Customers who take our gold book residual forecasting product, will see new forecasts for the SUV sector in June which are based on revised future market deflation assumptions for that sector.
The changes to assumptions are relatively minor, and positive, with the exception of large (over 4750 mm) SUVs.
This SUV sector review is the first of a 5 month cycle of sector reviews in which we will revise our sector and fuel type future market deflation assumptions, based on our latest forecasts for new car registration volumes, and the latest UK economic forecasts. These determine the balance of used car supply and demand, which drives future market deflation/inflation.
We consider that registration volumes in the SUV sector will continue to grow, although at a slower rate than in previous years, and so create increased future used supply. At the same time, future demand will continue to grow, boosted by positive driver experience and opinion of SUVs, and a relatively positive economic outlook (subject to the final outcome of Brexit negotiations). As with other sectors, used supply and demand will continue to switch from diesel to petrol, albeit at a slightly lower rate since diesel engines are suited to many SUVs.
The supply and demand changes will broadly balance out but be just tipped in favour of demand; hence we are slightly improving our base deflation assumption for the SUV sector, by approximately 0.5% per annum, while maintain a stronger rate of deflation on diesel relative to petrol. At 36/60k, the reduction (improvement) in our deflation assumption is 1.8% for petrol and 1.35% for diesel.
Small SUVs (under 4350mm) and medium SUVs (4351mm to 4750 mm) will receive the benefit of this improvement.
Large SUVs (over 4751mm) will be treated differently, and at 36/60k they will see an increase (worsening) of our deflation assumption of -1.5% for both petrol and diesel. This reflects our removal of a previous positive adjustment for large SUVs, which in our view is no longer appropriate for the future market.
Fuller details of these deflation assumption changes, and the overall impact of the sector review on SUV forecasts, will be available in our June gold book editorial