REMARKETING: Looking forward to 2015
24 December 2014
The automotive industry in the UK has had another positive year, with the new car market growing for 33 months in a row, up 9.4% year-to-date in November.
The feel-good factor is important in maintaining consumer confidence to buy big-ticket items such as cars, and an improving jobs market, a stable economy, low interest rates and low inflation has added to the strength of the market.
The recession in the UK in 2008 created a shortage of stock due to lower new car sales during that time, which had a knock-on affect in the used car market, keeping values high. However, the market is fearing a slight dip towards the end of this year and it signals a levelling out of demand after months of unprecedented growth.
"Looking at the current market, used car volumes rose more slowly than expected in the wake of the plate change [in September] and this allowed the market to absorb the increase without impacting unduly on price performance in recent weeks," says BCA's UK operations director Simon Henstock.
"However, with dealers anecdotally saying that retail activity has slowed somewhat in recent weeks, we are starting to see some pressure on conversions in the wholesale market and rising stock levels as a result."
Used car trade values fell by 2.9% in November after a sharp dip in demand, according to price guide firm Cap. Average values fell by £300 per car, with a sharper downward dip during week three of the month than at any other time this year. As a result, the December edition of Cap's monthly Black Book shows the biggest single fall since June 2011.
Derren Martin, senior editor of Black Book Live, says: "Depreciation year-to-date has been less pronounced than it was to this point last year, and so prices are generally higher than they were 12 months ago.
"Rather than the market meltdown that some people fear, we believe it is more a case of unusually high prices ultimately proving to be unsustainable."
Henstock believes new car volumes will continue to rise in 2015 with a greater choice for buyers in the marketplace. With more stock available, those fleets disposing of cars should expect a tough time achieving good values next year for vehicles in poor colours (such as brown), with high mileage, or in need of more repairs. Stock needs to be ready to retail.
Phil Price, International Decision Systems' residual values editor, says that while the growth in the new car market will naturally see a rise in the amount of vehicles coming into the used arena, the negative impact on prices will only be felt on those that are not ready to retail.
"In 2010 there was a spike in the sales figures due to the scrappage scheme, and although there are quite a few more cars around now, not all are of a good standard," he says.
"Experts expect the rise [in new car sales] to even out over the last quarter, but what of next year? There aren't an infinite amount of customers out there, but if manufacturers and leasing companies keep introducing more and more appealing and cheaper ways of owning a car [growth could continue]."
Price believes fleets will be protected next year to an extent with cars of a good standard able to hold their values, but it's possible the market overall will see a drop in values in 2015 with an influx of stock.
To a certain extent, it's difficult to predict what will happen to the used car market next year, but there are some indicators that can impact values and demand.
For instance, the SMMT is expecting the growth in the new car market to slow down and stabilise next year, which would eventually be reflected in a steady used car sector.
In the more immediate future, though, Henstock, believes there are strong indications for further growth for used car sales. A possible interest rate rise next year will mean homeowners will have less money, which could see them looking to the used car market, rather than new, and that will keep demand strong.
Those that have saved money would also start to see a better return on their investment as a result of an interest rate rise, which could fuel new and used car sales overall.
Henstock says: "Next year is an election year. General elections are a fact of life and it is impossible to gauge the effect - if any - this might have on the marketplace at this distance. History tells us there can be some initial uncertainty. whoever prevails, but this soon settles down and it is business as usual. What might be more worrying is if there is no clear-cut decision from the electorate and we end up with a hung parliament."
The Vehicle Remarketing Association also thinks a general election will bring uncertainty in May. The association believes a slowdown in European economies could put more pressure on manufacturers to divert production to the UK, which would have a negative effect on used values.
Andy Brown, managing director of CD Auction Group, says 2014 has been stable for the used car market and there was no reason to expect huge disruption in the first half of next year.
He says: "Supply of ex-fleet stock is likely to remain limited next year: new car fleet sales were down by 0.5% in the first six months of 2012 [three-year old stock coming through in early 2015] and economic growth forecasts are slipping. This is likely to reduce business confidence and de-fleet activity.
"Retail demand is likely to remain steady but subdued, especially as there are other sources of cars emerging (such as ex-retail finance PCP). Trade buyers will continue to be selective but will pay good money for the right car in the right condition."
However, a stable market in 2015 does not mean fixed values. Brown followed others in the industry by saying vendors will have to be realistic about seasonal trends, condition and short-term demand, which is often not truly reflected in guide prices.