NADA: Luxury segment has the worst depreciation

Spend more for the cutting edge of luxury and style, and you could wind up taking a larger whack than most when it's time to trade in that sled. The National Automobile Dealers Association (NADA) is reporting that premium luxury vehicles actually have the highest annual depreciation rate. The reason for the stone-dropping value is that luxury car buyers tend to want the latest and greatest. The preference for the next big thing leads to owners turning in their current cars faster than people who will drive a Taurus until its wheels fall off. Manufacturers also keep rolling out new versions of their top-tier cars to keep these customers coming back for more, which also takes a bite out of resale value since the next iteration is often right around the corner. Those cars that don't get refreshed as quickly end up with heavier incentives to maintain their sales volume in between refreshenings. In the end, it's a win-win for everybody. Automakers continue to move iron, early adopters beta test the products for the rest of us, and if you're willing to be a little bit behind the curve, you can pick up a three-year-old car for a small potatoes and still feel like you're living large.
Topping the list of annual value-losers is Jaguar's XJ8, which drops 25 percent in just a year. Mercedes-Benz, Audi, Lexus and Volvo also make appearances in NADA's top ten list of dubious distinction. The luxury cars are kept company by such ignominious vehicles as the Suzuki Verona, Hyundai Accent and Kia Rio. Judging from those rankings, it looks like the top and bottom extremes lose their value the fastest. If you're in the market for a Joneses-pleasing marque, this is good news.

[Source: NADA via Winding Road, Photo by Sean Gallup/Getty]

PRESS RELEASE

Premium Luxury Vehicles Show Highest Annual Depreciation Rate According to NADA Market Report

Replacement levels and customer preference for latest models drive depreciation

McLEAN, Va. (March 3, 2008) – NADA Used Car Guide (NADA), the industry standard in used-vehicle valuation and information, reports the premium luxury vehicle segment experienced the highest annual depreciation rate among three-year-old models in 2007, due in large part to consumer preference for the latest new models and high replacement levels.

NADA Official Used Car Guide data, developed by NADA's editorial team and released today, shows premium luxury coupes and sedans held four of the top-10 spots for vehicle depreciation for the year, with a replacement rate of 43 percent on average.

"Luxury vehicle owners consistently demonstrate a strong preference for owning the latest new products in this segment," said Terrence W. Wynne, director of editorial and data services for NADA Used Car Guide. "The changing customer preferences and high manufacturer replacement rate effectively accelerates depreciation of these vehicles, deflating the resale performance of previous models and those competitive models late in their life cycle," he added.

According to the NADA report, the top-10 depreciating three-year old vehicle models in calendar year 2007 were:

Make Model Annual Depreciation
Jaguar XJ8 25%
Mercedes-Benz CL-Class 22%
Kia Rio 22%
Audi A8 21%
Lexus LS 21%
Suzuki Verona 21%
Volvo C70 20%
Hyundai Accent 20%
Audi A4 20%
Audi A6 20%

Wynne noted that the replacement rate directly impacts incentive spending in the luxury segment and compounds the pressure already present on the used-car market based on consumer change in design preference. He said that unreplaced models tend to have the heaviest incentives.