MB Residuals Fall

Page 1 of 2  
Automotive News reports this week that MB has fallen from its perennial top ranking in three year residual. Automotive Lease Guide now ranks MB below BMW, Lexus and Acura. ALG's President, Raj Sundaram linked MB's slide to
"its aging product line and to BMW and Lexus' successful product launches. Mercedes' widely publicized quality problems probably were an indirect factor, too."
There you have it, the street speaks!
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
If only M-B would get the message!
I've decided against a new M-B due to the quality issue. A new S430 would be nice to drive but I've better things to do than waste my time having it repaired - warranty or not.
Lexus builds cars that don't break, they apparently work very well, why can't M-B, who charges premium prices for mediocre build quality.
Or is wasting time at some car dealer part of the M-B ownership experience.
Perhaps a bit less marketing and a bit more attention to components' quality is in order.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
Sad.....how the mighty have fallen . I guess the word got out , if you buy a used MD without a warranty better watch out - you're looking for trouble. In years past when you bought a MB , bottom of the line or the most expensive model they make, you could be assured of a quality experience. Those days are long gone now it seems.

top
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

MB , bottom of the line or the most expensive model they make, you could be assured of a quality experience. Those days are long gone now it seems.>
Indeed, it appears the MB mgmt team have reaped what they sowed when they decide to cut costs regardless and rest on the brand's reputation. The penny has come due with a very loud thud! (No more MBs for me, that's for sure!)
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
Perhaps it is easy to draw the wrong conclusion if it helps mkaes one's point.......................
Personally after owning many Mercedes cars (as well as Volvo and BMWs) over the years I am hardly going to let some lease return reports change 20 years of driving and repair experience. What is going on here is primarily a bodystyle and market "image" problem - most 25-45 year olds with the sort of money to buy these cars view MB as "stuffy" and have been turning to the Japanese cars for years . Do you honestly think the average Lexus/BMW buyer actually researches the subtle design and manufacturing differences between a MB, Lexus and a BMW? Most people look at the glossy brochures for months yet only test drive these cars for 10 minutes or so. These sort of resale values based on lease returns are about styling, marketing and a natural after-effect of high volumes of leasing in previous years. BMW knows this well and there is much in the press about their strategy and response with a huge investment in restyling their entire line.
As an example, a friend is in the market for a new sport luxury car - while she will not even look at the W210, she thinks the Mercedes W211 is very cool - essentially the same car with different skin! This is the sort of effect you see in lease residual numbers. Have no doubt that while MB may have delayed a bit too long responding solely to their 40-50 year old market focus groups, they are fixing this.
On the other hand, people do eventually look past styling and recognize the overall quality and driving experience. My daughter (early 20's) steadfastly refuse to buy a Mercedes 2 years ago and instead went for a 3-Series BMW. After 2 years in the BMW, and occasionally driving our 98 E320, she recently replaced the Beemer with an E-Class when she had the chance to buy a new car. Although the E-Class is not quite the "look" she wants, the BMW " is not even close" she said.
You also have to consider the "pipeline effect" at work here: JD Power numbers are the result of many years of reported experience and are based partly upon data from MB models no longer even produced. After owning and maintaining many W124s, a W126 and now W210s, I am not buying this nostalgic "MBs just are not what they used to be". The W210s are considerably better and MB is continuing to improve. What Mercedes has been doing for many years is now in the pipeline and won't be seen in these market reports for many years down the road.
In the meantime I have taken full advantage of the low residual value - it is what got me some sweet deals on 2 very nice E320s this summer. The price drop was real, the quality drop is perceived.
There is more to the article and the market dynamics behind it than meets the eye. http://www.just-auto.com/news_detail.asp?artB693
Have faith people - go with what you know, not what you are told!
Scott D

top
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
Scott D wrote:

That is very well said.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

20 years of driving and repair experience. <
Actually, the ALG residuals simply reflect what's going on in the marketplace. The fact is quite simple, MBs aren't holding their resale value as they used to.

<\
Not exactly. What's happening is that the marketplace no longer accrues to MB the premium it one did. It's mainstream products are no longer seen as cutting edge and the obvious decline in quality over the past ten years.

subtle design and manufacturing differences between a MB, Lexus and a BMW? <
Yes, they do.

marketing and a natural after-effect of high volumes of leasing in previous years. <
It's not based upon lease returns, as the residual on these cars was set at lease inception. ALGs' figures are based upon all trade-in and street resale activity Nationwide. ALG simply collates the information and sets the residuals for NEW cars based upon the real-world data from those which came before.
This is a huge hit for Mercedes Benz and its customers. Lower residuals mean higher lease payments, and lower trade-in values. MB's gotten their comeuppance for ten years of bad cars and has finally taken one on the chin. Will be interesting to see how they respond, because when this happens it take years and several model changes to reverse. In essence, this is where the public gets its voice.

different skin! This is the sort of effect you see in lease residual numbers. <
Not exactly, for you see it's the new 211 which will have a lower residual based upon the former 210's market performance. >

even close" she said.>
3 Series to E Class is not an "apples to apples" comparison.

numbers are the result of many years of reported experience and are based partly upon data from MB models no longer even produced. <
So are ALG numbers, which in essence combine all factors into the bottom line; it represents an "at the end of the day, what's it worth" figure.

buying this nostalgic "MBs just are not what they used to be". The W210s are considerably better and MB is continuing to improve. What Mercedes has been doing for many years is now in the pipeline and won't be seen in these market reports for many years down the road. <
But, because of what they did yesterday, today's cars won;t be worth as much three years from now.

is what got me some sweet deals on 2 very nice E320s this summer. The price drop was real, the quality drop is perceived.>
All JD Power quality studies say the quality drop is far more than just "perceived".
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
Out of curiosity I just checked NADA residual on my current '00 E430 Sport vs. the residual forecast when it was new.
MB Credit calculated the residual in 02/00 at $34,210.40. NADA residual TODAY is $32,675, and there are four more months to go on the lease, so let's be kind and assume it's only going to depreciate another $2,000. That means MBNA will have lost $3,500 at face value, however it could be much more, because the actual value of this car will be set after it is returned to MBNA and auctioned to a dealer. What MBNA will actually be paid for the car (the actual "residual") depends totally upon what a dealer's willing to give for it at that point in time.
(By the way, these are the figures ALG uses to set their estimated residuals. Theirs is NOT an "educated guess".)
This particular car, barring anything unforeseen, will go back in very good condition with low miles, so they might get a small premium for it, but not likely to be $3,500.
MBNA was flying high when this car was sold. They did not "subvene" (subsidies) the lease payment as it was competitive with BMW Lexus, etc. without market support. They set the lease payments on the car based upon a formula that considered its original capitalized cost, the forecast residual 4 years later and a competitive interest rate ("money factor").
What happens now is the car will be worth thousands less than forecast, thus MBNA will likely have "rented" this car to me at a loss. Their forecast cost of the lease was too low. Therefore, the new cars leased based upon these HIGHER costs of depreciation will have higher lease rates, to ensure MBNA a profit. However, MBNA will have to "subvene" the lease if it turns out to be uncompetitive with BMW, Lexus, Jaguar, etc. and they start to lose volume. The only other alternative will be for dealers to discount more heavily, which will cut into their already thin 7% margins...not going to be happy in dealer-land.
This very bad news for MB. If they end up having to subvene it can mean, as many other mfrs have learned, to hold volume they have to sell at a loss, which means the more you sell, the more you lose!
How do I know this stuff? Before I retired I was an executive in the US auto industry. I've always liked MBs because they were solid products, the brand represented a gold standard and they held value so well...oh, well, "'cest La Vie"!
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
"Before I retired I was an executive in the US auto industry."
And you learned to lease your car, not buy it - for all the aforementioned reasons.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
I was actually a service guy, but had to learn the twists & turns of leasing when I ran customer service ops. On high ticket cars, leasing is the only way to go. However, you'll find that the cars with the best resale value should have the lowest lease rates. If not, someone's trying to pull one over on you. At that point one questions the cap cost ("what's in there?") and the money factor (multiply by 24 and you get the interest rate.)
The cap cost is simply the price you're paying for the car and anything else that's been added on (here's where they add in the $1,000 wax treatments, etc.) . You should be able to negotiate all the added on stuff right out of there to get back to just the car, not the crap. The money factor / interest rate should be competitive, this is where they can really hose you. You gotta ask questions!

Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

Depends on what you're objective is. I purchased a '99 S 420 upon lease return in 2001 (actual build date June 1998, placed in service Sept 1998, returned Sept 2001). The car retailed at $85,000, probably sold for something in the high 70s, and with 36,000 miles on it, I purchased it for about $42,000. The few things that needed fixing were done under warranty before the 4 year, 48,000 mile mark. Since then, other than eating tires and brakes, the vehicle seems very reliable. With about 55,000 miles on it, I've enjoyed two years of no payments, and if I keep it, having no monthly lease payments will become cheaper than leasing relatively soon. If you figure that an S 420 or 430 lease is probably around $800 per month (before taxes), and if the street value of my car is about $28,000 today, I've probably just passed break even, and I'm starting to save money. Assuming no major repairs, each day forward saves money. While I'll probably turn over the car, most luxury Mercedes buyers tend to hang onto their cars. If I were to keep this S Class (now has 55,000 miles, so I'm averaging 10,000 miles a year, for another 10 years, which the car could easily do, that will be a savings of over $100,000 in lease payments not made. You can do a lot of repairs to a 155,000 mile car over 10 years for $100,000 in lease payments NOT made.
And you still have the double glazed windows, supportive seating, and quality components of the old W140 class, designed in 1991 when Mercedes spent money on designing world class luxury barges, that never sold. Funny how current designs are headed back to bigger cars again.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

MSRP for a 99 S430 was only about $69,000. Therefore the residual looks pretty good even now. The 16,000 overestimate of MSRP gives a very misleading result.
Bill Ditmire Ditmire Motorworks,Inc. 425 White Horse Pike Absecon,NJ 08201 http://www.ditmire.com 609-641-3392
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
Yes, that sounds about right. I bot a '99 S320 in March of 1998 (they released the '99's early). The car had a sticker of $65,000 and I paid $59,000. So 10 grand more for an S420 sounds about right...maybe even a bit high.

pretty
result.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

bit
'99 S420 MSRP was $73,900 according to MB model overview: http://www.mbusa.com/brand/container.jsp?/starmark/overview/overview_engine.jsp?spec=2&subNav=overview&yearModelCode _S420&class_S&rnav2345678&menu=5_2
h
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
Yeah, and they were discounted 6-7 grand off sticker.

http://www.mbusa.com/brand/container.jsp?/starmark/overview/overview_engine.jsp?spec=2&subNav=overview&yearModelCode _S420&class_S&rnav2345678&menu=5_2
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

pretty
result.
Mine is the 99 S420 with most of the goodies, including integral phone, etc. I think this was pre price drop. Am I wrong? Either way, I think the logic holds up.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
Trust me, they may have put double-glazed glass in it, but they engineered savings into other areas that will cost you an arm and a leg between 50,000 and 100,000 miles. I had FOUR of those cars (all the six cylinder versions, but the same 140 car). And trust me, my neighbor driving the 1990 Lexus LS400 has spent ONLY A FRACTION of what I spent along the way, even with warranties. I'm now driving a new LS430 and looking forward to much less cost and aggravation.

warranty
it,
(before
Assuming
turn
If
10,000
will
Funny
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

I spent along the way, even with warranties. I'm now driving a new LS430 and looking forward to much less cost and aggravation. <
If you worked for a Lexus competitor, as I once did before retiring, the frustrating thing about all the Lexus customer & product data was that at three years in service Lexus LS's on average had fewer faults than did the comparable average Euro luxury car at 90 days. When doing some advanced market requirements research for my company I spent a few days at a major Lexus dealer in South Florida analyzing their resources. I noticed in their waiting area many plaques honoring owners of high mileage Lexus' vehicles, like 150k plus. Now, I know for MB this used to be a given, but to me it put the lie to a lot of talk that the LS's didn't hold up long term. Ain't true
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
Consumer Reports called the first 1990 LS400 the best mass-production vehicle ever made. Over the years later model LS cars have maintained that. I will say that the older LS400 cars were not quite to "S" Class standards. It was more competition against the "E" Class. After the 2001 LS430 debuted, it competes with the "S" Class, albeit just a fraction less leg room in the rear.

what
and
their
put
true
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
What were your expense items? I have the small V-8, but the electronics, hydraulics, and the like, are the same, I believe. I'd be interested in hearing your experiences.

lease
1998,
for
tires
monthly
you
a
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

Related Threads

    Motorsforum.com is a website by car enthusiasts for car enthusiasts. It is not affiliated with any of the car or spare part manufacturers or car dealers discussed here. All logos and trade names are the property of their respective owners.