A used luxury car is an enticing prospect. Higher rates of depreciation, particularly for very high-end cars, turn many luxury vehicles into what look like serious bargains on the used car market.
If you’ve gone into your used-car search looking at family sedans but realize you could come away with a big, flashy luxury car for not much more money, you’d be crazy to say no.
Hold on there, big spender. There’s more to buying a second-hand luxury car than the purchase price. You might be able to afford to sit in the sweet seats, but keeping yourself in the game could break the bank.
Apples and oranges
We pored over used Canadian Black Book’s (CBB) used retail (what you’d pay at a dealer) values, looking at values for 2003 and 2008 models (10 and five years old, at the time of writing), to find examples of luxury sedans and crossovers whose suggested used prices are surprisingly similar to those for comparably-sized mainstream models.
All used values were accurate at the time of writing, in early 2013, and are used for comparative purposes only. In order to level the playing field somewhat, we’ve pitted base (or close to it) luxury vehicles against loaded-up versions of popular mainstream models of a similar size. Each car is listed along with its used value, followed by its original MSRP, in brackets.
In early 2013, Canadian Black Book’s (CBB) retail resale value for a 2003 Honda Accord EX-V6 was $9,825 (MSRP: $32,500), while a 2003 Audi A6 3.0 Quattro was listed at $9,925 (MSRP: $54,640). Meanwhile, a 2003 Toyota Highlander 4WD-V6 carried a value of $12,225 (MSRP: $36,490), which makes $12,300 for a 2003 Mercedes-Benz ML 320 (MSRP: $49,500) look like a steal.
There’s a greater contrast among 2008 models. CBB says a Toyota Camry XLE-V6 is worth $18,325 (MSRP: $37,525), while a Jaguar S-Type 3.0 carried a value of $21,475 (MSRP: $62,000). Finally, compare a Honda Pilot EX-L to a Mercedes-Benz ML 350: the Honda is worth $23,475 (MSRP: $46,690), to the Benz’s $26,475 (MSRP: $59,900).
What makes used luxury cars depreciate so quickly? One factor is that many luxury car drivers lease their vehicles, which creates a continuous flow of three- and four-year-old models into the used market. There’s a decent amount of demand for less-expensive (and popular) models like the BMW 3 Series and Mercedes-Benz C-Class, but that demand drops off as the cars get larger and more complicated. There’s more to it than that, however. For a more generalized take on the causes and consequences of depreciation, read Jil McIntosh’s article on the subject.
Fix it, or forget it?
Many so-called “premium” cars are pricier to maintain than comparable non-lux models. In part, that’s because better customer service is considered part of the luxury car ownership experience, and that doesn’t come for free. It’s also true that dealers and car manufacturers know many people who drive luxury cars will accept the higher charges, both for parts (including those common between luxury and non-luxury models) and service, as a cost of doing business with an upscale car.
It’s a different ballgame when you move up the chain from entry-level luxury cars (think BMW 3 Series, Audi A4, or a Lexus ES) into larger, high-end models, like the Audi A8 (and competitors such as the BMW 7 Series, Mercedes-Benz S-Class, Jaguar XJ). These cars have starting prices spitting distance from six figures, and those elevated MSRPs bring with them standard and optional features that aren’t found in lesser vehicles.
Air suspension is a good example of a feature that sounds great on paper, but becomes a liability in a used car with little or no warranty coverage remaining. Instead of steel springs and hydraulic or gas-charged shock absorbers, an air suspension uses compressed air to control the car’s ride. This type of suspension generally allows for adjustable ride comfort, ride height, or both.
It’s the complicated nature of these systems that makes them dicey propositions: there’s a central air compressor, air bladders at each wheel, hoses to connect it all together, and electronics to make it work. Mechanical failures like a bad compressor or leaky air bladders are common as the car ages, and repairs are labour-intensive and expensive. When something goes wrong, it generally renders the car undriveable: you either spend the money to fix it, or park the car.
If you’ve decided that you must have a luxury car, the key to keeping ownership costs down is to choose one without all the extras. By doing so, you’ll still get a car that probably drives better than others in your price range, and while you might still get stuck paying more to maintain and repair the basic stuff, you’ll save yourself the pain of pricey repairs to features that aren’t integral to the driving experience – until they break.
There are many factors – your driving record, the vehicle, and where you drive it – that affect what you’ll pay to insure any given car, but it’s a fair (but not universally accurate) assumption that premiums for a luxury car will be higher than those for a more pedestrian vehicle of a comparable size and purpose.
The Insurance Bureau of Canada’s (IBC) “How Cars Measure Up” document compiles average relative Canadian insurance claim costs (collision, comprehensive, theft and direct compensation property damage), for 1999 through 2011 model year vehicles that were insured between 2007 and 2011, based on vehicle type (two-door, four-door, wagon, SUV or pickup truck).
Because these are relative ratings, ICB uses 100 as the average for each claim cost. The difference between that and a vehicle’s rating is the percentage the vehicle’s costs fall above or below the average. The colour-coded columns simplify things: yellow is close to average, green is significantly below, and red means significantly more expensive than the average.
Luxury car insurance costs aren’t always higher, but they more frequently fall above the average for the different vehicle types. This publication is a great tool if insurance costs are a driving factor in your car-buying decision.
Left brain versus right brain
There are two ways to look at the fact that many luxury cars depreciate quickly. Objectively, it’s a sign that buying one is simply asking for trouble; subjectively, it’s a fantastic way to get a much fancier car than you thought you could afford.
Buying that cheap luxury car could get you a lot more car for your dollar, but it also invites a lot of potential trouble. Springing for a used Lexus, BMW or Benz doesn’t have to be a risky decision.
Just shop smart, and don’t let yourself be lured by the fully-loaded models that are almost guaranteed to generate big repair bills.