Consumer finance data is already beginning to highlight some areas of concern and these must be recognised and confronted, says Glass’s.
There is an expectation that new car registrations will fall in the coming year. This is unlikely to be of issue to the manufacturers though, as the European new car market is showing signs of growth and consistency and as such production volume that 6 months ago may have been earmarked for the UK will now become left hand drive and head for a different market.
The result of that will be that there will be less pressure on forcing cars to a market in the UK that may not be as healthy as it had been. The need to provide enormously attractive cheap deals for the UK consumer just to move cars will dissipate and so new vehicles may become less attractive to a retail customer as the headline monthly cost will naturally increase.
The pressure on monthly rates will not be helped in 2017 by the new VED system which will push costs to the motorist ever higher and is a topic for discussion in its own right as the market ramifications in 2017 with be widespread.
A slower new market will actually be quite good news for the used sector and the reason is that volumes in the wholesale market have started to increase, as Glass’s predicted over a year ago, and this is beginning to have a negative effect on used car values.
Volumes of cars in the used car market were up 1.9% year to date in the period until the end of October 2016 which although some way behind the 2015 figure is still a cause for concern. Specific worries are around the age of the cars coming to the market at the moment and the impact this is having on residual values.
The chart below demonstrates the value of a used car by age sector as a % of original cost new over the past 6 years :-
From this chart it is clear to see that for vehicles registered in the Late and Low sector of cars up to 2.4 years old and the Fleet Sector of cars from 2.5 to 4.4 years old, values have begun to see a downturn.
This is not only directly attributed to the number of cars being defleeted but also to the number of units being pre-registered, and Glass’s data can be very specific in identifying what age and which models are performing better than others.
Interestingly the chart shows it is the older cars that have been gently improving in value in recent years and this is because they last longer than cars did 6 years ago. In many cases it is the technology that fails on older cars and not the appearance or deterioration of trim or bodywork and it is the latter that historically influenced the owner to buy a newer vehicle.
The Bank of England is warning of an increase in the rate of inflation and the impact of the change in the exchange rate will partly fuel this as it has put manufacturing costs up notably.
This implies that there may be financial pressures on some consumers and there could be a resulting drop in confidence and if that happens a decline in demand for big ticket items, including cars is possible.