MDX vs 2002 ML320

It all starts with MSRP.

A2MDXer, the thing about MSRP is that some people pay it and some people don't yet all of the vehicles depreciate the same amount and have the same value as time goes by. Case in point, now that my ML320 is ordered I'm selling my 1998 Jeep Cherokee. The MSRP for my Jeep in 1998 was $22,500. I paid $20,000 for it. Today, a Jeep with my options and mileage is worth $11K. Now, I'm sure someone paid MSRP for a Jeep just like mine 4 years ago and thinking that it is in the same condition that mine is they have lost $11,500 in depreciation compared to my $9K. I feel better losing only $9K. The fact that some people do pay MSRP for vehicles provides a starting point for depreciation which we all experience. It just that if you are under MSRP then you won't lose as much. Now, as for the MDX, it is just a matter of time before supply catches up with demand. The thing about the MDX is that there is a large margin between what the dealer invoice and the MSRP so they can give a good discount and still make a good profit. This will eventually happen. Let's say the MDX goes up $300 (like it did from 01 to 02) for model years 03 and 04 giving it a MSRP of $35,700 in 2004. The invoice should still be at around $31,700. If the MDX supply has caught up to demand (like you see on most of the other Acura models) then we can predict 2004 MDXs selling at $32K-$33K. How's the value of a 2002 that someone paid the $35.1MSRP going to hold out? It will drop big time and they'll take a BIG hit on depreciation. We see this all the time. People were paying $60K plus for Plymouth Prowlers back in 1998. Now you can buy better Prowlers for under the $39K MSRP. What do you think the value of a 97 Prowler is now? It's better then my Cisco stock but not much. You pay a big premium to be the first on the block.

MSRP on MDX

Donsev, It would be pure speculation on either of our parts to predict the value of the MDX or the ML320. However, it is a safer bet to predict that the supply of MDXs will catch up to demand within the next year or two. That being said we can look at the MSRP situation with the MDX alone. Dealers make money even when they sell cars at invoice (holdback, incentives) so when they sell a car at MSRP they are really making out. The MDX has a larger margin between MSRP and invoice then most vehicles. With a $4000 margin Acura dealers are really enjoying the profits that the MDX are bringing them these days. However, once the supply of cars meets demand we can look for MDX prices to drop. It is conceivable (based on last year’s MSRP increase) to predict 2004 MDXs selling for under MSRP at $32,000-$33,000 with the dealers still making a good profit. If this turns out to be true what will it do to a 2002 model which sold for $35,100 MSRP? The 2004 model will have two more years of improvements and it will be selling for $2000-$3000 less. This will send the value of the early vehicles falling just as we saw in the Prowler example that I cited above. For that reason make sure you purchase an early MDX at MSRP for the long run as it will probably hit you hard if you sell it in just a couple of years after the demand has been met. As for the new M-class, I'm sure it will command a MSRP+ situation for at least a year after it shows up just like the new G-class is getting now.

Jeff,

If you are just looking for affirmation that you made the right decision on the ML320 then I will gladly stop posting ...





If on the other hand you still have time to re-consider your ML order then lets look at the information a little more closely.

First, IMHO the comparison to the Prowler (or the G-wagon) is more than a little off the mark - those are low volume niche vehicles whose TMV (to borrow the Edmunds True Market Value term) on initial product release are greatly distorted by the price-inelasticity shown by the early adopters who *must have* the latest hot thing. In addition, in the Prowler example (as well as the S2000, the PT Cruiser, the new T-Bird etc.,etc.) the price was driven to well ABOVE MSRP, leaving substantial room for the TMV to crash once the early adopter demand was sated. While there are exceptions, the MDX consistently sells AT MSRP (yes, there are some dealers that are charging for forced options but at least they are providing product for the additional $ - in addition, by broadening your search, you can usually find a dealer that WILL sell at MSRP flat).

Second, the TMV is driven by more than the Supply/Demand curve, it is also (as indicated above) driven by the value the consumer finds in the utility derived from the purchase. IF the consumer is satisfied that the product is providing that value at a given price point, OR there are few economic substitutes, then the consumer will continue to pay at or near that price as supply increases. To provide a comparison, when the ML320 was initially released in 1997 there were few substitutes (midsize luxury SUV) and demand was constrained - leading to premium pricing and long wait times - which eventually evaporated. Contrast that with the introduction of the MDX into a much more crowded midsize luxury SUV field (many substitutes) and well into its second year it is still commanding wait times and firm pricing. We are well past the early adopter phase so the TMV must also reflect the value seen from the utility derived (at the purchase price).

Pehaps the best example/comparison would be the Honda Odyssey. After several production volume increases, the TMV of the Odyssey IS STILL OVER MSRP AFTER 3 YEARS. This is true across the range from the EX w/leather & Entertainment (Invoice-$27,204, MSRP-$30,190, TMV-$31,590) to the LX (Invoice-$22,262, MSRP-$24,690, TMV-$26,090). "How can this be?" you say. Because the consumer perceives tremendous value at the MSRP.

Third, I think there is some confusion as to the increase in the production levels of the MDX caused by bringing on-line the Alabama plant. According to the most recent information I have, the allocation of the 170k unit capacity at Alliston is slotted for 90k Honda Pilot, 50k MDX, and 30k Odyssey (currently 130k Odyssey and 40k MDX). The Alabama plant production is scheduled at 120k Odyssey to be expanded to 150k. And yes I believe that Honda believes that they will sell every one of those 150k Odysseys at or near MSRP.

Could the bottom fall out of the SUV market taking TMVs and resale values with them? Sure. Could the 2003 Volvo XC90 or 2004 Lexus RX300 (or the Pilot for that matter) cannibalize the demand for the MDX by providing a viable substitute? Sure. Will the 2004 ML command MSRP+? Ummmm (that depends entirely on where the price is set relative to the value it offers). Will that prop up the resale value of the 1998 - 2002+ MLs? UMMMM (let's not ask the owners of 1991-2001 Ford Explorers how their resale values are holding up after the release of the "Totally Redesigned" 2002 Explorer )

TMV? not for me...

Don,

As to your comments, IMHO the Prowler and the other vehicles ARE right on the mark in the fact that there exists a greater demand then there is a supply hence the higher selling price. Recall, that it was only in the last few months that MDX prices have fallen to MSRP. There were many early adopters who paid well over MSRP for an MDX last year.

TMV is purely a subjective value assigned by a bunch of people who run a web site. Since when is Edmunds.com THE source for real world pricing? I checked the ML320 I just purchased there and it gave me a TMV price which is $1200 MORE then what I paid. So much for those great minds behind TMV. No wonder your Odyssey number don’t make since. I think you are giving these guys way too much credit. If you want to see true market value, watch one of the MDX speculators put one up on eBay. They never sell and that’s the real world. Another think to keep in mind, if there is one thing we can count on from Honda, they have the redesigned MDX already in the works. That happens to all of us.

The bottom line, neither you nor I know what’s going to happen (and Edmunds.com sure doesn’t know) over the next four years. We’ll just have to wait and see. I just know that for me, the MSRP was an issue and one of many factors that made me decide against the MDX and for the ML320. I’m happy with my decision and I hope you’re happy with yours. Best of luck.

I take it your answer was number one.

jeff968 said:

IMHO the Prowler and the other vehicles ARE right on the mark

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OK, you stick to your comparison that the market factors that affect the MDX (or ML) are more closely aligned to eclectic 2 seat roadsters and I'll stick with my comparison to a 7 passenger utility vehicle (Odyssey).

Recall, that it was only in the last few months that MDX prices have fallen to MSRP.

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Shhh, don't tell that to the three dealers in my metro area who have been selling AT MSRP since day one with no forced options. (Our purchase: one year ago at MSRP with some goodies thrown in)

TMV is purely a subjective value assigned by a bunch of people who run a web site.

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Well, you could question it's veracity, but you certainly couldn't call it subjective .

Edmunds.com's staff of statisticians, researchers, programmers and pricing managers spent almost a year developing TMV pricing for new vehicles and the TMV New Vehicle Pricing Calculator. The process takes into account a number of factors, including the vehicle's invoice price, manufacturer's suggested retail price, and current supply and demand for that vehicle. We then utilize a complex proprietary formula for estimating the TMV for all vehicles currently being offered by dealers. These values are regularly checked against "real world" data, and adjusted for factory-to-dealer incentives.

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I checked the ML320 I just purchased there and it gave me a TMV price which is $1200 MORE then what I paid.

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(Oh, you DO question it's accuracy) Don't you see that is precisely the point. Any statistical average will have a variance around the mean. You were able to find a value below the mean for the ML with (presumably) little effort. You will also be able to find values below the mean for the MDX (but with perhaps more work - they have a tighter grouping around the average)

No wonder your Odyssey number don’t make since.

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Well, actually they are right on the mark. I could post links to news articles about the long waits and MSRP+ but perhaps you will believe it from the buyers mouths ODYCLUB

If you want to see true market value, watch one of the MDX speculators put one up on eBay. They never sell and that’s the real world.

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eBay, the real world - don't think I've ever heard that one before. First, the majority of auctions on eBay for the MDX are for
positions on a dealer waiting list (which is dubious at the very least). Second, since only 4% of all auto purchases are done on-line, at LEGITIMATE auto sites, I don't think it taxes the imagination to think that folks are reluctant to plunk down $35k on an eBay auction for a car. Third, again it proves the point that the demand for the MDX is driven by rational expectations of its value, NOT by speculators (but perhaps you could sell that Prowler on eBay )

Jeff, I do not mean to denigrate your decison. I post in the sincere hope that down the road you do not find your decision to have been "penney wise, and pound foolish".

To you as well, best of luck.

re: supply and demand

I own two TL's, a Satin Silver '99 and a Taffeta White '01, and yes, I paid more for my '99 than my '01. When the '99's first came out, there was at least a six week waiting period, if not longer in some areas, so yes I paid MSRP. When I bought my '01, there were 15 on the lot. We had our pick of the litter and the dealership was easily willing to negotiate. Do I feel bad about this and the potential loss in value down the road? No, because I didn't have a choice at the time, unless I wanted to wait a year or two for supply to catchup with demand, and that was NOT an option. And that is about all you can do if you're worried about depreciation. Wait. Wait for supply to catch up with demand. I'm not the type to wait. It's hard enough waiting until April for my Taffeta White '02 Touring MDX to be delivered.

There is a reason there is a waiting list for select Honda's and Acura's. They make a high-quality product at a reasonable price. I find that almost every one of the competitors for an Acura is always priced higher. Look at the MDX's competitors. The X5, the RX300, the ML320, and so on. And every one of them costs more for basically the same features.

It is the same way with the TL. The Lexus ES300, the Lincoln LS, the Volvo, the Chrysler 300M, and so on, all cost more than the TL, but do not have any more features, or any more power under the hood. I'll stick with my high-quality, reasonably priced Acura. They can have the rest.