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AUCTIONS: Crystal hall predictions for 2009
Date: 27 January 2009
Auction giants BCA and Manheim give Tony Rock their opinions on how the disposal market overall will fare over the coming year, and advise on the best way to dispose of depreciating assets in a tough economic climate
The credit crunch will continue to have an impact on consumer buying patterns across the economy throughout 2009, and there are few sectors where this is more evident than in the auction market, where buyers are reassessing their vehicle requirements.
"There has been an overwhelming interest in frugal small cars and alternative fuels, balanced by a massive indifference to almost any vehicle with a thirsty engine - from 4x4s to executive saloons - unless it was priced at well below guide values," says Simon Henstock, BCA's UK operations director.
The reason for this, however, is not solely down to the economic conditions, as Henstock explains: "This was not simply a reaction to the credit crunch, but the added concerns about rising fuel costs and the changing VED situation for more polluting vehicles. That is almost certain to continue with plenty of interest in city cars, superminis and hybrids.
"However, as fuel costs have plummeted in recent months, we could see renewed interest in some of those larger-engined cars, which now look exceptional value for money. Those that could use a 4x4, such as caravanners, off-road enthusiasts or country dwellers, may well be persuaded that the time is right to change their car."
Manheim's group communications director, Rob Barr, agrees, predicting that "demand for fuel- and tax-efficient cars will continue, and it is also possible that the increased consumer desire for value may help to stimulate the executive and 4x4 segments".
Henstock adds: "Broadly, the budget end should stay busy and there is a definite watershed in demand at around £5000, which was seen as the upper limit of affordability with finance being hard to come by for retail buyers."
Unsurprisingly, given current market conditions, Henstock says traders are exercising restraint.
"Professional buyers tell us they are being much more prudent," he says. "Those holding large volumes of retail product have to face the prospect of inventory depreciating by often substantial amounts as wholesale prices fall and the price guides try to catch up. So many are buying to order and fewer are prepared to 'take a risk' - particularly on high-value stock.
"Professional dealer buyers will naturally gravitate towards the best prepared, nicest looking retail-quality vehicles and will be prepared to pay the most money for them. That is a fact of life, whether times are good or bad."
Method of disposal
Despite advances in technology, Henstock insists that "'traditional' auction is the fastest, most efficient way to liquidate a depreciating asset".
However, Henstock's company BCA does report that "it is notable that volumes through online channels are increasing every year".
The firm's Live Online service uses web browser technology to deliver live video and real-time audio to remote bidders, essentially recreating the auction experience via their PCs.
Henstock says: "We see Live Online as an increasingly important channel in the future for professional buyers to acquire stock, but in competition with buyers in the auction hall."
As with all economic commentators, both BCA and Manheim predict that 2009 will be tough. BCA states that while fleets will be looking for front-end savings, they should also expect price pressure to continue at remarketing time, and that inventory depreciation will remain a critical factor for any organisation holding large volumes of vehicles.
"Bearing in mind that we are in uncharted waters as far as the economy is concerned, there is little to be gained by suggesting how residual values might track during 2009," says Henstock. "Going by previous years, the first few months are traditionally among the strongest for used car sales and given that used cars have never been better value for money or more affordable, we might see some improved levels of activity in the first quarter, which hopefully will set the scene for the rest of the year. 2009 should not see a repeat of the price patterns experienced in 2008."
In terms of the timing of the recovery, however, Manheim is more pessimistic.
"Dependent upon stable consumer demand, the easing up of current credit restrictions and no unforeseen market calamities, Manheim expects that used vehicle prices will remain fairly 'flat' in the first half of 2009 with a possible price recovery towards the end of the year," says Rob Barr.
"We must recognise that prices are likely to remain at the current low levels for some time to come," adds managing director Mike Pilkington. "We are certainly not expecting a significant pick up in used car activity at the beginning of 2009, which is often the case in the first quarter of the year. The market is extremely fragile presently and needs a sustained period of stability, supported by the easing of wholesale and retail credit restrictions, before we will see any material signs of recovery."
Despite these predictions, BCA is confident there will still be plenty of dealing to be done.
"There is still plenty of business to be done and the auction halls and online remarketing channels should remain active," says Henstock. "A used car is the principal means of transport in around three-quarters of British households and if a car needs changing due to family circumstances, or the current car has become uneconomical to run, then another used car will be purchased. This gives the used car market a certain resilience to economic conditions that keeps it ticking over even in the worst of times.
"What is missing from the market, however, is the impulse purchase and those regular family car changes based on whim or fashion, as people just don't have the confidence, the money or can't raise the finance."
