Luxury cars have been around for more than eighty years now, and these vehicles have been considered the most prized possession for people of all classes. With the emergence of new players in the luxury car manufacturing sector, the competition to produce the best vehicle has increased manifold. Consequently, the market is now full of more affordable four-wheelers that promise high performance and provide the best features one can imagine.
The Indian luxury car market may have witnessed a slump due to the Covid-19 pandemic, but the demand for luxury cars is rising both in the new and pre-owned luxury car segment. Car enthusiasts in Tier II and Tier III cities in India are also not shying away from experimenting, which has considerably increased the demand for used luxury cars in India.
Buyers generally focus on luxury cars that have a higher resale value in the long run. Although, this opinion might be divided as many buyers prefer luxury, and some focus only on high performance. In this blog, we analyze the resale value of some of the most popular luxury car brands in the market and the cause-and-effect relationship among various determining factors.
Why do luxury cars depreciate their value so fast?
Luxury cars are expensive, and there is no second thought about it. The reason for these machines is the amount of research and development that goes into making them. These vehicles are a perfect blend between unmatched comfort and incredible performance. Luxury carmakers ensure that the product they are offering is the best globally and set new standards with every launch. The rapid technological advancement means that luxury carmakers can now produce better vehicles in a much shorter period.
Depreciation of luxury cars is very high because of the cumulative effect of all the factors at play. Since these cars are created through careful and thorough research and engineering, a slight improvement can make the older models obsolete in no time. It is only the tip of the iceberg. The various factors that are responsible for high depreciation rates in luxury cars are:
- Technological Upgrades: As discussed, a slight change or improvement in the vehicle’s technology, be it a mechanical improvement or an additional feature, can drastically slash the value of the older models. As time progresses, companies look to offer better products to drive sales. This acts as a catalyst to the market that already has a high rollover of vehicles. It also makes space for the used luxury car market where more units are introduced more frequently. Also, since 2015, luxury car makers have started rolling out new vehicles more frequently as they have reduced research and development time again with the help of technology.
- Government Policies: Government policies on taxation and import duties play an essential role in the resale value of big luxury car brands. Higher taxation and import duties mean that sometimes customers have to shell out nearly 25 to 30% extra money of the actual cost of the vehicle, which is automatically negated when it is sold to the second user. Recently, as the Indian Government relaxed the GST on automobiles, there is still a large difference between India’s actual value and the resale value of luxury cars.
- Insurance and warranty: Luxury car dealers are marketing their vehicles with attractive extended insurance and warranty offers for their customers. Vehicles with lapsed insurance and warranty automatically lose value since the buyer will have to go through the whole renewal process again. Although, buying vehicles outside the insurance period is preferable as the vehicle’s value determines the insurance cost. When selling the vehicle outside the warranty period, the seller might not get a good resale value.
- Car usage history: The car usage history is a significant determining factor of depreciation. A luxury car that has been owned for 3 to 5 years is considered ideal for resale. The mileage on the odometer also suggests the type and frequency of travel. Although, a high mileage car doesn’t need to be unfit and vice versa. Also, the service history matters in a majority of the cases. A regularly serviced and well-maintained car will automatically draw more value than a poorly maintained one in the used car market.
Why do people still prefer to buy used luxury cars despite low resale value?
As the demand for luxury cars is increasing every year, several new car enthusiasts are willing to shell out money for the experience of riding in a luxury car. First-time buyers coming from Tier II or Tier-II cities in India who taste comfort and luxury are still cautiously moving towards committing to buying a brand new luxury car. Moreover, as luxury car makers are rolling out new units at regular intervals, units used for 3 to 5 years are becoming more easily available for the pre-owned luxury car market.
Undoubtedly, used luxury cars have low resale value, but there is a striking difference between the depreciation of new vehicles and second-hand luxury cars. Notably, a brand new luxury car’s depreciation follows a curve. As soon as a brand new luxury car is bought, its value decreases almost immediately by 10 to 12%. Gradually, after 3 years of usage, the value further decreases by 30%. Finally, after 5 years of usage, the final resale value of a brand new luxury car falls around 40 to 45% of the original value.
On the other hand, the second-hand luxury car depreciates more linearly, and the depreciation is low as usage time increases. For instance, a second-hand luxury car would depreciate by 5 to 10% annually until the depreciation diminishes. Thus, despite having low resale value, people are willing to buy used luxury cars because the difference between the original purchase price of the car and resale value is quite less than when the vehicle changes hands for the first time.
Luxury car brands that have high resale value in the market
The luxury car market has all types of vehicles for different needs and requirements of the customers. While luxury car manufacturers try to create the best possible ride for their clients, few brands stand out in durability, performance, and comfort. These are the brands that top some of the most popular vehicles worldwide and the most reliable ones!
- Lexus: With an average 5-year resale value of 56.55%, Lexus tops the list of the brand that has the highest resale value globally. Lexus is the luxury division of Toyota, and the Japanese carmaker has managed to surprise its German and Italian counterparts time and again. The durability and robustness of Lexus cars make them the number one brand with the highest resale value globally.
- Tesla: Normally, electric cars lose value immediately because of the rapid upgrades and developments occurring in this field. On the other hand, Tesla has managed to retain its value for Model S and Model X for a 5 year ownership period. You can buy a second-hand Tesla at 53.52% of the original value after 5 years of ownership.
- Cadillac: The Cadillac Escalade is a luxury vehicle that managed to retain a whopping 51% of its original value for a 5 year ownership period. This brand makes this list because it outperforms other luxury car brands by a fair margin when talking about a 3 year ownership period, wherein the brand can retain up to 70% of its original value.
- Audi: The German giant has been performing consistently in the best-selling luxury car segment in the brand new and used luxury cars On average, Audi has managed to retain 50.67% of its original value for a 5 year ownership period. The R8 is the only sports car in the segment that surprisingly has a high resale value due to the exclusive formula racing rights for this vehicle that Audi has acquired.
- BMW: This German automaker is one of the most popular brands in the Indian luxury car market. The average value for select models, such as the 5 series and 3 series, remains at 47% of the original value. BMW cars undoubtedly lose value as soon as they are bought new, but their popularity makes them one of the most resold cars in India.
Luxury car brands that have less resale value in the market
While there are luxury car brands that outrun the competition by high margins, others produce vehicles that have not much useful life left in them after owning for 5 years. It should be noted that different models of the same brand can perform differently depending upon the utility that each vehicle has to offer. Very high-performance vehicles generally lose value very quickly, but that doesn’t make them bad or unpopular. Here we try to analyze the brands that have the least resale value in the market.
- Land Rover: Land Rover has been known for its luxury and high-performance AWD vehicles, but it is also infamous for losing a lot of value for a 5 year ownership period. The average Land Rover resale value can be as low as 43.64%, along with high maintenance cost and ownership cost in the long run. The Range Rover Sport is still a better SUV in terms of depreciation and luxury.
- Jaguar: Jaguar luxury cars might have the best looks and the heftiest engines under the hood, but their value decreases steeply when used for long. The main reason can be the high import duties and taxes and the limited availability of spares and service centers to cater to the owners’ needs. A Jaguar retains only 44.33% of its original value after 5 years of ownership.
- Volvo: Volvo cars are very reliable and safe; that’s why owners tend to stick to them for a long time. Moreover, Volvo has recently started upgrading its tech more frequently, which results in high depreciation over a 5 year ownership period. You can expect a second-hand Volvo to be valued at around 45% of its original cost.
- INFINITI: INFINITI is the luxury division of the Japanese automaker Nissan that rolled out their first commercial luxury vehicles in 1989. INFINITI luxury cars are known to depreciate early on, but the curve flattens as time progresses. The average resale value of an INFINITI car would lie around 46% for a 5 year ownership period.
- Mercedes Benz: Mercedes Benz is known to make some of the world’s most stylish and comfortable luxury cars. The resale of Mercedes Benz cars depends on the popularity of the model you’re looking for. Models that do not appeal to the masses lose their value steeply, while models that create an impact lose their value linearly. For an ownership period of 5 years, a Mercedes will retain 46.6% of its original value.
Does low resale value mean low maintenance cost of the car?
The resale value of a luxury car is determined by several factors that have been discussed in the above section. There is generally an inverse relationship between the resale value and maintenance cost of the car. A more than 5 years old car would have a lesser resale value and higher maintenance cost. There can be divided opinions on this statement too.
Also, read about the reliability and maintenance guide for top luxury car brands.
In general practice, luxury car experts believe that you should consider the resale value of a car and maintenance cost separately. Then one should determine the relationship between the two. That is to say, while the resale value of a brand new car is lost considerably over 3 years, that does not necessarily mean that the maintenance costs would be high. The car would still be well within the warranty period, which would automatically reduce the overall maintenance cost.
Similarly, you can easily interpret usage history and patterns from the condition of the car. A year-old luxury car might be up for sale for up to 70% of its original value, but that would not necessarily mean that the car was well maintained or well used. Performance testing, over-speeding, accidents, etc., can be common reasons a car would be put up for sale so early in its lifespan.
Today’s used luxury car market is full of organized players that conduct rigorous inspections on the used luxury cars before putting them up for sale. The buyers get the best vehicles, while the sellers get the best value for their rides. Buying a pre-owned luxury car has become easier than ever in recent times, but we still recommend conducting thorough research before buying the ride of your dreams. Stay tuned to our website for more informative pieces on luxury cars in the coming week.