I agree in part with the last post (by zero4588), but the quality issues aren't the only reason that residuals are down.

Part of it is the "lease" nature of how people are buying cars nowadays. Nobody is buying cars anymore -- they are leasing them for a year, two...maybe 4.

Some people are telling me that well over 50%, and often 66%+ of "new" MBs are going out the door on leases, not being purchased outright. One only has to look at the weekly or monthly MB dealer auctions, to see the reality of things. At these auctions you see many many MBs that come back into the dealers off of leases. Decent condition, but increasingly you are seeing cars that are being returned from leases EARLY, after a year or two.

This is where the quality issues come in. Either people are trading in their leases for newer MBs (which, given the longer life cycles of MBs isn't as much the case as with other marques that change bodies more frequently), or they are dissatisfied with the cars because of the quality issues, and are trading them in, so that they can get into another type of car such as a BMW or Lexus, etc. etc.

3-4 years ago, one would only see a handful of "early lease returns" at the auctions. Today, these very current cars are comprising 40 and 50% of the cars.

The fact is, that the dealers are taking a bath on them, because of the depreciation. Not only that, but every marque is getting tons of lease returns, glutting the market with really nice, lightly-used (<30K miles) cars. So naturally the residuals have to go down in order to move the cars.

The MB dealers cherry-pick the cream of the crop for their own StarMark programs and put the others up at the MB dealer auctions, so the cars go somewhere else. The worst ones wholesale out to the indy lots wherever.

Yes, it's a buyer's market. You can score good deals on year or two-year old C- or E-class with very few miles.

The thing is that it's a total Catch-22 market. MBUSA can brag every quarter about blowout sales and great business success, but what they don't brag about is the underside of this -- a huge glut of returned lease vehicles with check-engine lights going, niggling quality problems that is keeping them in the shop once every 5,000 miles, warranty claims exploding to levels never before seen, and ever-lowering residuals.

At some point, this whole thing is going to come to a head or implode, at the corporate level. MB is going to be forced to:

a) ditch Chrysler like a hot rock -- nice experiment, but didn't work out. But at least they had the balls to try. Oh yeah, Schrempp will take the fall for this one, he'll be gone.

b) slim down number of product lines to a more reasonable level - abandon the mission to conquer the world and focus on producing a non mass-market number of highest-quality cars

c) Raise prices to support the engineering and quality-control requirements that the brand needs to grow in value and prestige (again) and thus erase the last 10-12 years of brand erosion among those "in the know"

d) Refocus engineering resources on product quality and customer relations

Cheers,
Gerry