The used car market has seen falling residual values for more than two years but, for the 4x4 sector in particular, residual values have performed poorly over a much longer period.
Starting from an index value of 100 in January 1995, the 4x4 sector has underperformed for almost the entire period. In particular, the sector failed to keep pace with rising RVs during 1996-97 but this did not prevent RVs from falling along with the rest of the market from 1998 onwards. Off-road vehicles fared particularly badly during 1998, when the residual values downturn was beginning. Since then, the best that can be said is that the sector's fortunes have improved relatively at least, with RVs performance no worse than that of the rest of the used car market.
There are several factors that account for this poor record. The market downturn has hit more expensive vehicles such as executive and 4x4s hardest. Over this period, higher depreciation together with rising fuel prices has sharply increased running costs in these sectors. However, this does not explain why 4x4s have performed poorly on the used market over a much longer period.
In niche sectors, rapid changes in both demand and supply have a greater impact on residual values due to the limited scope of the used market sector. Therefore, the fragmentation of the 4x4 sector into two different categories is also to blame.
As well as suffering a build-up of supply levels, the 'serious' off-roaders such as Discovery and Landcruiser have been supplanted by the lifestyle vehicles (e.g. Freelander) in the minds of the motoring public, leaving the former out of favour. In effect this leaves two sub-sectors, which are subject to different demand and supply patterns, and residual value trends for individual models also reflect this.
Looking ahead, Cap Monitor is forecasting the fortunes of the two sectors to reverse. Residual values of many vehicles in the traditional 4x4 sector are expected to stabilize although it must be recognised that residuals are at relatively low levels. However, used values of the lifestyle vehicles that have recently seen a rapid increase in popularity are expected to be under threat. For example, residual values for the soon-to-be-replaced RAV4 are expected to fall by £2,000 over a three-year period.