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Residual value slump worsens in 2000

Looking back on 2000, the decline in residual values averaged 8% year-on-year, a significant worsening compared to previous years. In 1998, there was a decline of just 2%, while 1999 averaged 5%.

Initially, this was related to the economic slowdown in 1998-99. Residuals fell as economic policy was tightened to prevent inflation rising.

Under normal circumstances, residual values would have returned to growth in 2000. The economic fundamentals were positive enough, with economic growth around 3%, to offset any worsening on the supply side from an increase in volumes of three-year-old cars.

The last time this combination of demand and supply conditions occurred was 1997 when economic growth was 3.5% and new car registrations had been around 2m units for three years. With a combination of strong economic growth and high supply levels, residual values increased by 7%.

The main reason for the poor performance of values this year is widely known in the trade - the effects of the Competition Commission report.

After a positive start to the year, confidence drained away from the market once the pricing issue resurfaced. This occurred in the spring, with the publication of the commission's preliminary recommendations.

The Cap Index shows that the slide in values accelerated sharply from 6.6% in April to 9.4% in August.

The declines were at their worst during the summer months when the issue was still being resolved, but they have improved slightly now that the public believes the Government has taken action.

This improvement is reflected in the Cap Index, which registered a fall of 8.5% last month.

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