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CAP trade watch: Differences in interpretation

The trade media often features market analysis from the top flight operators in our industry.

Sometimes there is general agreement on certain issues and sometimes there are significant differences in the way the same facts are interpreted. A good example is overall market values, where sample data shows a rise or a fall in used vehicle prices between two points in time, something CAP has reported on many times.

However, recent analysis has been undertaken to identify the factors driving changes in the value of large vehicle samples and it reveals a slightly different picture than the headline figures might suggest.

This can be illustrated by tracking the average values of three year old cars, at 60,000 miles.

Looking back to January 2003 the average value of a car at three years, 60,000 miles, was £6,969. In October 2007 this had risen to £8,133. On the surface this suggested we were in a generally rising market.

However, closer analysis revealed that this increase in mean values was attributable to the incorporation of new and face lifted models during the period, which as a general rule tend to enjoy premiums when first introduced.

To illustrate this, if a three- year-old model ‘x’, at 60,000 miles is worth £5,000 and the following month a three-year- old model ‘x’ is the newer variant, then the value will tend to be higher.

This ‘lifecycle effect’ tends to create an apparent picture of rising values but it is worth bearing in mind that the sample is not based on precisely like-for-like vehicles.

When this factor is stripped out the picture changes.

By building a sample designed to negate the effect of lifecycle depreciation and the effect that new model introductions and discontinuations can have on mean trends, a small net reduction in values of around one to two per cent is revealed.

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