Used car prices fall for German Luxury brands
Used car prices are up substantially in 2019 as middle income buyers compete for affordable vehicles, driving up used car prices. The one exception is European luxury cars. The used car prices for those vehicles are actually falling (Automotive News, Oct 14, 2019 “As luxury residuals fall, some cite Tesla)
Too many German luxury cars cause used car prices to fall
The supply of 3-yr old premium luxury vehicles has risen by 20% since 2006. That’s a significant increase compared to other used car volumes which have risen by only 2%. Some experts claim the rise in sales of the Tesla brand is accelerating the drop in used car prices of German luxury vehicles Audi, BMW and Mercedes. In fact, the residual or used car value of Audi, BMW and Mercedes have fallen by 6% since 2015 compared with just a 4% drop for other luxury brands. In other works, BMW and Mercedes are not holding their value like other luxury brands according to Edmunds.com.
The fact that more Audi, BMW and Mercedes vehicles are entering the used car market without a corresponding increase in demand for these brands is causing the used car prices for these vehicles to fall. In other words, supply exceeds demand.
Luxury Used car buyers look to Tesla instead
According to KBB Brand Watch, Tesla’s electrified sedans in the $40,000 range are becoming the most considered alternative to the Audi, BMW and Mercedes brands. BMW and Mercedes are the two car makers most likely to lose used car customers to Tesla, with BMW losing the most customers. According to AutoPacific, BMW buyers traded in their vehicles to buy a Tesla 8% of the time while, 5.7 of Mercedes and 2% of Audi owners made the same trade in decision.
The numbers show Tesla dealers take Europen vehicles as trade ins 22.2% of the time, which is more than double the industry average of 10.9% (according to Capital One). Capital One is referring to this phenomenon as “The Tesla Effect.” Perhaps that’s because Tesla’s marketing intentionally targets buyers of luxury German sedans and crossovers. The buying preferences of German car buyers is nearly the same as the buying preferences of Tesla buyers. Those buyers look for performance and technology.
However as other brands offer the same technology and comfort features as the German luxury brands, buyers are proving they’re far less likely to splurge on the Audi, BMW, Mercedes brand.
Tesla isn’t the only reason luxury used car prices are dropping
Jonathon Banks, J.D. Power Vice President of Vehicle Valuations and Analytics believes the fall in luxury used car prices for German luxury cars started falling well before Tesla entered the market. The oversupply of BMW, Mercedes and Audis is due to their high leasing rates, he says.
BMW buyers lease their vehicles 61% of the time, compared with 53% for Mercedes and 49% for Audi (Edmunds.com).
©, 2019 Rick Muscoplat
Posted on by Rick Muscoplat