JOHANNESBURG - The Mercedes M class, nicknamed the Yengeni-mobile, is the car that holds its value best in the used car market. And, by percentage, the humble little Tata from India depreciates the fastest. These are two findings of the third Moneyweb car depreciation survey (for the full table click here).

Like the first survey in 2005, this survey confirms that a new car is not an investment but a pretty expensive consumer indulgence that goes down in value in many cases by thousands of rands a month.

We have surveyed the values over four years of 340 different vehicles that sold more than 100 models in October this year. We compared the new prices of cars sold from 2004 to 2008 to the present trade value - that is the price you can expect from a dealer. We used the trade value published by the Auto Dealers Digest, which surveys used car dealers across SA. The Digest is published by TransUnion Auto Information Solutions and is the dealers Bible when it comes to establishing values.

Because we wanted to compare apples with apples, we omitted models that have changed since 2008. Many expensive exotics are not included because most of them sold less than 100 in October. We shall return to investigate pricier models another day.

The average depreciation for cars one year old across the range was 31.6%.
Tata and Chev, both of which shed more than 36% of value in year one, seem to lose their value fastest. Mercedes-Benz is the marque that held its value best with the average model declining by 28%. Its arch-rival BMW was not far behind with a fall of 28.9% on average.

In our first survey from 2003-2005, the average depreciation on a much larger (600) sample was 27% in year one. This suggests that the great boom and bust of the subsequent four years might have aggravated the rate at which car values fall.

Most cars outside the Mercedes-Benz stable drop more than 30% in their first year. The Chev Spark, the Tata Indica 1.4 and the Volvo S40 2.4i all fell in value by more than 40% in their first year.

Volvos are having a torrid time in the pre-owned market. All its models dropped by more than 30% in the first year.

Mike von Hone, CEO of TransUnion Automotive Information Services, said one should not focus too much on the one-year figure because, on average, people keep their cars for three years or longer.

The longer you keep the car, the slower it tends to depreciate. The average drop in value over two years was 19.8% pa, over three years it was 16.1% pa and over four years the average car dropped by 14.5% pa.

In the first survey, cars fell by 19.2% pa in year two and 16.6% pa in year three, so there has been little change in the two and three year devaluation stakes. In the first survey a greater proportion of cars went down in value by more than 40% and in two memorable cases, a  Renault Laguna and a Citroen C5 Exclusive, plunged by 50% in year one.

The slowest depreciating car in the table was the Mercedes ML 63 AMG, which fell in value from R1m to R783 000 in a year or a scant 22.6%. That looks good in percentage terms but still gives a depreciation figure of R230 000 in a year or R19 200 a month!

Three C-class Mercs also depreciated by less than 25% in the first year. The best of them, the C200K classic, which dropped only 24.6%, still lost R82 000 or R6 800 a month. Even the Tata, which dropped by more than 40%, lost a lot less value in rands - R34 000 or R2 833 a month.

Not every Mercedes emerged victorious. The E320 Cdi plunged 31.8% in year one, while the bus plummeted 35.9%.

We could not find a single car that appreciated, even though this very week the last Citigolf went for R300 000, or nearly three times its list price. That was a unique vehicle and the extra proceeds went to charity.

High depreciation is bad news for new car buyers and owners but good for people seeking bargains from two to four years old - R38 600 for a four-year-old Citigolf Chico and R31 500 for a Tata Indica. It is hard to imagine either of these falling much in value in the next two years.

Ford's Focus gave Tata a run in the depreciation stakes from 2006 and 2007.
VW, surprisingly, does not show up well as a marque with an average first year fall in value of 32.5%. Only three of the 27 models featured dropped in value by less than 30% and several Jetta models plummeted by 34% plus. Nissan's Tiida range also looks bad, with most models falling by more than 35%-40% in one year.

Depreciation remains an unspoken dirty word in the motor industry. Because they depend on the industry for their advertising revenues, the motor media tend to ignore it, yet it is generally a more expensive item than fuel. The banks keep tabs on car depreciation because until they are paid for cars under HP and lease, the cars belong to them. Their figures remain confidential.

With most new car deals, there are two negotiations - one is the trade-in value of the old car and the other is the price of the new car. Von Hone points out that dealer margins are less than 2%, so they cannot lightly give discounts. The real dealing takes place around the trade in.

Some manufacturers would object that the published list price is nothing to go on because many dealers will give lower interest rates or towbars and the like as part of the price. They contend that the real starting price in many cases is lower. Car manufacturers and dealers cut the list price at their peril because they say it undermines second hand values.

But senior manager of marketing at Toyota, Brent McDonald, dismissed these arguments when I spoke to him some months back, saying the list price is the best point of reference, especially over the long term. Either way, the published list price is the point from which negotiations start. - First published on www.moneyweb.co.za