BMW and Toyota Motor Corp.’s Lexus, struggling with a second annual slide in U.S. luxury-car sales, are trying to retain brand loyalty by pushing used models.
Lexus, Daimler AG’s Mercedes-Benz and Bayerische Motoren Werke AG are encouraging shoppers stung by the recession to save money with refurbished vehicles returned as their leases expire. With margins close to those on new autos, the sales also help prop up dealers’ profits.
“You’re getting a car for 60 cents on the dollar compared to new with only one tenth of its life used up,” said Wayne Youngblood, general manager of Bavarian Motor Village, with BMW stores in Shelby Township and Eastpointe, Michigan. “It’s good business for the customer and for the dealer, and it’s flourishing in these down times.”
U.S. sales of so-called certified pre-owned luxury autos rose 4.7 percent this year through August, bucking a 31 percent drop for new luxury models, according to researcher Autodata Corp. BMW, Lexus and Mercedes certified sales jumped 14 percent.
By supporting those deals, the luxury-auto makers help boost showroom traffic without risking their premium status by resorting to rebates to stimulate new-car sales.
“It’s really worth it, compared to buying new,” said Chuck Wolf, 67, who owns an Atlanta marketing company. “It works great. I’ve told my friends about it. You buy new, and it depreciates right when you drive off the lot.”
Thousands in Savings
Wolf said he bought a certified silver 2007 Mercedes S550 sedan in February, paying $63,000 for a car that had been driven 19,000 miles and that retailed for about $105,000 when new.
Profit margins on certified luxury autos are about the same or only slightly less than the 3 percent average for new models, said James Bell, executive market analyst at Kelley Blue Book, which tracks vehicle values for consumers.
Certified sales totaled 1.7 million in 2008, or about 4.7 percent of the secondhand market, according to data from Carmel, Indiana-based auctioneer Adesa Corp. New-car sales were 13.2 million.
The pre-owned vehicles usually are lease returns inspected and spruced up by dealers, then sold as “certified” with extended warranties. Automakers’ credit units often write the loans, even offering discounted financing, and inventory can be found on the Web, just as with new autos.
“People wouldn’t buy used, but now the economy has changed that,” said Tony Marzullo, a broker at Global Auto Solutions in Atlanta who helped Wolf locate his Mercedes. He said he sees a grass-roots “cocktail party movement” as former new-car buyers decide there is no stigma in pre-owned luxury vehicles.
No More Begging
“A year ago, a dealer would beg me to take a used model,” Marzullo said. “Now it’s the complete opposite. He has one car that’s advertised on the Internet and he won’t bargain on prices because six people have already called on it.”
Euro Motorcars Inc., a Mercedes dealership in Bethesda, Maryland, spends as much as $2,800 to overhaul those autos, which can fetch as much as $4,000 more than other used models, General Manager Charlie Harmel said.
Certified cars make up about two thirds of his 1,100 used autos sold annually, compared with about 2,000 new models. Harmel said he puts them at the front of the lot and in the same showroom as new cars.
“Customers love them,” Harmel said. “And don’t call them used. They will correct you. It’s ‘pre-owned.’”
Lexus Steps Up
Lexus retailers stepped up their certified pre-owned efforts about 18 months ago, pushing sales to a record 6,100 in August, said Chuck Yaeger, who coordinates the transactions at the automaker’s 227 U.S. dealers.
“The goal of the program is to keep customers in the brand,” Yaeger said. “In today’s environment, this is a great alternative to new.”
Lexus’s certified sales rose 16 percent through August, while new-car deliveries fell 30 percent, according to Woodcliff Lake, New Jersey-based Autodata. Yaeger estimated that as many as 65 percent of certified buyers are customers new to Lexus, whose parent Toyota is based in Toyota City, Japan.
Mercedes said it started offering warranties for used vehicles in 1989 and updated the program several times. Lexus followed in 1993. BMW said its certified program began in 1996.
They haven’t had much experience with certified sales in an industry slump. Before U.S. sales began collapsing in 2008, the trio’s last declines were 1996 for Lexus, 1993 for Mercedes and 1991 for BMW, according to Autodata and trade publication Automotive News.
‘Keep a Relationship’
“This is a great way to keep a relationship with more customers,” said Bell, the Kelley Blue Book analyst in Irvine, California. “It’s become a real marketable option.”
Toyota rose 1.6 percent to 3,780 yen yesterday in Tokyo, while BMW fell 74 cents to 34.22 euros and Daimler slid 29 cents to 33.79 euros in Frankfurt. Toyota climbed 32 percent this year before today, outpacing the 18 percent advance in the benchmark Nikkei-225 Stock Average, and gains of 58 percent for BMW and 27 percent for Daimler topped the DAX Index’s 19 percent jump.
BMW, which leads in U.S. certified sales among luxury brands, expects to sell as many as 120,000 of those models this year, said Peter Miles, North American executive vice president of operations for the Munich-based automaker.
As new-car sales crimp 2009 leasing, about 40,000 fewer BMWs will be available for certified sales in three years, said Jim O’Donnell, BMW’s North America chief executive officer. While that may thin the ranks of potential returning buyers, the cars’ coming scarcity should boost resale values, O’Donnell said in an interview at the Frankfurt Motor Show this week.
Through August, BMW certified sales rose 10 percent to 76,482 and new car U.S. sales fell 29 percent, Autodata said.
Strong Months
Daimler’s Mercedes has had three of its strongest months for certified sales this year, in May, April and January. New- vehicle deliveries for the Stuttgart, Germany-based automaker fell 25 percent as CPO sales rose 20 percent.
Certified pre-owned sales also help luxury dealers by curbing the flow of leased autos to vehicle auctions, where they may fetch lower prices and hurt the value of new models, said Mark Webster, who has been manager of Mercedes’s U.S. pre-owned operations in Montvale, New Jersey, for the last three years.
“The dealers understand the emphasis better right now than they did two or three years ago,” Webster said.
That’s making it harder for luxury-car shoppers such as Osama Mikhail, 62, who said he has been hunting all year for a used Mercedes SL600 with an eye toward trading in the 2005 CL- 600 that he bought secondhand in 2006.
Mikhail, a professor of public health at University of Texas School of Public Health in Houston, estimated that there are about half the used luxury cars in inventory at Web sites than two years ago, while demand is greater.
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