It is that fear of the unknown that worries contract hire and leasing company bosses the most and some point to two factors in having had had the biggest impact on the used car market this century as:

• The start of the banking crisis in 2007 and the resulting fall out which led to a shortage of credit and the global recession in 2008
• The 2000 introduction of the Supply of New Cars Order, which made it unlawful for a supplier of new cars to discriminate unjustifiably between fleet customers and dealers purchasing outright with respect to discounts for the supply of similar volumes of new cars.

Both issues ‘murdered’ residual values, according to one industry figure leaving contract hire and leasing companies with stocks of defleeted cars and few buyers. As a result used car values plummeted and so did vehicle leasing company profits.

“In both cases we were trying to sell cars that no-one wanted and we lost fortunes as a result,” said Nick Hardy, sales and marketing director of Ogilvie Fleet.

Of course the used car market is now transformed and, as data from CAP and auction giant BCA highlights (see panel 3), used car values have never been so good.

But, the expectation in some quarters is that the seemingly inexorable month-on-month rises in the values of ex-fleet and leasing company cars is about to hit the buffers.

Setterfield is forecasting a 7% decrease in residual values this year with a further fall of around 3-4% in 2014/15 excluding the impact of new models. That prediction is based on annual increases in new car sales and higher numbers of ex-company car returning to the market.

If that reduction seems a lot then it needs to be remembered that in the 12 months January 2008-January 2009 values fell 30% and put some leasing companies lacking financial strength out of business.

“We have reached a price plateau,” argues Hardy, highlighting the risk and reward nature of the vehicle contract hire and leasing sector. “The used car market will not get any stronger and will probably weaken and, as a result, residual values will drop back very slowly. They have reached their natural high point.”

In responding to last year’s ‘FN50’ report published by Fleet News, Ogilvie Fleet was one of many leasing companies that predicted ‘no change’ in residual values over the following 12 months. Half-way through that period and Mr Hardy believes a small reduction could be in the offering.

“I don’t think the decline will be significant, but residual values will reduce as new car sales increase slightly as forecasted by the Society of Motor Manufacturers and Traders.

However, Ian Nicholson, finance director of Venson Automotive Solutions, which also predicted residual value stability in the ‘FN50’ survey sees no reason to change that view.

“Values are holding up,” he said. “Supply is not quite keeping up with demand as a result of new car sales falling off a cliff in 2008 so there remains a shortage of good quality vehicles in the ready-to-retail market.”

The European macro-economic climate and fuel prices are the key influencers as far as Mr Nicholson is concerned on future used car values.

He explained: “Unless there is something catastrophic in the macro-economic area then we see values continuing at current levels. However, if fuel prices continue to rise cars that are more cost effective to operate will grow in popularity and other vehicles may take a hit.”

In the ‘FN50’ Alphabet forecast a 3% residual value decrease, but Jim McNally, the company’s asset risk manager, is now anticipating a ‘flat market for 2013’.

Reflecting on the European influence on used car values, Mr McNally said: “When we made the estimation towards the end of last year, the euro exchange rate, which is the primary factor in determining the volume of short cycle new registrations, was in the high €1.20s. Whenever the rate is above €1.25, it makes the UK look like a profitable market to push volume into, especially when Europe is in the doldrums.

“Conversely, a weaker pound makes it much less profitable for most European and Far Eastern manufacturers to push volume our way. That’s what we’re now seeing, along with improved sentiment about the outlook for Europe. So the UK is under greatly reduced pressure to soak up volume this year. That alleviates the risk of the UK suffering from over-supply of short cycle business, which would have led to subsequent falls in used values across all years.”

However, residual values that reached record levels in 2012 will not be sustained in 2013, according to Scott Lloyd, head of data and pricing at Tusker, which in the ‘FN50’ forecast a further 5% rise in residual values.

“There will be no rapid decline in residual values, just a slight fall of perhaps 1-2%,” he said. “2012 was a record year with good condition, low mileage ex-company cars finding willing buyers first time round, as dealers were anxious to get them straight onto their forecourts.

“We don’t see demand being quite as strong this year with the current gloomy economic conditions dampening demand from retail buyers. But we don’t see it being a bad year either, and although we think values will decline from the peaks of 2012, we think this will be a gradual and slight reduction, rather than a dramatic one.

“The lack of vehicle supply that we witnessed last year and is still continuing will prevent prices from falling dramatically, despite the state of the economy and the threat of a triple dip recession.”

Looking further into the future, Lloyd believes that the record used car values of the last 12 months are unlikely to be maintained, especially as UK new car sales finished 2012 more than 5% up and were 11.5% up in January this year.

“We can’t see the record residual values being maintained once supply starts coming back to the market in three years, although it is very difficult to predict where they will be. It all depends on your starting point and how bullish your viewpoint,” he said.