fitted with air suspension as an extra. If these items fail, and they do, you are looking at over R20 000 per corner to fix them That’s R80 000 just to get your car on an even keel again. In fact, on some luxury used model SUVs, aftermarket people are now offering conversions back to conventional “steel” suspension!”