Everyone wants a good deal on their
new car when they buy it. But there
is another opportunity to make money on a car deal: buying a vehicle
with the idea of maximizing its resale
value.
“Resale values are critical at any price
point, entry level to luxury, in both pre-owned vehicles and new vehicles,” says
Fred Palmer, manager of pre-owned
sales at Ganley BMW. “The purchase of a
vehicle is likely to be the second-largest
purchase we make as consumers, and
that purchase should be researched with
that in mind.”
Smart Business asked Palmer for
some tips on maximizing resale value.
Are resale values more important in luxury
cars than in other segments of the car market?
I’ll use actual vehicle examples. To
remain unbiased, I won’t name makes
and models.
One manufacturer’s four-door sedan
entry-level offering has a Manufacturers
Suggested Retail Price (MSRP) of
$11,350, while a competitive model has
an MSRP of $15,605. At first glance,
that’s a substantial difference. But let’s
do a little research, using comparative
ALGs — Automotive Lease Guide’s percentage of MSRP future value, the guideline used by financial institutions for
leasing computation. The ALG residual
value for vehicle No. 1 after 36 months is
28 percent. For vehicle No. 2, it is 45 percent.
You may or may not be considering
leasing, but this data is as important in a
purchase as it is in a lease. What it tells
us is that, if we decide to purchase vehicle No. 2 and trade it in three years, we
enjoy driving the nicer car and will
recover almost all of the purchase price
difference. Traditionally, even if we keep
the vehicle, it will continue to maintain a
much higher value in future years of
ownership. The same theory applies to a
pre-owned purchase. If you’re planning
on making a pre-owned purchase,
research what a vehicle of the same make and model is selling for two or
three years from now. Many luxury vehicles depreciate very little after the first
year.
Is it true that perception of a brand’s quality is one of the most consistent determining
factors of resale values?
Brand quality is a major factor in resale,
but perception is not always reality. Do
some Internet research. Try to talk to a
couple of current owners of the type of
vehicle you are interested in. Use this
information collectively. Just because
one individual had a problem with a particular model does not mean every one
produced has the same problem.
What are some key factors in resale value?
Body style? Color?
Anything that affects the marketability
of a vehicle affects its resale.
Any deviation from a consumer’s perception of ‘normal’ reduces the size of
the market for any given vehicle. For
example, we would assume a conservative family sedan would be equipped
with an automatic transmission; a manual transmission would greatly reduce the market for this vehicle. You may like the
almost-never-ordered color because it is
different, but when it comes to resale
you are risking dollars.
Which does better: a model with few
options or those with all the available
amenities?
One of the worst pieces of advice the
‘How To Buy A Car’ articles give to the
consumer is to buy the base model with
as few options as possible. The reason
seems to be the idea that the more
options, the more profit for the dealer.
I am not saying you have to ‘check all
the boxes’ in the options list, but be
practical and remember certain options
are expected to be on specific groups of
vehicles. For example, a luxury vehicle
in the Cleveland area that originally was
available with heated seats is expected
to have them. Heated seats would add
little or no value in the South, but up
here the lack of even this one option will
reduce the vehicle’s value.
Lack of power windows, power seats
and alloy wheels in a near-luxury vehicle
will make it much less desirable, reducing the number of people who would
consider purchasing it, thus lowering its
resale value.
Any other advice you could offer to retain as
much of a vehicles value as possible?
Once you have decided on your next
vehicle, new or pre-owned, keep it well
maintained, both mechanically and cosmetically. Transferable manufacturer’s
extended warranties help keep your
vehicle in good repair and add value to
the next owner.
Remember, one day you will have to
‘market’ that vehicle to someone.
Whether that someone is a dealer or a
private buyer, its condition is critical in
the return on you investment.
FRED PALMER is manager of pre-owned sales at Ganley BMW
in Middleburg Heights. Reach him at (440) 845-9333 or
[email protected].
