Why do 10 year-old luxury cars lose so much value?

Question

I'm looking at Kelly Blue Book values for top business class sedans and they depreciate like crazy.

For example:

BMW 7 2010 : $82,000 - $137,000

BMW 7 2001 : $11,500 - $15,050

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Merc S 2010 : $91,600 - $149,700

Merc S 2001 : $11,950 - $17,000

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Audi A8 2010 : $74,550 - $78,400

Audi A8 2001 : $7,725 - $9,275

I can think of a few reasons for that but it still doesn't make sense to me:

• Parts and repair costs for 2001 model is probably just as expensive as for 2010.

But how much you can spend in repairs, 10k, 20k in worst case scenario? That looks bad, but you already saved more than 50k. I don't know what could cost over 20k in repairs even on such car unless it is totaled. Besides if you don't want to make expensive repairs you can just send it to a scrapyard - all you lost is your 10k. That's the same amount you would instantly lose on 2010 model after it leaves the dealership.

• No warranty

What's the point in warranty if you will lose over 50k in 10 years just because of depreciation? Might as well spend those on actual repairs (if you are unlucky).

• Outdated technology

I think such 2001 model is still much more advanced than current Honda. Not to mention saloon and overall quality.

I don't know, it looks like a steal to me. For 10k you can get 5 y.o. Civic. I can't believe it is better than 10 y.o. German top sedan. Lets add 20k for repair expenses. I still don't think you would be able to find better brand new car even for 30k.

Can someone explain to me why those cars lose their value so drastically and why people don't want to buy them? Is 5 y.o. Civic really better?

Answer 1

1. They are overpriced to begin with. One reason is the fact that they are luxury cars. A second, related reason, is that they tend to push the technology envelope.

2. All cars depreciate drastically the minute they are driven off the lot. This a good argument for buying a car that is 1-2 years old. The higher you are, the more you can fall.

3. Repairs and maintenance are typically still expensive on these cars, due to relative rarity and the lack of necessary expertise. Here is where that advanced technology bites you. This is a reason that a 5 year old Civic may be worth more than than a 10 year old Benz. It may simply not be worth the hassle of maintaining/repairing a luxury car. This is especially true for an aging luxury car. There are some people that only buy domestic, precisely because of the maintenance costs. Also, a 10 year old car is still a 10 year old car, regardless of the make. (There are a few notable exceptions, like the NSX.)

4. Hondas and Toyotas have a great reputation for reliability and (long-term) total cost of ownership.

"Better" is a subjective issue, that depends on a variety of variables. A Civic is certainly not better in terms of technology, comfort, etc. But, it is likely better in terms of maintenance, reliability, etc. Which "better" you focus on, is up to you.

Answer 2

Few people actually buy BMW's. Most are leased, because if you're the type of person who wants to drive a BMW, you're going want a new one regularly.

Here's the lifecycle of a BMW or other luxury car:

• Initial owner leases it for 2-3 years.
• Initial owner turns it in, the dealer "certifies" it and sells it at a premium price. (This step is here to keep the residual value high and lease payments low over time)
• Next owner keeps it around two years. Remember, you're buying a BMW at a dealer, you're paying for the mystique of the luxury vehicle, but can't afford the "real" (aka new) thing.
• Now it lands in the auction and probably changes hands a couple of times in years 5-10.

By the time you hit ten years, you have a rapidly depreciating asset because the average Joe doesn't really want an old BMW and hassles that come with it or any luxury car.

That said, there are great bargains in this space. I used to buy 5-6 year old Cadillacs when they weren't cool for like $7-9k, and resell them a year later for about $1,500 less that I bought them for. (lower TCO than a Civic) You need to have patience though, because maintenance is always an expensive pain in the rear with luxury cars.

Answer 3

+1 They are over priced to begin with -

More specifically they are expensive to create exclusivity, which raises their value to people who value that kind of thing.

Perhaps folks who buy those cars aren't buying them for value or quality or performance, but are buying them for the badge and the intangible factors. I frequently hear about rich people who earned their millions driving around in cars Consumer Reports rank highly, so it isn't because they are so much better than a mid priced car.

A car for $140,000 is either equipped for the A-Team or is a status symbol. The status symbol notion is very expensive, but fades very quickly, hence the mighty depreciation.

Answer 4

There is usually a bunch of reasons for this, some psychological and some entirely practical. Let's start with the latter:

• These are expensive cars not only to buy, but also to run - consumables like tires, spares, servicing is all rather expensive. Just because the car is worth less doesn't mean you get to pay less when you're getting it serviced. Oh, and they're expensive to insure because they're expensive to repair if they get bent.
• They're complex, so you just can't take them to a backstreet mechanic unless said mechanic happens to specialise in them. Yes, basic work can be done my most mechanics but a lot of the other work requires specialist tools and specialist diagnostics.
• These cars are often status symbols driven by people who need to show they're "successful". As such, driving something that's a few years old probably conveys the wrong message and thus, these cars tend to get replaced on a regular basis.

If I wanted an older luxobarge, I'd buy something from the early to mid 1990s in good condition. These cars tend to be a little less complex and thus a little easier to repair, plus you can find them for prices that makes them to 'disposable'.

Answer 5

I think this can be answered by answering the question "Who buys 10 year old cars?". Generally speaking those buyers are very price conscious. They are looking to save money on transportation rather than following the herd of people participating in the car payments merry-go-round.

The cost of parts, repairs, and gasoline for those cars do not go down over time. Remember that many of those cars require the use of premium gasoline. This drastically reduces demand for those vehicles, thus lowers the price.

Luckily I have a really good and reasonable mechanic near me, and I can float repairs and the higher gas. I love driving my 1999 Mercedes and it is one of the least expensive cars that I have owned while also being one of the most comfortable.

Answer 6

Personally, I buy newer luxury cars for two reasons.

1) Status symbol

Newer cars have the latest looks, performance, and features like heated side mirrors and sensors that adjust cruse control speed when in heavy traffic etc.

2) Older cars have more wear and tear.

No one has spent any significant amount of time in the car before and therefore you know the history of what the car has been through, like buying a new pair of pants. You know that no one has pissed in them ;).

After I have pissed in and tore up my now older luxury car, I sell it off and get a new one. Cars wear out and as they get older, they need parts replaced. My brother's Mazda, for example, just blew the head gasket after buying the car new and driving 130k miles over a four year period. Part of the luxury for owning a new car is the luxury of time, not having your car spend any significant amount of time in a garage being worked on, unless you buy a Land Rover of course ;).

Answer 7

They start at a higher price and repairs are more expensive than with a standard car. From my experience, many luxury cars get too expensive to keep after about 10 years due to increased maintenance costs.

Answer 8

The answer is very simple. Part of the luxury is having the cutting edge technology with the very latest features. The price premium is not just from increased build quality; it's simply a perception.

Additionally, 10 years takes its toll on a car. The smooth suspension gets rougher over time, and all the little features start to break down. Part of the price of that car factors in the expense of expected repairs. That's true of every car, but the repairs are more expensive when there are lots of gadgets to break down, especially on imports.

Answer 9

I believe one of the main reasons cars -- luxury or otherwise -- depreciate so quickly is that many auto accidents can cause serious engine/frame damage but are easily cosmetically repaired. If you smash up the car but get the body fixed, and you don't go through insurance, it will be indistinguishable from the same car that hasn't been in a crash.