Time for a facelift?

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Take the motor shows in Geneva, New York and Shanghai – at each of them lots of novelties have been presented. Between the really new models you can also find facelifted cars. New bumpers, different headlamp design or just some additional chrome – in case of minor changes, facelifts can be hard to recognize even for true car fans. Is a facelift actually that interesting for a car buyer anyway? On one hand facelifts are a good opportunity for the manufacturer to get rid of any teething problems and to incorporate some improvements. But besides these changes that are made on the car as such, facelifts can have wider implications as well.

Let us have a look at the different effects that a facelift can have on the residual value behaviour of the particular model. Generally, the pre-facelift car's value will suffer, when a new and, presumably, more desirable car is launched. The more significant the changes are, the bigger the difference in value will be. Nevertheless, this gap is unlikely to exceed 3% of the new car price; whereas, in case of a complete model change, it can be as high as 10%.

Residual values are often mentioned as a percentage of the MSRP. Take the case of a car model with an ‘old’ face leaving the factory at the beginning of summer, which leaves the plant with a sleek new front in autumn, this can make a difference

of roughly 3% when reselling the car after three years time. If this car costs €25,000, we are talking about a €750 loss. Therefore, it is worth taking the residual value impact into consideration when managing your fleet, be it big or small.

The above example describes a relatively extensive facelift. How significant a facelift is required to be is also related to the success of the model concerned. If the car is selling well, a facelift may actually not be necessary. Adopting slight changes can, however, be an effective way for a manufacturer to increase the profile of a model and encourage the media and potential car buyers to pay attention to the car. In such a case major improvements are not required, as the main goal is to be in the spotlight. Therefore, a minor facelift can be the right measure.

The contrary can also be true. Because of its lack of success in Europe, BMW had to come up with a serious makeover of the ‘old’ 7 Series (E65). When the Bangle-designed limousine hit the market in 2001, the automotive press could not stop writing about the remarkable design. Although in the USA, Russia and Asia there were some people who liked the old styling, in this case the makeover was really called for.

There are also situations where facelifts have almost no impact at all. If there have been multiple changes already, it becomes obvious that the lifecycle is ending. Hence, the used car buyer will not be that attracted by the idea of owning the still-actual model any more. For this reason it is not realistic to expect a significant residual value improvement coming with the second or even third facelift. Just think of the current Volkswagen Touran, which has been on the market since the beginning of this millennium and – after several cosmetic changes – is still available for sale.

Post-facelift is pre-model change! If a car has been on sale for, let’s say, three years and then receives a facelift, you can bet on a completely new model to come in another four years, at the latest. With a brand new generation standing in the showrooms, the residual values of both the facelifted and original models come under pressure.

In order not to endanger the desirability, and therefore the new car sales and residual values, of the outgoing model, car makers try to keep the introduction of a new car secret for as long as possible. Strategically, the car maker may deviate from this principle, for example if a close competitor is coming up with a new model too. Think of the spectacular A-Class concept shown by Mercedes-Benz just before the launch of the new 1 Series BMW. As I pointed out earlier, the model change impact from a forthcoming new model will again be much stronger than the impact of, ‘just’ a facelift.

But it is not always that easy to see the difference between a facelift and a model change. The current Passat was presented as ”The New Passat,” although we were actually dealing with an extensive facelift. Does it matter anyhow? For a residual value forecaster it does! A completely new model will be ‘fresh’ for many years; whereas, the facelifted car will have a successor much earlier.

At the end of the day, it will be necessary to keep both future model changes and facelifts on the radar. With this information as the basis, we make a precise calculation of the related residual value risk. This helps you in taking a well-founded decision on whether to wait for the facelift, or accept a discounted offer for a well-equipped phase-out model.

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