Residual values plummet as credit
squeeze bites

UK motor lessors are increasingly alarmed at the fall in used-car
values as retail demand continues to drop and second-hand vehicles
remain stuck in showrooms.

In early August EurotaxGlass’s predicted that used-car values will
fall by at least 12 per cent between now and Christmas. Adrian
Rushmore, managing editor at EurotaxGlass’s explained: “We
anticipate that trade prices will continue to fall at a greater
rate, month on month, between now and the end of the year compared
to one year ago.

“In general,” he added, “this represents a trend that has been
apparent during the first seven months of the year.”

BCA’s July Pulse Report revealed that used-car values tumbled in Q2
2008 by some nine points – the biggest fall recorded in 3.5 years.
Average values for fleet and lease used cars again fell sharply
from £6,428 in May to £6,189 in June – a drop of £239 in a month
with similar age and mileage profiles. The average decrease was
equivalent to -3.7 per cent, on the back of a 3.2 per cent fall the
previous month.

CAP valued the same stock at £6,688, a fall of £218 over the last
month and equivalent to -3.1 per cent. As a result, the percentage
achieved against CAP Clean by fleet and lease stock fell for the
third month running from 93.1 per cent to 92.5 per cent.

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Auction company reports “difficult
times”

Tony Gannon, BCA’s communications director confirmed that July has
proved “the most difficult month to date” for average used-car
values. He added: “What is more important now is seeing if the
market will bounce back in Q3 2008 as it has in previous years.
This makes next quarter’s Index figure critical for industry
watchers.”

Fleet sales down

Private sector new-car sales have fallen in every month of 2008 but
the July drop of 13 per cent was the steepest recorded since
February 2005. Up until July, fleet volumes have supported the
market but, ominously, in July these began to recede.

gThe Society of Motor Manufacturers and Traders (SMMT)
revised its new-car sales forecast for 2008, predicting a 6.6 per
cent decline in volumes in the second half of the year. Its
forecast for 2009 was similarly cut due to concerns that the
economic situation will remain subdued for a more prolonged
period. 

The growing imbalance between diesel and petrol process was
reflected in a fall in diesel car sales in July for the first time
since February 2007 while, tellingly, demand for
alternatively-fuelled vehicles rose by 19.4 per cent in July to
some 1,479 units.

Indications are growing that UK car buyers are considering an
alternatively-fuelled vehicle for their next purchase. A recent
Auto Trader poll of 3,300 UK motorists, for example, showed that 77
per cent of respondents believed that fuel costs and CO2 emissions
were the paramount criteria for future car acquisition.

Facing a stiff challenge

Although the greater product mix in UK fleets and lower
preponderance of 4x4s and larger “gas guzzlers” means that UK
lenders are unlikely to retreat from lease quoting (as in the US)
in any large numbers – there is no doubt that a radical shake-up in
the setting of residual values is taking place in back offices
around the country.

One lessor told Motor Finance: “We are facing the biggest challenge
to automotive leasing since the ‘Rip-Off Britain’ campaign of
2000/01 when residual values fell and seriously hit lessors’
profitability. Alarmingly, the underlying forecast for values is
negative for the foreseeable future.”

Brian Rogerson