Luxury For Less - used luxury automobiles - Brief Article - Statistical Data Included

Kiplinger's Personal Finance Magazine,  April, 2001  by Ed Henry

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CARS | As millions of leases end, a BURGEONING SUPPLY of top-end vehicles hits the used-car market.

IT'S CATCH-22 time for automakers. In recent years they've aggressively pushed the idea of leasing, persuading millions of drivers to rent rather than buy. It's a great way to move metal. But now millions of two-to three-year-old vehicles are pouring onto the used-car market. And a combination of used-car prices and new-car-like warranties is making these vehicles tough competition for the new models manufacturers want to sell.

That problem for automakers may be a boon for buyers, particularly those seeking to go upscale. The glut of off-lease cars--about 3.5 million were returned to dealers in 2000, and another 3.3 million will boomerang to the used-car market this year--is driving used-car prices to some of the lowest levels since 1996, according to consumer price index specialists at the Department of Labor. "Right now, dealers are trying to get rid of the cars coming off lease as quickly as they can, and they're losing a ton on every one they sell," says Art Spinella, automotive analyst at CNW Marketing.

For buyers, the glut means a golden opportunity to let someone else pay for the steep depreciation in value that new cars suffer in the first couple of years; a two-year-old vehicle may sell for 30% to 40% less than its original sticker price. Just ask Susan Buckley of Hatfield, Pa.

When Lincoln redesigned the Town Car in 1998, Buckley was smitten. But she couldn't quite swallow the $40,000-plus price tag. So she waited. From 1997 through 1999, Lincoln sold about 275,000 new Town Cars. As many as 65% of those cars were leased, so nearly 180,000 of them have already or will soon hit the market as much cheaper, nearly-new used cars.

Sure enough, when Buckley started looking again last year, two-year-old Town Cars were priced at $15,000 to $20,000 below the original sticker price. In fact, prices were much lower than the leasing companies themselves had expected.

A key component of a lease is the projected residual value of the car--that is, what it's expected to be worth when the lease ends. As Town Cars have returned to market--and leasing companies have gotten a real-world look at what they're worth--residual values on new leases have slipped dramatically. A Lincoln Town Car leased in 1998 was expected to be worth 59% of its original price after two years; a 2001 model is expected to hold just 45% of its value. That's a $6,300 difference on a $45,000 car.

Other luxury cars are following a similar pattern. The projected residual value of a Cadillac Seville is now seven percentage points lower than in 1998; Infiniti Q45s are down nine points; Jaguar XJs are down eight; and Lexus LS 400s are down five points.

These changes reflect overall lower prices in the used-car marketplace and explain how Buckley bought her 1998 Town Car for just over $24,000, about the cost of a new Ford Mustang.

A stay-at-home mom, Buckley began the search for her Lincoln on the Web, checking sites such as www.cars .com and www.lincolnvehicles.com for dealer inventory in her area. "I didn't want a minivan or station wagon," she says, "but with two children I needed a car that would carry the kids' boogie boards on our frequent trips to the shore." That meant a car with a big trunk, and the Town Car's 21 cubic feet of trunk space clearly fit the bill.

Town Cars with 45,000 or more miles were selling for less than $20,000. But Buckley wanted a redesigned 1998 model that had fairly low mileage. "I figured on spending about $26,000 for what I wanted," she says. A salesman at Fred Beans Lincoln Mercury, in Doylestown, Pa., encouraged her to wait for the right off-lease car to come along.

A 1999 model for $28,000 seemed appealing, but the salesman steered her away from it, saying that such a late-model car probably came from a rental fleet and was subjected to hard use. A 1998 model would be more likely to have been gently treated by an individual lessee. Leased cars are typically kept in good condition by drivers, who aim to avoid high wear-and-tear charges. (You can check the ownership history of any used car for $15 to $20 at www.carfax.com.)

After searching for months and visiting nine dealerships, Buckley found her car--a blue, 1998 Town Car with 29,000 miles--for about $21,000 less than its original sticker price.

Low-price luxury. If you're looking for a good used luxury car, you'll find plenty of candidates among two- and three-year-old Cadillacs, Infinitis, Jaguars, Lexuses and Lincolns. They all came with four-year factory warranties, and any remaining coverage transfers to the new owner. Dealers often put off-lease cars through a so-called certification process of rigorous inspection and repairs to return the car to almost-new condition.

Late-model luxury cars rank among the safest vehicles, thanks to sophisticated safety technology such as road-stability and side-impact systems.

If you are looking for a luxury car without the luxury price tag, be sure to check out the following vehicles. The prices here are for two- to three-year-old cars with 41,000 to 52,000 miles on them. The top cars coming off lease typically have fewer miles, which can raise the price by $1,500 to $2,000. Service costs were provided by IntelliChoice, publisher of the Complete Car Cost Guide.