What You Need to Know About Luxury Vehicles and Resale Values

When it comes to money, the saying goes, those who have it have the hardest time parting with it.

To that end, resale values may be more important in luxury cars than in any other segment of the car market. And today, wealthy buyers looking for luxury are buying more than just cars — they're looking at trucks and, especially, sport utility vehicles.

Cars.com Top 10: Best Residual Values for 2005 Luxury Vehicles
The 10 best expected residual values for 2005 luxury vehicles (excluding ultraluxury models) are listed below (assuming three years of ownership). Percentages are based on the vehicle's initial value. In cases where more than one residual value exists because of trim differences, the highest value is shown.
Vehicle NameResidual ValueList Price
Mercedes-Benz CLK-Class  65%$45,250 - $80,850
BMW 330  62%$35,700 - $44,600
Mercedes-Benz E-Class  62%$48,500 - $79,500
Volvo XC90  62%$34,840 - $45,395
Infiniti G35  61%$30,450 - $33,000
Land Rover LR3  61%$44,330 - $49,330
Mercedes-Benz SL-Class  61%$89,900 - $179,000
Acura MDX  60%$36,700
Lexus ES 330  60%$31,975
Lexus GX 470  60%$45,775

Source: ALG

As in other vehicle segments, the perceived quality of the brand makes the biggest difference in resale values. But because such a diverse group of models exists in the luxury segment, the body style is also a big factor. The vehicle with the best residual value, the Mercedes-Benz CLK320 convertible, does very well, holding as much as 65 percent of its value after three years.

Others that hold their value best overall, by far, are curvaceous sporty convertibles and coupes, such as the BMW 330 and Infiniti G35, from established luxury automakers.

Volvo's XC90 luxury SUV is expected to be worth up to 62 percent of its original value three years from now.

On a broader scale, luxury "crossover" SUVs consistently retain much of their purchase price because they're in short supply on the used-car market today, whereas truck-based SUVs do poorly because there currently is a glut of these used models and manufacturers are offering big discounts on new ones. Aging models, brands with questionable quality reputations, unconvincing luxury knockoffs of ubiquitous sedans and SUVs, and unproven luxury vehicles from more plebian brands, such as Volkswagen's Phaeton, also tend to have weak showings. Even across this wide selection of vehicle types, a few truths consistently apply:

  • Public perception of the quality of a brand is one of the most consistent determining factors of resale values, though it's not always related to the brand's actual quality ratings. One good example of this is Jaguar, which suffered a reputation of poor reliability for decades. Consequently, the resale values of the manufacturer's cars have still not recovered, though their actual reliability ratings are near the top of current quality surveys.

  • Models with fewer options generally fare better than those with all the available amenities. Features such as all-wheel drive may add some value in the used-car market, but it doesn't recoup its original cost.

Navigation systems can run into the thousands of dollars, but they may not be worth nearly that much when it comes time to sell.

  • The same is true for high-tech options such as navigation systems, laser-guided cruise control and built-in cell phones. Used-car buyers aren't looking for cutting-edge technology, and by the time your car is three years old, better and cheaper systems will make old technology look obsolete and sap resale value.

  • Functional features such as third-row seats in SUVs, power windows and automatic transmissions enhance a vehicle's resale value. Not having certain features that are expected in a luxury vehicle, such as leather upholstery, basic cruise control and a moonroof, hurt resale value.

  • Vehicles with big sales incentives tend to have lower resale values because cheaper new vehicles mean used-car buyers have less incentive not to buy new.

  • The laws of supply and demand are reflected in resale-value statistics, says Matt Walker, manager of operations and marketing for ALG, with luxury cars starting at less than $40,000 and those costing more than $80,000 faring better than mainstream luxury models in between. An exception is Mercedes-Benz's midsize E-Class; its solid, long-standing reputation trumps the entry-level C-Class and high-dollar S-Class sedans.
Resale values matter whether you're leasing or buying, and whether you're financing or paying cash. In any case, the more you can get for a vehicle when you're ready to sell, the less it will cost you in the long run. If you pay cash, as many luxury-vehicle buyers do, you'll recoup more money when you sell the car if it has a higher resale value. If you lease, as many buyers in the entry-luxury segment do, your payments will be lower if you choose a model with a higher resale value because the estimated resale value of the car is subtracted from the purchase price to calculate lease payments.

ALG calculates residual values by tracking wholesale vehicle values, mileage and options at 97 percent of used-vehicle auctions across the United States. When certain models are redesigned, ALG adjusts its estimates.

A few ultraluxury cars, such as the Bentley Continental GT, Maserati Quattroporte and Rolls-Royce Phantom, aren't tracked by ALG because they sell in such low volumes. Surprisingly, they show up in the middle of the pack in residual values because the specialty finance companies that lease these cars estimate values conservatively in the range of 45 percent to 55 percent. But many of these models will perform better than those forecasts, says Keith Martin, editor and publisher of Sports Car Market, which tracks values of classic and exotic cars. According to Mitchell Katz at Premier Financial in Woodbury, Conn., some of these cars can be sold for a profit at the end of the lease term.