BMW, Mercedes step up used cars push to combat slump

With fewer and fewer Germans buying new cars, Bayerische Motoren Werke AG, Daimler AG and Volkswagen AG are trying the next-best thing: pushing second-hand models.

Counting on the cachet of their brands, German automakers are stepping up efforts to cash in on the growing used market as new-car demand withers. The push, which includes leasing offers and fast-track loans, helps attract new buyers for models beyond the reach of many consumers, increasing competition for mass-market nameplates.

For used Mercedes-Benz vehicles, “we can make financing decisions in less than 15 minutes and offer very attractive conditions,” said Franz Reiner, head of Daimler’s banking unit. “Used cars offer an entry into the Mercedes-Benz world.”

With new car sales in Germany this year headed toward the lowest level since the country’s reunification in 1990, the second-hand market has become a source of profit. Loans and leasing deals on pre-owned vehicles climbed 10 percent to 8 billion euros ($9 billion) in Germany last year, according to car-lending association AKA. Almost 6.9 million vehicles changed hands in 2012, the highest in a decade and more than double new-car sales.

To tap this market, Volkswagen in April started Leasingboerse, a website that offers company-owned used vehicles. A silver 2012 Golf hatchback with less than 3,000 kilometers was available this week for 152 euros a month with no money upfront on a three-year lease. The equivalent deal on a new model would cost 233 euros.

The automaker aims to increase the number of used-car financing contracts in Europe by 50 percent over the next three to five years, said Lars-Henner Santelmann, head of sales and marketing at VW’s financial services unit.

The used-car push is part of a broader effort by carmakers to lift revenue from sources beyond the volatile business of selling new vehicles. In addition to offering traditional add-on services like insurance, maintenance packages and extended warranties, the carmakers are branching out into new businesses. Daimler’s Car2go offers one-way rentals of two-seat Smart models by the minute, while BMW set up a $100 million venture fund in 2011 to invest in transport-related services.

Even if new-car sales stagnate, spending on transportation, including bus fare and auto rentals, will continue to rise, said Peter Fuss, a senior advisory partner at Ernst & Young in Eschborn, Germany. In any case, the German carmakers are wise to make the shift because “the used car business is more profitable.”

Slumping domestic demand has contributed to Germany’s carmakers underperforming their European peers. Volkswagen has fallen 11 percent this year and BMW is down 8 percent, the two worst performers in the 13-member Euro Stoxx autos and parts index. Daimler’s 9 percent gain trails Fiat SpA’s 40 percent surge and Renault SA’s 33 percent jump.

A far cry from greasy used-car lots, a Mercedes showroom in Frankfurt displays over 100 vehicles it calls Junge Sterne, or Young Stars, in a round glass-paneled two-story building. A walkway designed like a pedestrian crossing leads from the door to the bistro area through two aisles of cars, which come with a two-year guarantee.

Mercedes-Benz Bank aims to “substantially expand” its used-car financing business over the coming years from 75,000 vehicles in 2012, bank chief Reiner said. The expansion includes extended warranties and other services typically offered on new cars.

Used-car sales “pave the way for customers who couldn’t afford a luxury vehicle in the past to switch from a mass-market to a premium brand,” said Erich Ebner von Eschenbach, head of BMW’s financial services division.

BMW puts used cars through a 72-point check before granting them what it calls Premium Selection status. That gives buyers a certified vehicle history, a guarantee that the car will be maintenance-free for 12 months and the chance to exchange it if it doesn’t live up to expectations. Sales of used cars through the company’s dealer network in Germany rose 13 percent over the past five years to 259,000 vehicles in 2012.

A BMW dealer in a Frankfurt suburb this week offered a two-year-old 3-Series with a 116-horsepower diesel engine and less than 20,000 kilometers for 21,950 euros, according to German auto website mobile.de. That’s 790 euros less than a new Mondeo from Ford Motor Co. with a 115-horsepower diesel engine, and 29 percent lower than the price of a new 3-Series with similar features.

More than half of 20- to 30-year-old consumers would rather buy a used luxury car than a new model from a mass-market brand, according to a 2012 Deloitte study.

“Well-preserved used vehicles are the fiercest competitors for new cars,” said Thomas Schiller, an automotive partner at Deloitte in Munich. Certified used cars from the German manufacturers, while costing more than vehicles from private sellers, “give the customer the feeling that he’s not buying a cat in a sack.” 

(Bloomberg)