Used-vehicle prices are slumping in the United States, just as cars and trucks coming off lease are crowding the upscale pre-owned market.

That's bad news for several luxury import brands and their captive finance companies, which rely heavily on leasing. Their used vehicles now are selling, in some cases, for thousands of dollars less than the automakers expected.

Last week, BMW AG said it had taken a $372 million charge to reflect falling U.S. resale prices. The company reported a first-quarter pretax profit of about $844 million, down 24.8 percent from the year-ago quarter.

BMW CEO Norbert Reithofer said the company's income from sales of end-of-lease vehicles in the United States was substantially less than anticipated.

“The resale conditions of cars after the leasing period have worsened,” Reithofer said during an earnings conference call. “The fact that a large number of leasing contracts ended in the first quarter of 2008 compounded the situation.”

Jan Ehlen, a spokesman for BMW North America LLC, said the number of BMW vehicles that came off lease between September 2007 and March 2008 rose 50 percent from the year-ago period. Ehlen declined to say how many off-lease vehicles BMW expects to send to the U.S. used-car market this year.

Sales volume isn't BMW's problem. The company sold 34,461 certified used vehicles in the first four months of 2008 — 30.7 percent more than in the same period of 2007.

Lower prices

But those vehicles aren't bringing the resale prices that were predicted. When BMW's 2005-model vehicles were new, their average residual value — the projected wholesale value after three years — was $28,618, said Ricky Beggs, managing editor of Black Book, a guide to vehicle prices.

Like other automakers, BMW generally leases vehicles for 36 months. So the 2005 models are coming off lease and joining the used-vehicle market now. Beggs said those cars and trucks are selling for an average wholesale price of $25,607 — more than $3,000 less than projected.

Similarly, Beggs said, 2005-model Mercedes vehicles had an initial 36-month residual value of $34,472. But the current average wholesale sales price of those vehicles is $29,733 — more than $4,700 less.

Executives of Daimler AG, Mercedes' parent company, said last week that the company had “sufficiently covered” the value of its off-lease vehicles. Daimler did not take a charge against first-quarter earnings.

The problem is less pronounced for Lexus, Beggs said. Its 3-year-old used cars and trucks are selling for an average wholesale price of $23,571 — about $1,400 less than their projected residuals, he said.

Overall, about 2.2 million off-lease vehicles will join the used-vehicle market this year, CNW Marketing Research predicts. About 1.9 million end-of lease vehicles were remarketed in 2007, compared with 1.8 million in 2006 and 1.7 million in 2005, CNW said.

The increased supply of used vehicles and a sagging economy are driving down prices. In March 2008, average wholesale prices of used cars and trucks were 2.4 percent lower than in the year-ago month, ADESA Analytical Services said. Prices of luxury cars dropped 2.5 percent, and prices of luxury SUVs fell 9.3 percent.

Automakers typically subsidize lease deals through their finance companies, to moderate monthly payments and keep lease volume high. Car companies can get burned when resale prices fall considerably below predicted residuals.

CNW projects the industry's residual gap this year at about $6 billion. The record gap was about $10 billion in 2001, CNW said.

"Economy is driving it'

Between March 2007 and March 2008, the value of used luxury and near-luxury vehicles depreciated by 20 to 22 percent, Beggs said. In a good year for the industry, he said, that rate would be 15 to 17 percent. “The overall economy is driving it,” Beggs told Automotive News.

Martin Hansberry, general manager of Tulley BMW in Nashua, N.H., said BMW is offering a range of initiatives to stimulate sales of certified used vehicles. They include special finance rates and more money for dealer advertising.

“In the last six months they really stepped up their efforts,” Hansberry said.

Tim Markel, a BMW, Mini, Land Rover and Jaguar dealer in Omaha, Neb., said he is committed to adding many of the BMW cars and trucks his dealership leased to his used-vehicle inventory. But X5 SUVs account for too many of those vehicles, he said.

Compounding his problem, Markel said, is that customers are trading in big pickups and SUVs from other automakers for smaller, more fuel-efficient vehicles. Prices of used full-sized trucks are falling faster than those in other segments, he said.

“Either I find a way to retail them, or they go to the auction,” Markel said. “There is pressure coming from two or three directions.”