REMARKETING: Heaven seventeen
01 August 2017
Author: Jack Carfrae
It wasn't long ago when everyone thought used-car values were going to drop off a cliff.
The prolonged stretch of record-breaking new car and van sales was inevitably going to flood the used market with an unmanageable glut of stock, bringing the honeymoon period of strong values to an abrupt end.
That hasn't happened yet and, while new vehicle registrations appear to have crested, they've been selling well enough and for long enough for at least a portion of that stock to have made its way through first-time fleet and lease owners, and into the auction halls.
Despite those increasing numbers, the general consensus among used-vehicle experts is that the first few months of 2017 produced a thoroughly healthy second-hand vehicle market.
"We had pretty exceptional circumstances right up until probably March or April - almost unprecedented performances - and then we've seen a significant slowdown in the market from April onwards," says Jim Hannah, operations director at Ogilvie Fleet.
"For the first time in several years, average values rose in January compared with December, despite stock rising to record levels during the month," adds Simon Henstock, BCA's COO for remarketing. "Into the post-Easter period, the dynamics in the market changed quite noticeably. While seasonality is less of a factor than it used to be, we still saw some slowing of trade as the summer months approached."
The National Association of Motor Auctions (NAMA) reported conversion rate falls of 8.0% in April and 1.2% in May. "Wholesale trading conditions have become more challenging," says Louise Wallis, head of NAMA. "Overall sales values have increased but late plate vehicles have started to see a decline."
It is generally accepted that, after a long spell of roaring trade, used stock wasn't going to find homes quite as easily after Easter. However, rather than considering the spring ease a foreboding sign, remarketers have put it down to the traditional, seasonal lull and - that most unpredictable of aspects - good weather.
"This is just seasonal," says Hannah. "The market always slows as we go through the holiday period - particularly Easter - and then we come into the May holiday season. We've also had some extraordinarily nice weather during those holiday periods, so people have not been car shopping."
"Potential retail customers often turn their attention to funding the imminent summer holiday, postponing any change of vehicle to later in the year as a result," adds Henstock. Who says this naturally impacts the wholesale sector, as professional buyers are more likely to buy to order or simply fill gaps on the forecourt.
"We continued to see higher volumes of stock reaching wholesale channels and pressure on conversion rates as a result, making it critical to price vehicles correctly at the point of sale, and underlining that it is a buyer's market in the short term," he says.
A spot of sunshine isn't the only thing 2017 has produced to thwart the used-car market, as last month's general election was sufficient to cause some buyers to hold fire on a purchase.
Rupert Pontin, director of valuations at Glass's, explains: "I'd say that, in the past few weeks, things have become a little bit more difficult. I think that's been driven by the fact that Theresa May called the election - and we always see a bit of a slowdown in the retail market in the lead-up to an election."
However, he says the ex-fleet and lease sector has, on the whole, held up very well since the start of the year: "If you look at what's been going on, particularly in the fleet market, it's been pretty good. The residual value percentage against original cost of new versus two-and-a-half to three-and-a-half-year-old vehicles has continued to rise this year and, despite the fact that we've seen a greater increase in the number of cars coming back to the market, we haven't seen a great deal of difficulty in moving those vehicles."
The updated and typically more expensive VED private car tax regime caused the new vehicle market to yo-yo in March and April. On the face of it, this didn't have a huge amount to do with used vehicles, but Leaseplan's head of remarketing, David Rodriguez, thinks it could have an effect: "Undoubtedly, there was a spike in March in terms of new car sales because of VED, which led to an increase in supply going through in April/May - and that will have affected values." He thinks it's one to keep an eye on but that natural dispersal will be sufficient to avoid heaps of cars hitting the used market in March 2020.
As for used LCVs, prices have held up even better than cars during 2017, primarily due to a lack of supply. "The second-hand van market is very strong - probably more so than the used-car market - and shows no sign of abating," says Rodriguez. "There are fewer quality vans, and what we tend to see is longer lead times, so that again promotes the used market in terms of access to vehicles."
"It's very difficult to get a new van now," adds Ogilvie's Hannah. "Even for us, a major fleet buyer - if we want a Ford or a Mercedes or a Vauxhall van, we're sitting and waiting for the order, and that can take anything from four to six months.
"I think everybody thought the economy/new van market would slow down, so the production was turned down, but because that hasn't happened and the demand is there for new commercials, it's very difficult to get them."
Stock levels may have crept up a little, but the market is clearly weathering it. Although there's more about, a lot of it is seriously good stuff so, despite the strong market, sellers shouldn't believe their vehicles are guaranteed to go for good money. The advice - and not just from the auction companies - is that prep is more important than it's ever been.
"The one thing I would say is that sales very much depend on vehicle condition," explains Rodriguez. "Certainly, when you have times of more supply, presenting your vehicles in the best way possible and reducing the damage on your vehicles will aid first-time sales."
"This is the time, as volume starts to increase, that we see that the auctioneers and remarketing companies are able to justify greater expenditure on preparation of vehicles," adds Pontin. "There is little doubt that there are some vendors that are taking the time and effort to refurb those cars to make sure that they stand the best chance of selling. I think that's right as you come into this marketplace."
Such is the demand for top-notch stock that Pontin thinks the leasing industry will start to lean harder on auction companies and professional remarketers as the year goes on.
"The other thing that I expect as we go into the latter part of this year and start to see even more stock coming into the market is more of those vehicles migrating back into the auction environment," he adds. "Some of the contract hire and lease companies are not remarketers - they do contract hire and leasing. They've been in a position where they've been able to quite easily remarket their vehicles at the end of the period, but I think they're going to find themselves in a position where the job becomes more difficult for them and they don't know what to do.
"We will end up with cars going back into the auction environment - a positive thing for auction companies and not a bad thing for leasing companies either. They're still going to sell their cars but they'll probably get a better result on those cars than they would if they were trying to put them through their own platforms, where they'll be battling with auction itself and other people doing a similar sort of thing.