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Exploding the myth of the upper medium RV slump

With the continued heavy reliance of contract hire and leasing companies on large volumes of upper medium vehicles, the fortunes of this sector are key to the performance of their operations.

There is a perception that upper medium vehicles have been particularly badly hit during the current residual values downturn but, as the chart below shows, this is not the case.

Since 1998, the upper medium sector has actually outperformed the all-car index by a significant margin. To an extent, the upper medium trends will closely follow the all-car sector since it constitutes such a high proportion of the sector by volume.

However, unlike the executive sector, there has been no clear under-performance in recent months. In fact, during the past 18 months, upper medium values have held up better than those of the whole market.

As the chart shows, from 1995 to 1998 the upper medium sector tracked the fortunes of the all-car index closely. Starting from an index value of 100 in January 2000, residuals rose by more than 20% during the first two years, slightly ahead of the all-car index. As the market fell during 1998, the upper medium sector fell more rapidly, and by December the two indices had converged.

However, during 1999 and 2000, upper medium values have out-performed the index. This is despite a 20% decline in upper medium residuals, which have now returned to the 1995 level.

Together with the other high-volume sectors (supermini and lower medium), the upper medium has escaped the worst of the downturn that has affected more expensive market sectors such as 4x4 or executive.

Clearly, the lower residual values of the mass-market sectors have meant that they are insulated from the larger declines found in, for example, the executive sector. Upper medium vehicles are not as exposed because residuals are starting from a lower base point.

Since a large number of vehicles in the upper medium sector are due for replacement shortly, the current market performance reflects the fortunes of vehicles that are in many cases almost obsolete.

In this context, the fall in upper medium residuals partly reflects the downward pressure due to normal life-cycles. However, with a number of new models such as the Mondeo and Laguna to be launched soon, residuals for current vehicles will remain under pressure. ##Values(1)--none##

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