Fleet News

Blog: Will increased new car registrations hurt residuals?

Higher than expected new car registrations in 2013 might have made some nervous about future values of cars. But it all depends on what happens in the rest of Europe.

There are fledgling signs that a recovery may be starting in Germany and France (although reports of year over year increases last month were misleading due to the extra working day in most countries), and this will be the key to what level of volume finds its way into the UK.

The manufacturers are caught between a rock and a hard place – without recoveries in these markets they are faced with the bleak choice of selling into the UK at unfavourable exchange rates and with high levels of discounts and incentives (potentially loss making sales) or cutting production and taking a huge productivity hit.

However, once France and particularly Germany pick up, there should be a significant release of pent up demand and the discounting and incentive activity in the UK could drop off very quickly.

In terms of used values, our research for Gold Book has thrown up some very interesting differences in relationships between used values for individual vehicle sectors and the levels of new car registrations.

For example, contrary to popular opinion, supermini and city car prices do not seem to be impacted on average by increased registrations. We have analysed it in every direction we can think of: volume, year over year change, total market, vehicle sector, fuel type, current, lagged, but every way we have cut it there is no impact on average used values for the sector.

However, what we see is that where there are higher volumes of an individual model, the used values for this model will reduce but other peer models will tend to offset this with modest increases so that there is little or no impact on the sector average. This is also explained by the fact that the used market is accustomed to large volumes of this type of vehicle in the marketplace and they are also very popular to a wide customer base and therefore easy to retail.

The situation is somewhat different when we move to lower medium and upper medium sectors – used values are much more closely related to volumes registered and nearly new values will decrease across the sector as a result of higher overall volumes. The concern remains that if the recovery is not confirmed in Germany and France in the coming weeks, then we could see large levels of ‘forced’ registrations in the UK at the end of the year with a subsequent reduction in nearly new values to follow for most sectors in 2014.

Whenever there is a decrease in nearly new values caused by increased new car sales filtering into the used market, there is a ‘ripple’ effect at different ages and mileages.

By the time that this reaches a typical fleet age/mileage profile, the impact is much reduced and so we do not expect to see significant decreases in three or four year old values in the next 12 months as a result of this.

In Gold Book we are segmenting our market assumptions by age, sector and fuel type and so we will be able to take account of these varying relationships and impacts in our new forecasts to be published later this year.

Although the offers currently being generated by leasing brokers may be applied to vehicles due to return to the used market in three or four years’ time, these will remain a relatively small proportion of the overall leasing segment and may not even represent incremental volume - they may have replaced registrations which would have been processed through other channels in the absence of the incentives.

In general, our Gold Book research has shown that three and four year old prices are more closely linked to level of fleet registrations, either overall or for the individual vehicle sector and these will tend to be driven by business need rather than the availability of offers.

At CAP, we will be publishing new car registration forecasts as part of our new transparency product, Gold Book IQ. Unlike most other organisations, these will cover not just the current or following year, but will go out for the next five years.

We increased our forecasts for 2013 a lot earlier than everyone else, but expect 2014 to be only marginally ahead of 2013. Private registrations should start to slow due to a reduction of discounts and incentives, but fleet and business sales are expected to continue to increase as the economy slowly recovers.

Dylan Setterfield
Senior forecasting editor
CAP


 


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Comments

  • Rob Chisholm, Applewood Vehicle Finance Ltd - 30/08/2013 09:05

    I can certainly see a problem for the prestige German brands if they continue with such aggressive pricing - however because much of the funding is being taken by them on the distress selling side of the business it is they who will have to face the consequences to a much greater degree than the independents. However I suspect that they will rein their activities in before this becomes a reality - how long can they maintain a 'prestige' stance for when their cars are clogging up the forecourts and auction halls? On a separate note, has any consideration been given in this argument to the reduction of used vehicles in the market due to their increasing complexity and the increasingly rigorous MOT tests meaning that many vehicles will have a much reduced working life than we have been accustomed to. Many will fail due to uneconomical repair costs. Used vehicles below £5000.00 will become harder to find, so that people who have such a limited budget will be driving around in who knows what. This may well have a balancing effect on RV's over the coming years.

  • Dylan Setterfield - CAP Senior Forecasting Editor - 30/08/2013 15:30

    Good question. In our view, increasing vehicle complexity and rigorous MOT testing are broadly offset by improved engineering. Provided that a car is adequately maintained, we would expect it to last longer than previous generations. The days when a car was scrapped after 100,000 miles are long gone, although scrappage schemes will severely hamper any statistical analysis.

    • Rob Chisholm, Applewood Vehicle Finance Ltd - 30/08/2013 15:53

      @Dylan Setterfield - CAP Senior Forecasting Editor - thanks for your reply. I guess I am thinking about emissions regulations, DPF's, DRL's, airbags etc as opposed to mechanical failure., but maybe that's what you were alluding to as well.

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