Regular readers of this market commentary and seasoned dealers will be well aware of the unprecedented rise in used car values throughout 2009.
Alongside this has been the widespread belief that used car values had reached a plateau in October’s Black Book, and that the market would return to a more normal seasonal pattern this month. Indeed, there is evidence that current residuals have over-recovered to a level that is possibly unsustainable.
Typical seasonal value changes into November’s CAP Black Book are an average -2.0%, with the obvious exception of last year’s more prominent fall of -3.5% towards the end of the 2008 used car market downturn.
However this month’s book movement is -3.0% at 3yr/60k.
So what are the underlining factors behind this month’s movement?
Is this the beginning of a market correction due to overvalued cars or just a reflection of the usual seasonal slowdown affects of winter around the corner?
Certainly prior to November’s book the signs were very much seasonal, where on the back of a new plate change, the 3yr/60k values changed by a mininal average -0.1%, a reasonably level trend seen for every year from 2005 apart from 2008.
At this time of year the usual seasonal expectations would be to see an increase in used depreciation as retail customers cut back and delay big ticket purchases in preparation for Christmas.
Couple this usual seasonal pattern with an economy that is still struggling, high-profile strikes, murmurs in the press of a ‘winter of discontent’ and used car values at an all time high, and it would be no surprise to see more retail customers than usual delaying their purchase of a used car until the new year.
There are of course further factors that are beginning to show signs of impact on the market that would ordinarily not be so prominent around this time of year.
After reduced levels of short-cycle and pre-registrations this year there are signs that these are beginning to increase again.
This will undoubtedly increase the levels of late plate stock which has been in short supply most of the year.
Manufacturers are indeed beginning to revise their cautious approach to short cycle deals and pre-registrations which typified 2008, although this area of the market does seem to be more competitive, with smaller brands such as Fiat signing high-profile motoring school deals that would once have been the natural domain of volume brands like Ford and Vauxhall.
Over the last month CAP has seen evidence to suggest many dealers are well stocked and forecourts are full again, meaning many have no need to re-stock.
With increasing availability of quality stock the signs are at the auction houses that dealers and traders are being much more selective with their purchases.
Unless stock requires little or no preparation for retail, interest has been low or none at all.
This has meant less competition for poorer condition and higher mileages cars which previously this year found many bidders as people clamoured for what little stock was available.
This has had a clear impact on the leasing companies conversion rates, which have dropped 15% to an average 75%, according to those leasing companies surveyed by CAP.
The results of these additional factors have seen November’s book movement decrease more than would usually be expected.
As to what the remainder of the year could hold for used residucals, the trend seen throughout October could very well be a good indication.
Examining sales data collated by CAP for October 09 (see chart below) there is a clear pattern of decreasing %CAP performance as the month progresses, with 2006 56 plate disposals achieving on average 98% in the first week, which has dropped significantly by the end of the month to between 92% and 93%.
If the downward trend seen in October continues into November, Black Book values may see further drops beyond typical seasonality, although this is clearly dependent on the levels of speculative buying in November, particularly as those buyers not currently in the market due to high inventory levels may possibly return to active buying.