Mercedes-Benz C-300 -- Model Year 2012
Car enthusiasts around the world recognize Mercedes-Benz (“MB”)
as one of the best-engineered brands of all time. Its durability is
unsurpassed. Its design engineering is unrivaled. Its reliability is matchless.
Its road traction is legendary. Its safety is trend-setting. Consequently, its
loyalty beggars description.
Though C-300 is MB’s baseline luxury model, it has the entire
range of bells and whistles one expects in an upscale luxury version under $50K
– from 228hp V6 to 4MATIC AWD to power sunroof to leatherette to dual climate
to eight airbags to eight speakers to Bluetooth, etc., in addition to 48mo/50K
bumper-to-bumper warranty.
Modeling Step 1
(Correlation Matrix)
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The above correlation matrix (1) is unrestricted,
representing the entire database without any constraints whatsoever. As usual,
the Dealer Price (Dealer Pr) has the highest (negative) correlation with Miles,
signifying that the higher miles tend to dampen the dealers’ asking prices in
the market.
Warranty is the next best predictive variable, with extremely
low collinearity with the other potential independent variables. The positive
coefficient points to buyer’s preference of the warranted vehicles over their
counterparts with expired warranties. Unsurprisingly, Accident has a negative
impact on dealer prices, while well-maintained cars (Service) are rewarded. Surprisingly,
the highest-rated original ownership is unrewarded. The plausible conclusion is
that the 3-yr leases are so popular in the mini world of upscale vehicles that
the first owner is truly the first purchaser after the expiration of the lease.
The correlation matrix (2) is however constrained to those with
the balance of the factory re-certified (Certified) warranty or special dealer
warranty. Dealer warranties are generally
sales promotion measures, hence quite short-lived, often ranging between
30-day/1,000 miles and 90-day/3,000 miles, although some 1-year/limited to
unlimited miles are not uncommon. While Miles and Warranty are still projecting
normal relationships with the Dealer Price, Accident and Owner have switched
sides.
Given the limited period and the resulting capped mileage,
the accident variable has become irrelevant (uncorrelated). On the other hand,
the Owner variable has turned into a big positive now, with an equally negative
relationship with Miles, suggesting that the original ownership would be rewarded
as long as fewer (than normal) miles are driven. Meanwhile, Service has become
the most positive correlation coefficient, emphasizing that the maintenance of
the vehicle by the manual would be economically wholesome as well.
The above scatter graph depicts the usual negative relationship
between the Dealer Prices and Miles. Prices generally decrease commensurately
with the increasing mileage. Thus far, this graph has demonstrated the most
classic relationship; nonetheless, this fit would be much tighter with the
trimming of some outliers, thus paving the way for a much higher R-square,
perhaps to a more customary level.
Modeling Step 2 (Multiple Regression
Analysis)
The model R-square – 0.9681076 – is reasonably high, with
potential for even higher R-square if the model is rerun without the outliers.
The above MRA output confirms the negative contributory
relationship between Miles and the dependent variable, meaning higher miles are
negatively contributing to the predicted prices. Though the Miles coefficient
is seemingly small, it will nonetheless have reasonable impact on cars with
high mileage; for example, the predicted price of a 2012 C-300 with 100,000
miles will be reduced by -$2,238 (-0.022380 * 100,000), as opposed to a mere -$45
for a competing one with only 20,000 miles on it.
Accident is the most important independent variable (highest
t stat and lowest P-value) in the model followed by Service, Owner and Warranty.
Again, the standout presence of Accident points to the fact that it provides
the maximum price differentiation between the accident-free and accident-encountered
groups. Simply put, the future owners of these fairly late model upscale cars are
most likely risk-averse, and as a result are unwilling to pay the high market
price either for the high mileage cars or those cars that have encountered major
damages or accidents.
To interpret the other Model coefficients, the well-maintained
cars provide the necessary peace of mind for the buyers as they are willing to
accept good service (service maintenance by the manual, garage kept, etc.) in
lieu of the expired warranty (the original 4-year factory warranty period for
these cars has in 2016). Additionally, the single ownership and
Certified/Dealer warranty are greatly favored in retaining high value. Of
course, higher miles and accidents have perceptibly negative impacts on predicted
prices.
Modeling Step 3 (Analysis of Model
Estimates)
The above percentile graph shows that while the model
estimates are significantly lower at the bottom end of the curve (up to the 25th),
they are however in tandem on the long end of the curve, though diverging at
the outer end (> 90th). The fact that the model has been
predicting lower prices at the bottom end of the curve points to the above-the-market
asking prices for the lower end units, perhaps those with multiple incidences –
accidents on record, multiple ownership, inadequate maintenance or high
mileage.
On the other hand, this additionally proves that the model
estimates could help both consumers and dealers to quickly converge on the same
page as these estimates are independently derived. Likewise, the private
sellers can validate their subject prices before accepting the trade-in values
from the dealers, considering that these are upscale vehicles and local comps
could be few and far between.
The above Warranty table shows that the dealers are
over-charging by packaging vehicles with in-house (Dealer) warranties. On the
contrary, they are significantly under-pricing – roughly $3,000 on average – the
factory Certified vehicles. Vehicles without any warranty (None) are the least
preferred, thus fetching -$2,000, either way. Interestingly, the vehicles with dealer
warranty have far fewer miles than those with expired warranty.
While the Model is confirming the dealer pricing for the fleet
without any reported damages/accidents, the dealers are however way
over-pricing the ones with the reported accidents. Therefore, by having the
model estimates placed alongside the dealer prices, consumers could save on
average $5,229 (18,449 – 13,220), a truly wow savings and a great firewall protection
from dealers’ over-pricing.
The Model also proves that the one owner vehicles are
expected to fetch premium prices, though the dealers are pricing the multiple
ownership cars higher than the original owners’. Ironically, the 3-owner
vehicles are priced the highest, roughly $2,650 above the market, while the
1-owner ones are the lowest, roughly $2,500 below the market. Again, this
transposition of prices could be avoided if they were to subscribe to some
legitimate model values. Moreover, by having the model estimates available
side-by-side the dealer prices, dealers would protect average consumers and
ease deal-making by eliminating all unnecessary price haggling back and forth.
Though the dealers are asking more or less the same price
irrespective of the level of owner’s maintenance history, the Model is nevertheless
urging a much higher price – in fact, over $3,000 – for the better maintained vehicles.
Needless to say, absent model values alongside dealer prices, buyers would way
overpay for the lesser maintained vehicles, proving the need to reinvent this
industry by requiring a set of independent values to simultaneously coexist.
The above Miles table illustrates the price comparison by having
miles broken down into four (equal) quartiles. While the Model is predicting
very similar prices across all quartiles, dealers are asking significantly
higher prices for the low mileage cars. Dealer prices in the high mileage
quartile are somewhat lower than the model estimates. Unfortunately, the lure
of the low mileage vehicles is forcing consumers to pay an unwarranted premium
which could be avoided if the model estimates were also published alongside the
dealer prices.
The Model is proving that the location arbitrage is virtually
non-existent nationally, though the West Coast dealers are asking quite a bit
higher prices than the national average. According to the Model, the West Coast
prices are, on average, $900 above the real market. Of course, a normalized
metric (Model Est/Miles) is an alternate way to standardize and evaluate this
scenario.
The above data sample demonstrates that the dealers are way
over-pricing the cars with reported accidents. The Model, on the other hand, is
heavily discounting those cars. The spread is widest when stacked with lack of
warranty, multiple owners and less than perfect maintenance (e.g., SL # 2, 5
and 8). If the model estimates were to be placed alongside the dealer prices,
buyers would immediately know the extent of the over-pricing.
When the modeling process identifies the under-priced cars,
it’s pointing to some “upfront” savings for the consumers. This is an area
where the dealers would be most benefited if they were to subscribe to some model
estimates. The above sample shows that the dealers are generally under-pricing
the accident-free vehicles, with the widest spreads attributed to those that
are additionally backed by warranty, single ownership and excellent service
history.
As indicated before, now and then, the dealer prices could
consciously be lower to factor in some minor negatives (rarely captured in the
modeling database) or to address some imminent psychological breakpoints. SL # 6
could be one such psychological case where the dealer might have consciously
lowered the price (the lowest price) as the vehicle is on the verge of reaching
100K miles, a big psychological milestone.
Considering the popularity of the Mercedes-Benz C-300 series,
the 2012 model has become one of the most sought after mid-size luxury late models
on the market today.
The Book (Pricing Pre-owned Auto Markets) is Available Now
(Query 'Sid Som's Books on Amazon)
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