REMARKETING: A large supply of resilience
23 December 2016
Author: Jack Carfrae
One year ago, anyone with a smattering of knowledge about used car prices would have predicted a nosedive in 2016. It didn't happen, and despite justified concerns that the swelling new car market had come home to roost, values are still remarkably sturdy.
Forecasts of a market slowdown were pushed ever later into the year, but prices have held fast since January, even as the number of second-hand vehicles increased.
"The most significant trend was the rising volumes reaching the marketplace," says BCA's managing director for UK remarketing, Stuart Pearson, "but 2016 has generally seen a good balance between supply and demand.
"The summer months maintained momentum and the autumn was strong, with conversion rates rising above 80%, meaning there was good churn in the marketplace. The plate-change period was very busy and dealers were saying that retail demand was stronger at that time, which helped to keep wholesale values firm."
"We definitely didn't see as many peaks and troughs in the early part of the year as we normally do," adds Martin Potter, group operations director at Aston Barclay. "We normally see the market rise from January to March, which happened this year, but you normally see a bit of a blip around April/May/June, when supply and demand swing the other way and the registration change brings a lot of stock into the market.
"Those months weren't anywhere near as tough as they have been in years gone by and apart from the odd week here and there where it got a little sticky, it came back buoyant the following week. You would normally see another dip, around October, after the September plate-change, but that didn't happen either; it's been exceptionally good all year."
Potter believes a degree of the market's success is in part down to "the economy and low interest rates", but he adds that dealers are now more adept at selling: "I think the retailers are getting better at turning stuff quicker and buying right. I think the industry is a lot more intelligent now in terms of overall pricing, where a car needs to sit and what type of car is going to sell well, so I think the trade is buying more sensibly this year and turning cars a lot faster. My feedback suggests most people are now turning a car in about 46 days, whereas it used to be more like 60."
Vans are in even better shape than cars, and prices are now stronger than they were in 2015.
"A year ago, the headline average value was falling and fleet and lease vans recorded their lowest monthly value since July 2013," says BCA's head of commercial vehicles Duncan Ward. "Since then, average values have steadily improved, climbing across the board by around 10.5%, as high levels of demand continue - largely driven by the construction and civil engineering industries, as well as the courier and online delivery sectors."
"It was rising and rising and it's hit the ceiling, but it hasn't fallen away," adds Tim Spencer, commercial vehicle sales manager at Shoreham Vehicle Auctions."The only slight dip was July; normally you see a summer dip around August, whereas it was July this year, when it just went quiet for no apparent reason for three weeks - then bounced straight back, as strong as ever. Normally there are reasons behind it, but no one knew what they were this time."
Brexit was the biggest external threat to used vehicle prices in 2016, and was predicted to upset the market, but it has so far failed to rock the boat.
"The whole Brexit thing could have caused an unnecessary dip, but it just didn't," says Potter, "I think people realised that they were still doing business quite well, thank you very much, and everything was continuing to roll on."
Although prices have held up in 2016, Spencer thinks this year's performance could herald the return of a more conventional market.
"What used to happen was seasonality; Christmas was always dead and there was a dip in Easter and over the summer holidays. Christmas is always going to be dead, there wasn't a dip in Easter this year but there was one in summer, so maybe seasonality is going to come back into play; if it does, it will make it easier for everybody to understand and manage the market - if you know July and August are going to be quiet, you can allow for it."
Potter thinks 2016 prices have been too constant to suggest a return to the seasonal norm: "We've seen a consistently strong market all the year - it's levelled out more than anything. The talk is that you will start to see seasonality again, but that hasn't really happened yet."
He believes the market has become more stable in autumn, though, as vehicles are now easing into the market, rather than entering in a glut, balancing the once traditional end of year slowdown.
"There seems to be a lot more focus on the March plate change, or at least, more volume around in that plate-change than the September one. September gets stretched out a little bit further - people don't seem to take everything on the first of the month, and vehicles are sold in a bit more of a staggered fashion throughout September and October. I think that really has an effect."
After an unpredictable but upbeat 12 months, the outlook for 2017 is more positive than last year's equivalent. "I think it will be a virtual mirror image of this year," says Spencer. "I just don't see a drop in prices - not in the first six months of next year. I think we'll go through the Christmas lull, then it'll be back up in January and carry right the way through to the summer."
"Statistics tell us that 2017 should be yet another busy year with more product about, and that may put pressure on prices," adds Potter. "We've had record registrations since 2012, therefore we should be seeing more cars, but the reality seems to be different.
"I think the leasing companies aren't getting as many early terminations, and contracts are running longer than their desired three years/60,000 miles; most of our leasing companies are returning cars between 39 to 42 months. They're also being clever about turning short contracts - getting the vehicle back and turning it out again on another two-year or 12-month contract so they don't get a lot of young used stock.
"The headline is still the same: there probably will be more cars about next year and I do think that certain products will suffer more than others, either because they're outdated, the wrong spec, the wrong engine sizes - but that's something a fleet manager has always had to be wary of."
BCA's Pearson believes good-quality stock is poised to stay strong in the New Year, but less decent vehicles will polarise the market's performance: "There is a two-tier market developing as volumes climb. Ready-to-retail cars continue to attract buyers' attention and churn quickly, but poorer-condition, older and higher-mileage examples require work if they are to be sold first time and we may not see the significant spike in values or conversion rates early in the year that we have in previous years."
The residual value expert's view
Fears about Brexit and spiralling volumes haven't kept dealers from the auction halls, as the trade is still clamouring for cars, even in its traditionally quiet period.
"We tend to see a tail off in trade activity around November," says Rupert Pontin, director of valuations at Glass's Guide. "It usually gets quieter and conversion rates drop a bit, but that's just not the case this year. Rates are still around 80% in the auction houses, and there's still some really good consumer demand, which I think is a bit of a surprise to everybody."
He adds that stock levels have increased, possibly more so than expected, as leasing firms cash in on good trading conditions and sell directly to dealers: "Overall stock in the auction environment is up by 2%, which is not as high as many people would expect, but the caveat is that many of the contract hire and leasing companies are choosing to remarket those cars themselves through their own online platforms, which is something they weren't doing so rigorously this time last year.
"I think the number of cars generally available in the trade has gone up, probably by more than 2%, but it isn't necessarily reflected in some of the data we see from NAMA [National Association of Motor Auctions] and the auction markets."
Values may not have fallen off a cliff in 2016 and trading conditions may be jolly, but according to Pontin, the greater number of used cars has started to chip away at prices in the ex-fleet and lease sector.
"There has been a bit of tail off in residual values compared to this time last year. If you look at fleet profile vehicles from 2.6 to 4.4 years old and their percentage of original cost new, there's a pronounced movement. It's at 38.7% this year to date, whereas last year it was 39.6%, so that is quite a drop off - and it is driven by the greater increase in registrations we've seen in recent years."