Some Relief for Used Luxury Car Values?

Some luxury cars have been getting hurt by the drop in used-car values, but that could start to improve, according to ADESA Inc. auction data.

The drop in values for big SUVs and pickups from the Detroit 3 has gotten most of the press coverage, but less dramatically, resale values for luxury cars have been down most of this year, too.

BMW, which is a leader in leasing, for instance has set aside close to $1 billion (695 million euros at the current exchange rate) to cover credit risks and losses on residual values, according to Chairman Norbert Reithofer, in last month's presentation of BMW's second-quarter results.

"The used car market in North America is recovering more slowly than expected. As this situation may bring about further risks we have increased our provisions for residual value and credit risks," Reithofer said on Aug. 1.

BMW accounts for four of the Top 10 most commonly leased vehicles in the U.S. market, according to the Power Information Network.

In leasing, the customer only borrows the difference between the upfront cost of the vehicle and its value at the end of the lease, called the residual value. The higher the residual, the less money the customer has to borrow. To achieve lower monthly payments, luxury automakers commonly inflate the predicted residual value by a couple of thousand dollars.

The car companies reserve money to cover the expected loss at the end of the lease. Unexpected losses can occur, if the actual resale value at the end of the lease is less than predicted. Resale values have been down for some used luxury cars, like the BMW 7 Series. Besides high gas prices and the shaky economy, that's probably due in part to the fact that the 7 Series is about to be replaced by an all-new model.

Overall, ADESA reported a favorable trend in its August data. The average auction price for used luxury cars was $13,952 in August, a 4.4 percent improvement from the year-ago month, following a skinny 0.1-percent improvement in July.