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Street-corner talk more value than 'doom and gloom' headlines

Forecasters, by their very nature, tend to take the pessimistic view of future residuals - they are happier when things turn out better than expected than vice versa. Unfortunately, however, it is these forecasters who tend to make themselves heard best because doom and gloom makes better headlines.

For the past six months, the press has been full of the collapse in residual values and there have been a multitude of factors cited as guaranteed to bring about catastrophe, such as European price harmonisation, oversupply, direct government intervention, increased taxation, environmental issues, internet retailing, changes to block exemption, and so on.

But you must always bear in mind that the pessimism of forecasters rarely turns out to be justified.

Declines in residual value such as those talked about of late only tend to occur over long periods and are the result of overall changes in market conditions, rather than individual factors. The market tends to be more stable than many give it credit and withstands a large degree of pressure from these factors.

Take the internet as an example. What effect will it have on residual values?

The main point here is that it is highly unlikely that anyone other than the most experienced trader will buy a used car unseen - it's as simple as that.

The internet will create fresh channels through which to notify the public that cars exist and are on sale. Therefore each car ends up with even more potential buyers. Quite how that will damage residual values - and quite why the internet is therefore such a threat to the industry - remains a mystery to me.

In addition, one thing this business is not short of is information, whether through the internet or other means of communication.

Indeed, the British used car buying public has had its own version of the information superhighway long before www dot something was thought about.

It's called word of mouth and the portals and sites where it happens is every shop, pub, street-corner, home and workplace. Here is where people discuss the deal they got when they bought their latest pride and joy, the specification of a new or used car they or a friend has bought, what's good, bad, indifferent and so on.

This is one of the ways in which the new and used markets differ so comprehensively. Manufacturers dictate the prices of new cars and their portrayal, through marketing. But the UK used car market is driven wholly by the private buyer, and is totally dependent upon all their collective wishes. The lesson here is if you want to keep up with trends and satisfy demand, listen and talk to people outside the showroom too. After all, it's good to talk.

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