Rupert Pontin, head of valuations as Glass’s, says 2016’s challenges should be surmountable, and that it has the potential to be another exciting, record-breaking year.
The latest SMMT figures have given the UK motor trade confirmation that 2015 delivered a significant increase in the number of new vehicle registrations. As Glass’s predicted a year ago, the new car market has exceeded 2.6 million vehicles for the first time ever and after four consecutive years of growth the final figure came in at 2.63 million units, some 6.3% higher than 2014.
Go deeper with GlobalData
Access deeper industry intelligence
Experience unmatched clarity with a single platform that combines unique data, AI, and human expertise.
This is without doubt a fantastic achievement, although many had felt this level of registrations was neither achievable nor sustainable. Credit must not only be given to the strength of the UK economy and the resulting consumer confidence but also the steady political environment that has allowed both businesses and buyers to trade confidently over the last 12 months.
Looking to the coming year, it’s important to acknowledge that this level of registration activity is mildly contrived. With a European backdrop where economic performance has been poor for many countries, manufacturers have sought to push factory over-production to the most viable market, which is currently the UK.
Despite the revitalisation of the fortunes of certain key European countries, this position will continue during 2016 until consistent growth becomes evident elsewhere, and that’s why registration volumes in the UK in the next year will show further growth. Glass’s expect the market to deliver a further 3% over 2015, taking volumes for the coming year to a record breaking 2.71 million units or so.
Maintaining registrations
US Tariffs are shifting - will you react or anticipate?
Don’t let policy changes catch you off guard. Stay proactive with real-time data and expert analysis.
By GlobalDataAppreciating how this level of registration activity will be maintained is critical and the finance industry will have a key part to play in the ongoing success of the new car market. Creation of innovative finance solutions will remain the best way to put a new car on the road, although in many cases the manufacturer will need to provide extra support either at the front end, as a deposit contribution, or on the return of the car where the market value is lower than expected. Creative future value setting will continue to blight certain contracts and therefore guaranteed future values will be less achievable. As greater volumes of cars are pushed into the used market, values will be under greater downward pressure, a point that’s not lost on a number of businesses that have begun to struggle in the auction halls in the closing weeks of last year.
From a used car perspective the greater volume has brought more choice and the number of cars returning to the wholesale market has taken quite a jump in recent months. The chart above demonstrates the extent of the increase specifically in the latter part of the year.
This does not include the increase in volume going to direct online remarketing platforms either, and contract hire and leasing companies have been developing these channels in recent years in a bid to maximise returns on the nicest cars they defleet. The result has been a shift from a vendors’ to a buyers’ market, in accordance with the laws of supply and demand, and this position will continue during 2016 as the influx of stock from the upturn in registrations in recent years really starts to gather pace.
Considering the fact that more new cars are being sold and that more used cars are feeding back to the used car pitches, the question is: will retail demand be strong enough to absorb the cars? The answer is yes, for the time being, but the finance industry will need to be innovative around PCP platforms for used cars. The alternative is that the consumer will always be attracted to low or zero-deposit new cars with appealing monthly payment plans that make a three, five or seven-year-old car appear expensive.
To complete an overview of 2016 acknowledgement of the Volkswagengate position is also essential as this may yet bite the market further. While it’s a given that VW crossed the line in the name of profit and broke the trust of trade and retail buyers alike, the evidence seems to be that diesel as a whole has not been damaged. Unsurprisingly VW Group cars have seen a drop in demand and value, the extent of which may seem to be lighter than many expected. The devil is in the detail though and the number of unsold cars in the trade is of concern to both the contract hire an leasing industry. The reaction of the public to the way ‘repaired’ VW Group diesel models perform on the road may see a further drop in values should driving style or economy suffer. Therefore it’s no surprise to find that there are a number of wary trade buyers in the market at the moment, eager to take advantage of specific retail requests and keen to avoid buying large quantities of VW group product as speculative stock.
In conclusion, the coming year looks set to be another exciting record-breaking period for the UK motor trade.
With a landscape of a steady economy, strong consumer confidence and increased stock volume there’s plenty of opportunity peppered with surmountable challenges that can be overcome with foresight and accurate market data and business intelligence.
