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Re: Catering to used-car buyers?

At 09:48 AM 12/30/97  -0500, Paul_Royal@idx.com wrote:
>I'm sorry mate.  I think that demand for specific automobiles in a
>competitive market is both linear and elastic.  Let's assume that the
>residual value is either ($Zero) or (50% of original value) or (100% of
>original value).
>This will affect the lease cost because lease costs are based on residual
>value (a company can only support its own perception of itself for so long
>(ie: Q45).

Not so much for the Audi lease - they guaranteed a certain residual value
that is certainly above their historical residual, although it does look
like the car will out-perform it handily.  If it hadn't, Audi would have
eaten a chunk, and that's exactly why I leased.  Your arguments would seem
to indicate that Audi couldn't offer such a lease based on historical data,
and yet they did.  

>Anyone who thinks that consumers aren't swayed by real or perceived value
>need only talk to those of us (me for 1) who got super cheap 5000s after
>the 60 minutes nightmare.

I do believe that you, as a used car purchaser, pay attention to the resale
value of cars that were formerly new.  However, anecdotal experience
amongst my friends (and my spouse, who pays NO attention to that at all)
reinforces my opinion that this is not something that car manufacturers
either do pay attention to or even necessarily should ascribe much
importance to, relative to many other inputs.  Those more important inputs
would include: selling to NEW car buyers, meeting new government
regulations, reducing in-warranty repair costs, increasing place-ratings in
various surveys (none of which seem to even allow input from used-car
purchasers), increasing fuel efficiency, comfort, and performance
simultaneously, and adding the right style and features to win comparitive
reviews.  At the same time, they need to try to maintain some
brand-recognition in the style and niche.  Designing a car to woo used car
buyers isn't even in the top ten, and I doubt resale value is either.  It
may be a small part of some of these, but it isn't a large part.

I guess it all boils down to there being at least three distinct types of
auto consumers:

- Those like you who place a premium on value, and will buy used to acheive
it.  (Or would consider other trade-offs to get the extra value, such as a
low-feature model.)

- Those like me who place a premium on safety and performance, and will pay
a premium to get it, especially for features new to the market or unique to
one marque.

- Those like my spouse and most of the wives of my friends, who want an
emotional bond with a car in a given price range (which does NOT factor in
resale value), and don't pay attention to value beyond certain broad
parameters such as "Can I get a nice stereo and AC for $18000?".  

Of those three, the biggest profits per sale are the bottom two, and
neither of those pays much attention to resale value.  It's mostly
acquisition cost and other issues.

BTW, I certainly don't consider your perspective wrong in any way.  Mine
has only changed because my financial condition improved.  I got my '97
Audi A4Q last year, after driving my previous car, an '87 Ford Escort Pony,
from new till now.  It was less than $4000 brand-new, with no radio, no AC,
etc.  I foolishly had hoped that a new car with a warranty would be more
reliable and less expensive to maintain than an older car, but I bought the
wrong brand for that.  None-the-less, I bought a value-unit, and drove it
for ten years.  But Ford in-general made very little on that loss-leader sale.