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CAP Trade Watch: Does the British economy dictate used car values?

"What economic factors, if any, drive the used car market; are rises or falls in used car values dictated by specific economic factors?

This is one of the thorniest issues for planners, forecasters or, indeed, those who need to understand historical market performance. Unfortunately there is little evidence for direct correlation between the most significant economic indicators and used car price performance.

This can be demonstrated by plotting the CAP Used Car Price Index against the Retail Price Index, Gross Domestic Product, Housing Inflation and base interest rates. The CAP Index tracks monthly Black Book price movements for a market-representative basket of 78 vehicles at three years and 30,000 miles.

If the index is plotted since the beginning of the decade, it reveals a gentle decline in used car values over the period. Tracking this against the Retail Price Index, we find no correlation between used car prices and other typical consumer goods, as the RPI has consistently risen during the same period. Similarly, with Gross Domestic Product, movement has been in opposite directions.

Looking at house price inflation, the contrast is even greater, with significant rises since 2000.

Finally, base interest rates have shown a similar reduction to that of car values during the period, but a correlation of this type cannot qualify as evidence that the two are tied without considering other factors.

It seems that any explanation of the movement in used car prices will always focus on the simple equation of supply versus demand. New car registrations tend to be inflated by the chase for market share and short cycle business, creating an abundance of used cars. And when consumers are spoiled for choice, the result is rarely going to be a rising market."

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