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 firstname.lastname@example.org.