black book editorial February 2018

New Car Sales

SMMT statistics for December illustrated the continual slowdown in activity with 25,549 fewer registrations than seen in December 2016 and a 5.65% decline in the full year against 2016.  This trend had continued after the exceptional volumes registered in the first quarter of the year which had been hugely influenced by the changes to Vehicle Excise Duty which came into effect on the first of April 2017.  December is one of the less significant months in terms of volume however, it often highlights those manufacturers who are looking to achieve sales targets and, therefore, market share.  Whilst this continued to be the case with a number of franchises, it was far less obvious or widespread than experienced in previous years.  A combination of the pressure on the exchange rate leading to reduced marketing support and more realistic volume expectations have led to an easing in forced registration levels.

Looking at the top 20 manufacturers and how their volumes compared to 2016, only 7 saw increased registrations with SEAT +18.28%, Mercedes-Benz +6.56% and Toyota +5.42%.  Ford remained the largest in terms of overall volume with Volkswagen in second and Vauxhall third.  There has been a great deal of speculation regarding market share and how certain manufacturers have slipped against the previous year’s results.  Whilst there are, no doubt, critical factors such as production rates and efficiencies from the manufacturing plants to consider, it is also important to consider the effect on residual values that volume inevitably creates.  Where registration activity is more closely aligned to natural demand, values tend to be more stable and a stronger residuals have become increasingly more important with so many retail and fleet & business transactions conducted on RV contracts.  

The registration volume by channel paints a similar picture across Private and Fleet & Business - the strong first quarter followed by the gradual decline throughout the rest of the year.  Rental volumes (contained in the fleet & business overall numbers) remained relatively high through the second quarter but saw a significant decline in the second half of the year finishing 2.4% behind 2016.  The effect of the additional volumes of nearly new vehicles entering the market was noticeable from September 16 through to February 17. 

It seems that no editorial could be written without mentioning the decline in market share for diesel powered vehicles.  December saw a 31.1% decline when compared to December 2016 and an overall year on year slip of 5.7% in market share.  Petrol vehicles have increased in overall market share by 4.3% and Alternative Fuel Vehicles increased by 1.4%.  There are a number of significant factors as a consequence of this shift in consumer demand.  Average CO2 emissions have now increased as the switch from diesel has been to petrol rather than AFV’s.  It appears that this trend in likely to continue and the challenge faced by manufacturers to achieve the target of 95 grams of CO2 kilometre has become increasingly more difficult as a consequence and is highly unlikely to be met without either a greater representation of AFV models or greater clarity on NOX emissions from Euro 6 diesel engines.  Either way, this is likely to play a significant part in the direction of the new car market over the next few years. 

Predicting what we may expect from the new car market is not an easy task and the latest SMMT forecast released in October 2017 has predicted that the market will contract to 2.426 million, representing circa. 115,000 less registrations and a further erosion in diesel market share.  Should this transpire to be the case, it would rank sixth in volume terms since 2005.  As 2018 progresses, and if demand is similar to levels experienced in 2017, fewer new cars in the marketplace is likely to lead to less tactical and forced registration and greater stability in the nearly new market.  The view is that 2018 will move ever closer to reflecting the natural market. 

Auction Activity

Historically, January had been a month that used to see buyers come out of hibernation after running stock levels relatively lean through December.  However, as recent years have seen, there are far more dealers and traders who see December as a significant opportunity to take advantage of what has been a less competitive marketplace and stock up in preparation for the new year.  This was evident as the Auctions opened for business after the festive period.  Attendance levels and activity for the first couple of weeks had been reasonable but had certainly not see a flood of buyers in the halls fighting for stock.  However, as the month progressed, and dealers began to search for stock, activity and competition increased leading to a significant strengthening in prices.  Those that took advantage of the December market are unlikely to be able to replace quality stock at the same prices as the market strengthens. 

Used Cars – Trade Values

The New Year usually sees an upturn in retailer activity which then translates to a more buoyant wholesale market.  January saw overall prices reduce by 0.2% at 3 years 60,000 miles which is very close to the seasonal average of -0.3% but stronger than the downward movement of 0.6% experienced in January 2017.  Much of this can be attributed to the easing in new car pressure compared to the start of last year and the greater focus on used cars expected throughout 2018.  At the middle of January, values at 3 years 60,000 miles had seen a decline of 0.5% illustrating how much stronger the market became in the latter stages.  The shift through January has certainly suggested that it has become more of a sellers’ market as competition for the more desirable used car stock has certainly heated up. 

As the diesel debate continues to form a great proportion of the headlines, we observed that average petrol values continue to see strength, a trend that formed since December 2016.  Overall, at 3 years 60,000 miles, petrol values increased by 0.1% and diesel values decreased by 0.5%.  The market is 0.4% stronger than that experienced through January 2016 and both petrol and diesel averages have precisely matched that movement.  Whilst it can be said that the supply of petrol vehicles is potentially slightly behind the demand, there is no evidence to suggest that used car customers are phased by the negative press reports 

Price performance of Alternative Fuel Vehicles does, perhaps, reflect greater consumer acceptance of technology outside of traditional internal combustion engines. The trends that have developed for both electric and petrol hybrid derivatives over the last year or so have certainly been illustrating strength in demand.  This can be seen as an encouraging sign for future values as we are likely to see increasing volumes of AFV’s appear in the used car market throughout 2018. 

With manufacturers looking to reduce their average CO2 emissions, it appears that the task of educating franchised dealers to sell, and customers to buy, alternatives to petrol and diesel is somewhat easier now than in the past. 

As previously mentioned, the increased volume of short-term daily rental volumes returning to the used car marketplace, caused by the higher registration levels in the first half of 2017, continues to see nearly new vehicles erode at a higher than average rate.  Both 6 months 5,000 miles and 1 year 10,000 miles saw values move back by 0.4%, double the average at 3 years 60,000 miles. 

As we move through the next months, we may see this late plate pressure dissipate as supply begins to reduce twinned with potentially fewer pre-registered cars being created.  Much of this will be dictated by new car demand but it seems unlikely that we will see the same levels of activity in this area as experienced over the last few years. 

What Next?

The February wholesale market is usually one of strength and since 2013, average prices, at 3 years 60,000 miles, have increased by 0.2%.  Having witnessed the surge in used car demand in the latter stages of January, there appears to be nothing to suggest that we are not going to see this rise again in February 2018.  Buyers that are a little too cautious in what is likely to be a rising market risk losing out on stock and may find themselves having to bid to a higher level for the same cars as the month progresses.  Wholesale stock is likely to begin to decline and choice will become limited.  Lower graded vehicles, previously seen as too time consuming to prepare for sale, will potentially be seen as an opportunity as the cleanest vehicles will command strong values. 

There are not too many times in the year where the vendors beam smiles across the auction halls whilst buyers face increasing competition and prices, we could just be approaching one.  As always, cap live will continue to reflect the fluctuations in the market on a daily basis. 

black book February 18 - Average Value Movements 

( ) Denotes negative percentages

Notable Movers 3yr 60k