The biggest disadvantage there is to buying a brand new car is its drop in value the moment you drive it off the lot. Depreciation, or the degree to which a car loses its value over the years, is pegged at about 20 percent in the first year of ownership itself! By the end of a five-year-long ownership period, that number can be as high as 50-60 percent!
But not all cars depreciate the same. Pickups, SUVs and commuter cars, like the Toyota Camry, seem to hold their values better, compared to luxury cars, especially those wearing the BMW badge. That’s largely because with the higher price of a luxury car, there’s just more at stake – even more when the luxury car happens to be German. Which is why you can find a 2019 Toyota Camry for about the same price as a 2016 BMW 7 Series with similar mileage.
When new, the BMW cost up to three times more than the Toyota, and in just a few short years, both hold similar residual values! So why is it that luxury cars, and German ones in particular, seem to depreciate so much quicker than anything else?
Luxury Cars Depreciate Faster And Harder
One of the first rules of figuring out how bad your new car will be hit by depreciation comes down to good ol’ supply and demand. Sure, more Toyota Camrys get moved everyday than BMW 7 Series units, but more BMW owners are likely to upgrade after three years of ownership making the market oversaturated.
A Toyota owner is probably going to hold onto his car for longer than that. Edmunds shows just under 900 Camrys for sale that are newer than 2017, and only 34 7 Series by that same filter. But remember, Toyota sold nearly 42 times as many Camrys at a total of nearly 400,000 just in 2017 alone!
There’s also way more demand for commuter cars that give great economy, over a luxury car that typically packs a larger engine, more horsepower, and as a result, poorer fuel economy. That aside, there’s also the question of all the expensive technology that goes into luxury cars that poses a potential issue for second owners, further driving the price down.
The reputation that a manufacturer has also plays a big role here. Some brands just cost more to maintain and repair, which is why a Korean/Japanese luxury sedan of similar value to a German luxury car when new, will hold its value slightly better in the used market. On all lists of the worst depreciating cars, the BMW 7 Series leads the way. In fact, the top depreciating cars are usually German, with only older model years of the electric Nissan Leaf giving them competition.
Repairing German Cars Is Usually More Expensive
One of the reasons why Japanese imports got so popular in the first place is that they offered lower maintenance and repair costs, along with better reliability to begin with. Over the years that reputation has only grown stronger. And not without good reason.
Maintenance costs on a German car are typically higher than on an equivalent American, Korean or Japanese car. Most German manufacturers claim longer service intervals, often up to 10,000 miles compared to anywhere between 3-7,000 miles on a Toyota. But the price of consumables for those services is higher too, offsetting any cost advantage to the owner.
The probability of a used German luxury car requiring a major repair during its ownership is also significantly higher. That coupled with the fact that major repairs can cost much more than any non-luxury car segment repair job makes owning a used German luxury car a dicey prospect. That’s just the price one has to pay for the extra brand value, comfort and technology these high-end cars bring to the table.
German Luxury Cars Tend To Be Leased The Most
There are two sides to the leasing aspect on German luxury cars. The first is that it leads to an abundance of used BMWs when the original lease runs out and the car is returned. Most luxury car buyers can afford to upgrade every 3-4 years, which means there’s a lot more used cars out there than buyers. These cars can sit on dealer lots, driving the price down even for individual sellers. Overall, prices on these used luxury cars have to stay low to attract buyers, despite the reputation for expensive repairs and maintenance.
On the flip side, new leases on brand, spanking new German luxury cars tend to be relatively inexpensive when compared to leases on used cars, or even new, more reliable commuter cars. For a lot of buyers, leasing a big-name brand car for a few years just makes more sense than leasing used. This further drives the price down on these used cars just to give them a fighting chance. So if you’re in the market for used car, maybe it’s worth giving that Toyota a second thought over a BMW.