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Managing supply is key to used values

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Andrew Mee, head of forecast UK at Cap HPI

As the lockdown unwinds and the nation starts to return to work, Cap HPI predicts a fall in car values for about a year, but certainly not a crash in values such as we saw in 2008.

It will be important that, as far as possible, fleets try to stagger their returns into the used market, especially in the early weeks and months, to avoid accelerating a fall in values and distressing the market.

In the short- to medium-term, for at least 12 months after the car market starts to operate again, residual values (RVs) will come under pressure as the volume of supply from previous years registrations will outweigh used buyer demand.

Consumer confidence will be hit by the inevitable impact of an economic recession and higher unemployment.

During this period, smaller, cheaper cars will be likely to be less affected, as they will be the preferred choice for budget-conscious buyers.

In the longer term, RVs will recover as the economy and consumer confidence improves, and as used car supply reduces as a result of the drop in new car registration in 2020 and probably also into 2021. 

For some car sectors, this could result in slightly higher values in around three years than had the pandemic not occurred, before values then return to more normal levels as used supply starts to build back up.

For commercial vehicles, March was the turning point for both the volume of wholesale light commercial vehicles (LCVs)being sold and also the reduced performance against published guide values.

However, a 95% reduction in volumes of used commercials available and the age profile of the stock has resulted in maintaining the performance of the sold units.

The industry will change and have to adapt to the new ways of doing things, and for the LCV world, this could provide a positive outlet for both used and the fewer new vehicles that will become available.

As the economy gets back on its feet, the commercial vehicle industry will be vital to the recovery, whether it is delivering groceries or serving the construction industry.

In both the car and commercial markets, we expect a more volatile market for the rest of 2020 and the first half of 2021, but with no significant long-term impact on values.

Fleet managers should monitor both current and forecast values for a rounded view of the market.

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