We now have registration data for the first six months of 2015 and, at first glance, it’s good news with volumes a whisker away from being 7% up over 2014. The concern, however, echoed by many inside and advising the downstream sector, is registration data moving further away from the reality of sales. Targets for dealers are higher than ever and more and more innovation is creeping in to the monthly statistics.
Our worry is the impact this is going to have on the used vehicle market, and in particular, residual values. While it’s true that average used vehicle prices have risen faster than new vehicle price inflation over the past few years – and that this is unsustainable – it’s not a certainty that this situation will reverse suddenly – but it could if factors conspire to knock confidence.
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We understand that three-year-old vehicle values are not showing declines at auction as yet. Nonetheless, certain volume marques are not performing as well as premium brands against book values against this benchmark
In the ‘late plate’ category, the innovation in registration is completely transparent – new vehicle registrations have been growing on a seasonally-adjusted basis for many months yet recent surveys show that is not translating into new sales but adding into an almost ‘created’ category of ‘delivery miles used’, with supply becoming ever more abundant
Strong management by all concerned is the holding glue, but additional supply from further 2015 volume, and faster turnaround personal contract purchase return product, could be seriously challenging on prices. So we have an incredibly mixed message of positivity and concern over sustainability.
What do we anticipate? The downstream sector should expect some softening of used vehicle prices in the near term as supply increases in line with heightened new vehicle sales from 2013, accelerated PCP returns, and increasing disparity between dealer new car registrations and sales. The wise dealers are managing stock levels with this in mind and ensuring that stock turn is kept high and vehicle availability prioritised.
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By GlobalDataIt is an unfortunate consequence of monthly valuation book changes that profit can be lost simply by a drop in used vehicle stock value and the PCP bandwagon potentially derailed by not achieving the right residual value at the point of change. Although some brands seem more affected than others, it’s good to be prepared.
Paul Burrows is a director at Grant Thornton, and Richard Parkin is an automotive sector specialist at Grant Thornton
