MB Residuals Fall

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!

Reply to
Gerald G. McGeorge
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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.

Reply to
T.G. Lambach

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.

Reply to
Dana

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!)

Reply to
Gerald G. McGeorge

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.

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Have faith people - go with what you know, not what you are told!

Scott D

Reply to
Scott D

..."its aging product line" is pure codswallop and a display of ignorance as to what is actually happening.

DAS

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Reply to
Dori Schmetterling

That is very well said.

Reply to
greek_philosophizer

as to what is actually happening. <

Not sure what the Hell they meant by "aging". The C is only two years on, the E one year. The S is 5 and showing up poorly in recent tests against the competition. SLK & ML are the only really "aging" products I can see, unless you want to toss in the G Wagen" ;-)

This report is more a function of the previous year's cars and how they do at trade in time.

Reply to
Jerry McGeorge

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.

Do you honestly think the average Lexus/BMW buyer actually researches the 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".

Reply to
Jerry McGeorge

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"!

Reply to
Jerry McGeorge

Do you have a link to the story?

Also it should be considered that price can be a function of other things than quality.

Supply can affect price. From what I understand, Mercedes has substantially increased its volume in the USA and so a greater supply for a specific type of used car may well react with a static demand to produce a lower price.

As someone else mentioned, this may be a good thing if you want to purchase a used Mercedes.

It can be a good thing if other people do not want what you want because that leaves more for you!

Gay rights is another category where this logic applies. I have never understood homophobia. It seems to me for every gay guy out there that frees up one more girl for me! Support gay rights!

.
Reply to
greek_philosophizer

substantially increased its volume in the USA and so a greater supply for a specific type of used car may well react with a static demand to produce a lower price. <

True, but in this case there's other factorrs, as all the other brands that increased their residuals (BMW, Lexus, Acura) have pumped up their volumes as well.

purchase a used Mercedes.>

Indeed, thisis VERY good news for used MB buyers, provided they're not shopping MB Starmark, which goes at quite a premium anyway and likely won't relect the reduced residuals for some time...but, you can still dicker!

that leaves more for you! Gay rights is another category where this logic applies. I have never understood homophobia. It seems to me for every gay guy out there that frees up one more girl for me! Support gay rights! <

Now there's a man who understands the big picture has his priorities in line!

Reply to
Jerry McGeorge

"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.

Reply to
T.G. Lambach

Thank you! I appreciate that.

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Reply to
greek_philosophizer

People may not research the fine points, but most people spending money on a top car understand that when an "S" Class or even the E and C cars go out of warranty, it's a finanical time bomb just ticking. Sure, the cars will still run forever, but will cost an arm and leg to get there. Those same people are smart enough...in fact, they DON'T HAVE to be smart any more...just informed enough...to know that Lexus will go forever without the expense and hassles.

Reply to
D.D. Palmer

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Reply to
Scott D

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!

Reply to
Jerry McGeorge

No wonder you are the greek philosophizer. You do have a unique way of looking at things. Probably not too many people have looked at gay rights in this light, yet it is so true !

Reply to
Joe Liu

Geeez. So what? If you like a Lexus, then buy one. They do nothing for me. Until I get my 355 Ferrari Spyder, I'll drive my luxury boat. So far, no problems. But if it needs fixing, I'll get it fixed.

Larry

99 S 420
Reply to
REInvestments

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.

Reply to
REInvestments

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