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Residual value tide is turning warn used car experts
Date: 06 May 2014 | Author: Jack Carfrae
Residual value and whole-life cost specialists have warned that used car prices are declining following months of record price highs, with values expert Cap warning the
industry of a larger fall in its May book than was seen 12 months ago.
Speculation that the used car bubble will burst has been circulating for some time, and Cap reported "a market downturn" in April, which it blamed on "a bumper new car March".
The firm said its "April book valuations were rapidly overtaken by a dipping market trend".
CEO of KeeResources, Denis Keenan, agreed that stratospheric new car sales have taken a bite out of second-hand values: "The market is in for something of a reset, caused by 465,000 units in March.
"The entire industry is looking at values they've never seen before over the last year, and if they look unsustainable, then they probably are."
He added that the firm had predicted a dent in used car values: "We forecast last year that there would be a reset but it wouldn't have an immediate effect."
A statement from Cap said city cars and SUVs had borne the brunt of the price drops: "Taking the period between 1 April and 17 April, overall sector average downward movements, at three years and 60,000 miles, ranged from 2.6% for city cars and SUVs - the vehicles under most pressure - to between 1.6% and 1.8% for most other mainstream sectors.
"Convertibles, coupes cabriolets, luxury executive and supercars saw rises of between 0.1% and 0.7%."
"For most mainstream cars the increase in supply, coupled with a reduction in demand, has begun to undermine the unusually robust market that has characterised the past year."
Speaking to BusinessCar, Derren Martin, senior editor of Cap's Black Book Live, added: "It's slightly stronger at the moment than we expected.
"There's more volume in the market than usual. There's a lot of unsold stock as well, but there are still less cars in the used market than there were five years ago. I think it's a fairly normal drop.
"SUVs are a bit worse than others because winter didn't really come.
"Conversion rates have been falling steadily - it has been a bit weak and a lot more than seasonality, but nothing to panic about.
"[Long term] I think there will be some depreciation. The market probably won't stay as it has done for the last 18 months, but it will be fairly gentle depreciation, I'd say."
Richard Parkin, director of valuations and analysis at Glass's, blamed the slump on seasonal conditions rather than an RV nosedive: "There are two reasons for it: one, Easter was late, and two, the weather in the run-up to Easter was quite good, so people don't go used car shopping.
"There's less interest in forecourts. Last year [Easter] was at the beginning of April, so in March there was a steady degradation of values and auction conversion rates in March. This year it's April, so it's nothing new. It's always pronounced at this time."
However, Keenan warned that the tail off could bite harder. He said dealerships with high levels of stock could run into serious difficulties and create a knock-on effect for harsher RVs across the industry.
"As dealerships are becoming a bit more self-sufficient in used [cars], and if the new volumes generating these trade-ins continues, then a much more immediate effect could be felt in the auction halls.
"The immediacy of the problem could be dealerships carrying stock that could be as much as 10% overvalued. That's enough to seriously damage a small dealership if it carries high enough levels of used stock.
"Once we see a reset of values from these ultimate highs, are these huge values likely to come back again? Most likely not.
"We think we will likely see a fair bit of softening in the next quarter if these things all come together."
