What Can Luxury-Car Buyers Expect to Spend?

If you are thinking about buying a new or used luxury car in the coming months, you may be in for a surprise when it comes to the price. Brand new luxury cars are trending cheaper thanks to increased incentives, while prices of used cars from luxury brands are rising. The result is that the gap between new and used luxury-car prices is smaller than in recent years, so choosing a luxury car should be done even more carefully.

The role reversal of prices of luxury cars is occurring for two reasons. For new cars, luxury automakers are competing heavily for a smaller group of car buyers who can afford a new luxury car and the car loan that goes along with it. As a result, automakers have turned up the heat on incentives. For used cars, the group of interested buyers is much larger, while the number of used luxury cars available is much smaller, thus increasing demand and prices. What luxury-car shoppers will experience depends largely on the brands they are considering.

In terms of new cars, BMW, Lexus and Mercedes-Benz are neck and neck for the top spot in car sales, so they are rolling out the deals. These incentives and those of other car brands are occurring now and are expected to continue through the rest of the 2012 calendar year.

Incentives from Lexus have seen the biggest jump of all the luxury-car brands from last year. This is partially because last year's supply was lower due to production issues from the Japan tsunami and because several Lexus models are nearing the end of their cycle. In particular, redesigned versions of both the RX and ES models have just started arriving in dealerships, so last year's models have increased incentives. Since sales of Mercedes-Benz and BMW cars are the strongest currently, incentives are lower than Lexus but still higher than last year as the two brands battle for the top sales spot. Audi and Volvo are trying to increase their sales, so they also are boosting discounts to get buyers in the door. Volvo has taken the unique approach of covering the first two months of payments in its Summer Payment Vacation promotion.

Shoppers interested in a used luxury car likely will experience price increases for most brands since the used luxury-car supply is expected to drop by 13% for this year compared to 2011, according to data released on June 26 by the National Automobile Dealers Association, or NADA. The price comparisons are valid through the end of the 2012 calendar year.

Further price increases can affect car buyers' budgets as used-car prices are already at a historic high. From 2009 to 2011, prices of luxury used cars up to 5 years old jumped 22% on average, NADA says. This year, NADA predicts Acura will have the biggest jump of 4.8% per car on average followed by Audi at 3.3%, Lincoln at 2.6%, Lexus at 1.6%, Infiniti at 1.5%, Mercedes-Benz at 0.7% and Cadillac at 0.5%. Buyers should be prepared for at least a slightly larger car loan if buying these brands.

Since used luxury-car prices are at an all-time high, the term "bargain" is relative. But some brands are expected to see small drops in prices compared to last year. In particular, NADA is forecasting a drop of 0.2% for BMW and 3.1% for Volvo.

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