Cars are no investment

Porsche and Mercedes-Benz produced the cars that diminished least in value in the survey of nearly 600 cars.

The set of results per vehicle manufacturer can be seen below.

The survey, based on figures taken from the used car market by Mead and McGrouther’s Auto Dealers’ Digest, examines depreciation over one, two and three years.

The Renault Laguna lost value most dramatically.

It plunged by a whopping 51,2 percent in one year.

The Citro’n C5 was not far behind, dropping by 50,1 percent in 2005.

The car that kept its value best was the Porsche 911 Carerra Coup’.

It lost a mere 11,24 percent of its value in the first year.

Its depreciation over three years was 8,3 percent pa and over two years 10,16 percent pa.

When it comes to the average depreciation per brand over one year, Citro’n was worst, followed by MG, Land Rover and Jeep.

This is Moneyweb’s second survey on cars and depreciation.

The first article, which focused on 23 cars arbitrarily chosen, was published in Moneyweb Business on May 5. It was one of the best-read stories on the Moneyweb website in recent months.

Its finding that a new car was the worst investment one could make shocked the motor industry.

The second survey covers more than 90 percent of the cars available in South Africa and confirms the point made in the first ‘ cars lose value in a shocking way.

The average depreciation of the 600 vehicles surveyed was 27,2 percent in year one.

The compounded average fall in value over three years for the national fleet was 16,6 percent pa and over two years 19,2 percent.

The motoring press seldom look at depreciation because it depends utterly on motor advertising.

An analyst who was reluctant to be named said depreciation was “the elephant in the corner that no one wants to talk about”.

Proceed with care when buying a car is the strong advice of experts.

Depreciation figures show that unless you’re sure your vehicle is going to turn into a collector’s model, the new smell is not worth it.

The table plots one-, two- and three-year depreciation figures on most of the makes of cars on SA roads.

The table compares the prices of vehicles when they were new to their present trade-in value.

Each figure is based on a car in standard condition with an average mileage.

In addition, the figures do not include extra options or fancy gadgets.

Analysts attribute the lower depreciation figure for Porsche to its iconic status and its relative rarity.

Sliding by a tiny 6,3 percent, the Mercedes-Benz SLK 350 was the car that depreciated the least.

One of the secrets of Mercedes’ long-term success is that over many years it has tended to produce only as many cars as the market can absorb.

At one stage, Mercedes would not build a car unless it had an order and there were waiting lists for cars.

“It all comes down to market perception and the desirability of the car,” says a motoring analyst.

The brands that people aspire to drive won’t depreciate as much as a car the market dislikes.

“The market is clever ‘ it just knows,” he adds.

Radio journalist and motor analyst Roger McLeary says it is a matter of demand.

“Perception, what the brands stand for and the quality the brand delivers will drive the demand,” he reckons.

He uses Toyota as an example, saying the brand stands for reliability and trouble-free motoring and consumers will continue to buy the brand.

A statistician who monitors car values says French imports are priced at a premium.

“These cars are suffering as they should be much cheaper for the quality they offer,” he adds.

The South African car market has changed from a total locally built market and consumers are paying a premium for the foreign models.

Peugeot did not do as badly as its French counterparts and an analyst attributes this to the popularity of the 206 models.

Status symbols. ‘ It is not surprising to see that Mercedes-Benz and BMW have retained their value, says McLeary.

They have great reputation and a consumer makes a lifestyle choice when they buy one of these premium brands, he adds.

An analyst notes that even though Daimler-Chrysler has admitted quality problems with Mercedes when CEO Jurgen Schrempp was axed recently, the Mercedes brand remains “bullet proof”.

“The fact that the car breaks down is less important than the consumer being able to say he drives a Mercedes-Benz,” he reckons.

McLeary notes that Audi has stepped up to the plate in the last few years and now is in the same market as brands such as Mercedes-Benz and BMW. “In Germany, Audis outsell Mercedes-Benz and BMW,” he adds.

Just because a car drops sharply in value is not a reason to shun it.

A Moneyweb staffer owns an Audi Allroad, which, because it is discontinued, is one of the steepest falling values in the survey.

He bought it two years old, thus gaining a big discount.

His depreciation, as a result, for the past four years has been only 10 percent pa.

Land Rover and Jeep are high-priced cars to begin with and reliability problems and trouble with spare parts play a big part in how much the cars depreciate, says a statistician who monitors car values.

‘ Moneyweb Holdings Limited

July 2006
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