It may as well have been Christmas all year round for anyone selling an ex-fleet or
lease vehicle in 2013.
Those with even a passing interest in second-hand values can’t fail to have noticed the meteoric rises over the past year. The tail-off in new car sales that bit during the worst of the recession has meant demand has been outweighing supply for a long time, driving up prices to consistent record levels (see graph).
The elephant in the room is what will happen in 2014. Is the value bubble likely to burst?
BCA’s operations director Simon Henstock doesn’t think so: “There are no signs the demand for retail-quality used cars is going to ebb, so we expect values to remain strong, which is good news for corporate vendors.
“Sourcing vehicles will continue to be a major concern for used car dealers, and if the economy continues to improve, increasing retail demand could mean there is even more competition for stock in the remarketing sector.”
He adds: “Whether or not we see the sustained price evolution we have experienced over the past 24 months will largely depend on stock availability and buyer confidence, as price is effectively set by the balance between supply and demand.”
Henstock isn’t alone in his belief that strong used values are likely to be a fixture of 2014. Few within the industry are predicting anything in the way of a tail-off, but further rises in the same vein as those seen in 2013 are unlikely.
Head of remarketing at Leaseplan, James Hopkins, says: “I expect that over the course of the next 12 months, strong values for ex-fleet and lease-sector vehicles will plateaux. Used fleet cars will retain their current residual values, and we may even see a strengthening of the commercial vehicle market.”
As Hopkins suggests, ex-fleet and lease vehicles have done particularly well, something BCA’s data also reflects. Henstock points out that values of typical vehicles in this sector are now the best part of £1000 up on 2012.
“Corporate sellers continue to see good returns on their vehicles and should expect that to continue given recent trends. Last year, average fleet and lease values improved by £909 to £8889, a rise of 11.3% compared to 2012. Average performance against Cap Clean improved by half a point to 98.6%,” he says.
Poor condition
Henstock warns that despite the strength of 2014 values, operators can’t afford to become complacent with vehicles that are in below average condition.
“However, vendors should beware of expecting the best returns for vehicles in poor or below average condition. There is little to be gained by placing over-aspirational reserve valuations on cars if the market is not prepared to meet those expectations,” he says.
“Sellers should consider adjusting valuations now on poorer-condition cars with a view to remarketing them before volumes begin to rise, and buyers have more choice from mid-March onward following the plate change.”
Vans are in for a good year too, says Hopkins: “The market for used light commercial vehicles is anticipated to remain strong. This will be mainly fuelled by an increase in demand for used vans and a simultaneous lack of supply due to production levels halving throughout the recession.”
Hopkins reckons used cars values could be in the clear until at least 2015 – barring something drastic happening, such as “tactical actions taken by manufacturers [that] considerably impact supply”. He continues: “2013 did see a growth in new car sales, but we are unlikely to see any significant influence on the second-hand market until 2015/2016.”
Henstock agrees that 2015 is the likely watershed for a shift in used values. That’s when the increasing volume of new car sales is tipped to catch up with second-hand models, as the ‘Volume of used cars’ graph.
“While new car volumes have recovered well in 2013, it will be some time before we see those volumes reach the used car sector.
“As the chart shows, the availability of three-to-five-year old cars will continue to be depressed at least until 2015, when compared to the volumes available before the recession.”
He adds: “The overall shortage of used product and the issues of supply versus demand will see a continuation of high conversions and higher selling prices in 2014, effectively meaning we are going to see more of what is best described as a ‘sellers’ market’.”
The residual value expert’s view
Like BCA and Leaseplan, Rupert Pontin, chief car editor at Glass’s, also thinks 2014 is set to be a healthy year for used values.
“The used car market in 2014 is likely to be a vibrant and stable one overall. Late-plate values will remain under pressure as a result of the ongoing tactical new car activity, while the three-year old market will continue to suffer from the lack of supply experienced in the last few years until the middle of the year. Consumer confidence is likely to continue to grow, which is great news.”
One thing to watch is the amount of three-year old ex-lease cars coming to market mid-way through the year, as this may start to increase and has the potential to take the edge off prices.
Pontin continues: “Ex-fleet and lease-sector vehicles returning to the market will begin to increase
in volume from mid-year and this may result in an easing of three-year old values dependent on the state of the economy. With greater volume we should see a wider choice of models coming to the market, too.”
The main area to watch, according to Pontin, is the introduction of the new Euro6 emissions regulations in September, which may see a spike in non-compliant cars, diesels in particular, hitting the used market.
“Euro6 will impact new car sales toward the end of the year, and as such we may see a number of
pre-reg diesels heading to the forecourts, but we will have a clearer view of the impact closer to the time as we monitor how manufacturers handle the situation.
“[The regulations] may pull new car sales of non-Euro6-compliant cars forward, resulting in a peak of defleet activity, and this may result in a small period of oversupply to the used car market, so care must be taken to manage this period carefully.”
