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Excessive supply dooms RVs

The UK’s used car market is experiencing a period of painful evolution that has already led to a 15 per cent fall in residual values since the beginning of 2000.

Much of the upheaval can be attributed to an increased supply of used cars not matched by a corresponding increase in consumer demand. What has also not helped is a succession of years of with sub-inflation increases in new car prices, according to EurotaxGlass’s.

This has had ‘far reaching’ consequences for the entire used car market, but EurotaxGlass’s says the instability in values shows some sign of abating. By 2009 the retail asking price of the typical three-year-old car is likely to be 5 per cent lower than it is today, with even greater falls predicted for diesel and prestige models as supplies increase.

Small, lower-medium and upper-medium sized cars from all manufacturers still represent the lion’s share of the new market, albeit down from 85 per cent to 78 per cent over the last 12 years. This moderate reduction is set to continue, as sales of SUVs and MPVs grow further.

‘As patterns of demand have changed, these two sectors have also enjoyed better residual values compared to mainstream hatchbacks,’ said Adrian Rushmore, managing editor at EurotaxGlass’s. ‘Even though future used retail demand for niche models is set to continue on an upward path, it is unlikely to match the additional supply resulting in a slight fall in values.’

Meanwhile, the prestige marques have doubled their share over the last 10 years to 20 per cent, and diesel models currently represent 39 per cent of all new car registrations.

‘This means that dealers’ stock will be more heavily biased towards cars from the prestige brands and towards diesels in general,’ said Rushmore. ‘While interest in these vehicles is unlikely to fall away, the improvement in supply will adversely affect rates of depreciation.’

#AM_ART_SPLIT# Rushmore says values of used cars have been in decline since 2000. ‘Only during the mini consumer boom of 2003 and early 2004 was there any reversal to this trend,” adds Rushmore. “Positive trading conditions so far this year have halted this slide but our view is that values of cars will continue to fall over the next three years, albeit at a slower rate.’

Looking ahead, Rushmore says retail demand is expected to rise slightly although rising ownership costs – fuel in particular – will shift buying habits further towards more efficient cars. 'We believe car usage and therefore annual mileage will ease back and this will logically extend replacement cycles beyond the current three-year norm,' he said.

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