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CAP forecasts faster car depreciation in 2015

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CAP is predicting faster car depreciation next year as a result of on-going increased car supply coupled with flat, or only slightly positive, demand. 

It expects year on year market deflation (YOY%) to increase from 2.8% this year to 6% next year. 

This compares with typical historical figures ranging between 3% and 5% per annum, depending on vehicle sector.  

It is therefore slightly more than would be expected from normal lifecycle factors.

CAP said this is "a genuine market view and is not distorted by the impact of new model introductions, which are accounted for separately".

Dylan Setterfiel (pictured), CAP's senior forecasting editor described the market shift in 2015 as "from benign to deflationary". 

He said: "In summary, 2015 will be more deflationary than the last three years as supply continues to increase.

"However, little or no reduction in demand - compared with this year - will mean no repeat of the severe market conditions we saw in 2008."

The prediction has been made using CAP's new forecasting methods for residual values (Gold Book), which was introduced a year ago.

The methods have proved successful, with the used car market ending the year within 3% of Gold Book forecasts for the major sectors.

Setterfield said: "Key to the Gold Book forecast methodology is the differentiation between age, sector and fuel type instead of the more typical ‘one size fits all' approach that treats the market as a single entity.

"We also changed all elements of the calculation to reflect the true expected evolution of used values, rather than relying on artificial depreciation curves.

"This more sophisticated approach has occasionally thrown up counter-intuitive elements within forecasts, which have nonetheless proved to be correct. For example, depending on type of vehicle and the precise point in the seasonal pattern, cars at certain mileages may see higher values at 42 months than at three years.

"We are therefore delighted to see that the actual market deviated from our forecasts for 2014 by only 1.6% overall and as little as 0.6% for the lower medium sector, which is so important for fleets to forecast as accurately as possible."

 


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