BMW shifts US strategy towards used cars during recession

Bayerische Motoren Werke AG, the biggest luxury-auto maker, is using financing incentives to encourage US sales of certified used vehicles that can offset falling sales of high-end cars and sport-utility vehicles.

The Munich-based automaker sees opportunity in used-car sales, because it offers an alternative to leasing for customers who can’t afford to finance the purchase of a new car, Peter Miles, executive vice president of BMW of North America, said on Sunday in an interview.

BMW brand certified used vehicles sales rose 24 per cent in January and February to 19,000, while new-car sales fell 29 per cent to 25,211. Many of the customers buying the certified pre-owned vehicles are BMW lease customers returning their cars.

“It’s an easily justifiable purchase. As opposed to putting their arms around a $50,000 5-series, they are getting into a two- or three-year-old car that’s under $30,000,” said Jeff Gerken, owner of Cunningham BMW in El Cajon, California.

BMW and other automakers have programmes where used vehicles are inspected and repaired and given extended warranties, often with below-market financing rates from affiliated lending units.

Certified used vehicles maintain brand loyalty with customers who are likely to buy new cars in the future, Miles said. Extra demand for so-called certified pre-owned vehicles improves values of vehicles coming off a lease, which ultimately allows for lower payments.

Although BMW new-car sales in the US fell 15 per cent in 2008, the company’s certified pre-owned sales rose to a record 104,000 units. BMW expects those sales to rise 15 per cent to 20 per cent this year.

The result is that dealership sales of all BMW brand vehicles fell only 7 per cent in 2008, Miles said on Sunday.

“If I describe the new-car business as having a headwind the certified pre-owned business has a tailwind,” he said.

To contact the reporters on this story: Mike Ramsey in Southfield, Michigan, at mramsey6@bloomberg.net