AM Online

Be prepared for 2002 list price increases

This year residuals finally began to stabilise following more than 12 months of plummeting values.

The recovery was rapid during the first six months of the year but then slowed in the second half. Although values have fallen in the past two months, leading to speculation that the marketplace is weakening, the drop is within the normal seasonal movement for this time of year. In fact, values have stabilised on a year-on-year basis.

Looking to 2002, residual values at three years/60,000 miles are forecast to increase by 2% as the market continues to recover from the new car pricing controversy. While the growth in residual values contrasts sharply with the slump in used values of 2000, it is a relatively modest increase. This is because growth will be constrained by high supply levels. New car sales will have a knock-on effect on residuals – this year they are likely to reach 2.4m units, the sixth consecutive year above 2m.

Additional supply will come in the form of parallel imports. These are entering the country at a rate of around 200,000 units per year, although the picture is muddied by the lack of official statistics.

New car prices are likely to hit the headlines again early in 2002 with list price increases, particularly for new models. It remains to be seen how much publicity this will receive in the UK press, however with changes to Block Exemption on the horizon we can be sure that it will not be ignored.

Changes to the Block Exemption system could herald major upheaval in the new car market, but it will not necessarily have a negative impact on the used market in the medium term.

If clear proposals are not put forward quickly by the EC, however, there is a short term risk that uncertainty will damage buyer confidence. That will hit sales and values.

Early indications suggest that, despite delays, the result will be a compromise and the market will continue to be regulated.

Despite some specific areas of concern within the industry, along with the current gloomy predictions for the economy, the overall prospects for next year remain positive.

Although UK economic growth is expected to reduce due to the impact of a slowdown in the US and European markets, current fears of a recession are at odds with the overall health of the economy. There are dangers inherent in talking the market down but the general signs are good – high street spending is up while low interest rates will help to protect the economy from problems overseas.

The conclusion is that there will not be a recession in 2002 and as a result, consumer confidence and residual values will recover during the course of the year.

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