Fleet News

First signs of credit crunch hitting residual values

The fleet industry is waiting with baited breath to see if current problems in the used market are a temporary blip or part of the credit crunch that could see residuals fall and leasing rates to rise.

According to industry insiders, the used car market has been experiencing issues with oversupply. Some commentators are now suggesting that auction houses are warning their customers that they cannot accommodate any more stock.

Some commentators are suggesting that the problem is being created by used buyers being unable to obtain credit due to the current financial climate.

If so, the ramifications for the industry are serious - used prices will fall, and leasing companies will move to address the financial imbalance by raising rentals.

However, opinion is divided, with some claiming the extended Easter school holidays and cautious buyers are to blame.

But there is no doubt that the state of the economy is affecting the used market, and fleets will have to adapt.

Andrew Walker, CEO of Fleet Auction Group said: “We’ve been seeing for a while a significant number of early termination cars being sent to us, which suggests trading conditions for many companies are not what they were and staff are being made redundant.

"So we’ve been advising customers for a number of months to defleet cars whenever possible to avoid a sudden glut.

“Also, I believe that leasing companies are going to have to accept that under current conditions, with prices dropping, they can’t just demand CAP Clean.

"Instead they will have to be more flexible to react to the actual prices being achieved.”

Alan Senior, director of Vehicle Information Publishing agreed: “There’s a huge problem with oversupply at the moment.

"We’ve been seeing a number of auction houses desperately having to find more space to accommodate all the vehicles they’re not selling.

“The effect of this is that with many private buyers unable to get credit, there could be a huge glut with market that will inevitably push prices down.

"The biggest losers will be the volume brands.

"Premium used vehicles will always be desirable, and customers for those cars will probably be well off enough to get credit anyway.

“Condition, as always, will be key to selling cars."

However, other industry experts disagree.

A spokesman for Manheim said: “We are not seeing any real evidence of oversupply in the market with conversion rates still healthy at 65% to 70% with several vendors achieving 90%.

"We understand that while there may be some restriction on retail funding this hasn’t yet impacted activity on the auction floor.

"There were signs during April that the market was starting to ease back a little due to economic uncertainty but we do not expect a significant price realignment.”

BCA’s Communications Director, Tony Gannon added: “In the last few weeks used vehicle stock levels have been extremely high and auction entries have reflected this and conversion rates have come off the very high levels achieved in Q1.

“Stocks are now returning to more normal levels.

"There is still sufficient demand in the market place to meet supply providing, as always, vehicles are presented and priced appropriately.”

CAP added that its research has not found any evidence of credit issues among used car buyers.

A spokesman said: “We have so far seen no evidence of a connection between the high levels of stock in the marketplace at present and any difficulties consumers may be having in obtaining credit to buy used cars.

"Recent FLA figures actually show a rise in motor finance business for February and stronger business than for some years.

“A survey of 122 retail dealers last month suggested that a quarter believe consumers are currently more cautious than usual about buying cars due to the credit squeeze and general economic uncertainty.

"Around half said they expected those factors to have an impact at some point this year but another quarter remained confident that sales would match last year's.

“Any view of the current marketplace should be tempered by the fact that this is a period where there a lot of returns still in the disposals arena.

"Because this is such a visible phenomenon it understandably causes some alarm and feeds fears that the market is grinding to a halt.

"CAP research does indicate that the market is currently slowing but it believes that this reflects consumer caution rather than a collapse of confidence.”


 

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