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Boom time for used car values

Date: 18 May 2021   |   Author: Simon Harris

Aston Barclay is expecting the current strength in used car values to continue well into the autumn.

Used vehicle values are likely to remain strong into the second half of the year, according to Aston Barclay, which could give leasing companies a better return on defleeted cars, as well as for outright purchase fleets going through the remarketing process.

Martin Potter, managing director for customers at Aston Barclay, has concurred with sentiment across the remarketing sector that demand is outstripping supply, and forecasts the trend will remain in place for some months to come.

He said: "By March, most of the franchise dealers were reporting between 85-90% of normal volume for that time of year. Some of the car supermarkets and larger retailers were below that level, but I'm pleased to say that since 12 April, the reports from the retail sector have been amazing.

"While click and collect has done its job and helped with the resilience of the sector, it seems people still want to visit a showroom. The used car market is going to be very strong at least until well into the second half of the year."

Potter explained that many leasing companies had extended contracts with customers over the past 18 months, first because of uncertainty over Brexit trade arrangements, then as companies reviewed operations during the coronavirus pandemic.

This, combined with a return of consumer demand, has seen average transaction prices for ex-fleet cars at more than £400 higher than the first quarter of 2021.

He added that most of the company's leasing company customers have higher than normal order banks for this time of the year, and the expected delays in delivery of some vehicles because of component shortages will ensure the situation remains buoyant for anyone selling a used vehicle.

If delays threaten the replacement of fleet cars, it means the cars they are intended to replace will take longer before they are ready to enter the remarketing cycle, keeping demand high.

Potter added: "As mileage is lower for many vehicles, maintenance costs have probably reduced and the residual values are stronger. Even though the cars have been coming back older, values are still strong."

Potter says although the pandemic has forced vehicle operators and the used market to adapt more quickly to a digital mindset, Aston Barclay's research shows sentiment seems positive about a return to physical auctions.

"The pandemic accelerated the rate at which people adapted to more digital-oriented business models, with perhaps five years' progress happening in the space of a year, but that process went through a few stages.

"During the latest lockdown, we surveyed all of our buyer customers and 84% said they would be happy to come back to physical auctions and around 97% of them said they'd buy the same number, if not more cars, attending physically. People have adapted to this omnichannel approach.

"For LCV dealers and motability buyers, the condition is really important as well as the age profile and they want to see them physically, but it's not such a problem for buyers of other vehicles. In the fleet sector, most things are online, but we've allowed viewings.

"Manufacturer sales to dealers are even more remote and we don't even end up handling the cars. I'm pleased we have the flexibility and the technology to accommodate it. The online retailers have done well during the pandemic, but now dealers are able to open again, I think they might take some of that business back from them."

He urged caution about the values of alternative fuel vehicles (AFVs), however, as used car buyers have different reasons for choosing them - without the tax incentives of company car drivers - and the cars could take some time to find their place in the market, although volumes are increasing.

"AFV sales are still only about 8% of out volume, but that's double what they were a year ago. About 54% of what we sell is still diesel.

"But the fleet mix will change dramatically for some customers over the next few years. Currently less than 5% of BEVs are taken up by private individuals - the majority are still in the business and fleet sector. 

"Consumers are going to go through the same two phases [migrating to EVs through hybrids] that business customers have already been through."