Used Luxury cars: Why do they depreciate so quickly

Low resale values that can attract a frustrating property experience

1998-2000 Mercedes-Benz ML320

1998-2000 Mercedes-Benz ML320

We do not want to misunderstand this recommendation. Under normal circumstances we would never recommend an old ML, even our worst enemy. They are very unreliable vehicles and they are likely to suck your bank account dry trying to chase all kinds of gremlins. That said, it is also the cheapest "premium" vehicle that makes a suitable winter beater. Drive it, let things break, crush it, and then forget about it.

A used luxury car is an attractive possibility. Higher depreciation rates, particularly by far high-end cars, turn many luxury vehicles into what seem to be serious bargains in the used car market.

If you have gone on your search for used cars looking at family sedans, but you realize you could go out with a big luxury car, eye-catching for not much more money, that would be crazy to say no.

Right?

Wait a minute, splurge. There is more to buying a second hand luxury car than the purchase price. You may be able to afford to sit on the candy seats, but staying in the game could break the bank.

Apples and oranges

We have studied meticulously used Canadian Black Book (CBB) used for retail (which would pay in a distributor) values, looking at the values of 2003 and 2008 models (10 and 5 years of age, at the time of writing), to find examples of luxury sedans and mixed vehicles whose suggested used prices are surprisingly similar to conventional models of comparable size.

All values used are accurate at the time of writing, at the beginning of 2013, and are used only for purposes of use. In order to level the playing field somewhat, we have faced the base (or near it) luxury vehicles versus the uploaded versions of conventional popular models of a similar size. Each car is on the list along with its used value, followed by its original MSRP state, in parentheses.

At the beginning of 2013, Canadian Black Book (CBB resale value) retail for a 2003 Honda Accord EX-V6 was $9.825 (MSRP: $32,500), while a 2003 Audi A6 3.0 Quattro was included in $9,925 (MSRP: $54640). Meanwhile, a 2003 Toyota Highlander 4WD V6 led to a value of $12.225 (MSRP: $36.490), which makes $12,300 for a Mercedes-Benz ML 320 2003 (MSRP: $49,500) look like a robbery.

There is a greater contrast between the 2008 models. CBB says a Toyota Camry XLE-V6 is a value of $18,325 (MSRP: $37.525), while a Jaguar S-Type 3.0 leads to a value of $21,475 (MSRP: $62,000). Finally, compare a Honda Pilot EX-L to a Mercedes-Benz ML 350: The Honda is a value of $23,475 (MSRP: $46,690), for Benz of $26.475 (MSRP: $59,900).

What makes used luxury cars depreciate so quickly? One factor is that many luxury car drivers rent their vehicles, which creates a continuous flow of three-and four-year-old models in the second-hand market. There is a good deal of demand for the less expensive (and popular) models like the BMW 3 series and Mercedes-Benz C-class, but that demand decreases as the cars become bigger and more complicated. There's more to it than that, though. For a more generalized take on the causes and consequences of the depreciation, read the article by Jil McIntosh on the subject.

Fix it, or forget it?

Many of the so-called "premium" cars are more expensive to maintain than non-lux models. In part, this is due to better customer service being considered part of the luxury car ownership experience, and it does not come for free. It is also true that dealers and car manufacturers know many people driving luxury cars will accept the highest charges, for both parties (including those that are common between luxury and models are not luxury) and service, as a cost of doing business with a luxury car.

It's a different ball game when you move into the luxury entry-level cars chain (think BMW 3 Series, Audi A4, or a Lexus is) on the larger models, high-end, such as the Audi A8 (and competitors like the BMW 7 series, Mercedes-Benz S-class, Jaguar XJ). These cars have the six-figure stone shot prices, and the high MSRP s bring with them the standard and optional features that are not found in smaller vehicles.

Air suspension is a good example of a function that sounds very good on paper, but becomes a liability in a used car with little or no remaining warranty coverage. Instead of steel springs and hydraulic or gas-charged dampers, an air suspension uses compressed air to control the car's suspension. This type of suspension usually allows for comfort adjustable ride, body height, or both.

It is the complicated nature of these systems that make them uncertain propositions: there is a central air compressor, air chambers on each wheel, hoses to connect all together, and the electronics to make it work. Mechanical failures such as a bad compressor or leaky air chambers are common with automobile ageing, and repairs are labor-intensive and costly. When something goes wrong, it usually makes the car undriveable: either you spend the money to fix it, or park your car.

If you have decided that you must have a luxury car, the key to keeping the property costs down is to choose one without all the extras. In doing so, you'll still have a car that probably drives better than others in your price range, and while it is possible that they are still stuck pay more to maintain and repair the basics, you will save the pain of costly repairs to features that are not integral part of the driving experience-until they break.

Insurance costs

There are many factors--your driving record, the vehicle, and where it leads-which affect what you will have to pay to ensure a specific tourism, but it is a reasonable (but not universally accurate) assumption that premiums for a luxury car will be superior to those of a more pedestrian vehicle of a comparable size and purpose.

The Canada Insurance Office of (IBC) "How cars up to par" document compiles the relative costs of Canadian insurance claim (collision, integral, the theft and the direct compensation of the material damages), for the year 1999 until the 2011 year of the vehicles that were insured between 2007 and 2011, based on the type of vehicle (two doors , four doors, car, SUV or van).

Because these are relative notes, BCI uses 100 as the average for each claim cost. The difference between that and the classification of a vehicle is the percentage of vehicle costs falling above or below the average. Columns with color codes simplify things: yellow is close to average, green is significantly below, and means significantly more expensive than the red average.

Luxury car insurance costs are not always higher, but most often fall above the average of different types of vehicles. This publication is a great tool if insurance costs are a determining factor in your car buying decision.

The left brain in front of the brain's right

There are two ways to see the fact that many luxury cars depreciate quickly. Objectively, it is a sign that buying one is simply asking for trouble; Subjectively, it's a fantastic way to get a much more elegant car than you thought you could afford.

Buying this cheap luxury car could get a lot more car for your money, but it also invites a lot of potential problems. Jumping out of a used Lexus, BMW or Benz does not have to be a risky decision.