Auction figures show that the trade values of used cars has recovered to spring 2008 levels after the crash of the last nine months.
Manheim figures show that cars going through its auction halls are now selling at the same price as they were a year ago, wiping out the 22% slump in residuals.
The auction house said that last month’s average of £6,694 is 31% up compared to December 2008 and is just £5 below the average of £6,689 recorded in March last year.
“Our latest figures for March 2009 indicate a sustained recovery in used vehicle prices throughout the first quarter,” said Rob Barr, Manheim’s group communications director.
“In three months alone we’ve made up the entire residual value deficit experienced in 2008.”
In December, a typical 46-month-old car with 47,000 miles on the clock achieved 29% of cost new.
In January it rose to 32%, with a further rise in February to 34% and by the third week in March it had risen again to 36%.
BCA has seen a similar - if not quite as dramatic - recovery. Its figures show that average used car values achieved at its halls last month were on par with those seen last May.
“Values are at the highest point since May last year,” said BCA communications director Tony Gannon.
“However, year-on-year, average fleet and lease values in February were still behind, although the position was improving.”
This week, CAP also announced the biggest increase in its Black Book residual values data.
However, it cautions that used values are likely to now stabilise.
It said the near 7% increase takes average values of a three-year-old car with 60,000 miles back to October levels. It follows a 4% rise announced last month.
“We raised values by 4% in February and people were still paying 106% of CAP for cars,” said
Jason Owen, CAP senior analyst. “We took the decision to raise values by 7% but this will be the month that it levels off – people won’t be paying 106% this time.”
To put the rises into context, dealers have effectively been buying cars at auction in March for a similar price to what they were retailing them for in December.
EurotaxGlass’s is also reporting exceptional auction value rises.
“This has been extraordinary,” said managing editor Adrian Rushmore.
However, he also said EurotaxGlass’s has not seen the full recovery that Manheim is reporting.
“The situation is close but not quite there. Our tracking suggests May will be the month that used car values will reach the same point as they were at last year.”
Driving auction values up is dealers looking to re-stock and franchised dealers shifting their attention from new to used car sales.
CAP said stock shortages are also to blame, which is mainly the result of fleet companies extending vehicle replacement cycles and lease companies extending contracts.
These stock shortages have been partially offset by an increase in finance repossessions and early terminations of PCP and contract hire policies.
The residual uplift calls into question the policy of some fleets and leasing companies to continue to extend replacement cycle times.
One industry expert believes that 17% of all lease contracts have been extended, with leasing companies indicating they expect more fleets to agree to an extension over the next few months.
LeasePlan said it expects to extend around 10,000 of the 35,000 vehicles that would’ve been remarketed this year.
Lombard told Fleet News that it is not revising its contract extension policy, despite the residual upturn.
A spokesman said there were many factors to consider including the many benefits customers get from extensions.
BCA and Manheim report that stock levels are down year-on-year by 10-20%.
In part this is due to lease extensions, but it is also due to more rapid turnover of stock due to the rise in used car demand which is pushing up residuals.
Models seeing the biggest residuals uplift include 4x4s and brands that suffered the biggest drops last year, such as Saab and Chrysler.
Their values have fallen so far that they have become an attractive proposition for buyers.
While longer replacement cycles have undoubtedly been a key factor in driving up values, it potentially leaves fleets open to a residuals collapse in a year’s time.
Cars that have been extended into next year will be coming back into the market at the same time as three-year-old models on a standard contract agreement, causing an oversupply situation.
“If contract extensions have played a significant role in the reduction in supply, then it’s worked to fleets’ advantage,” added Owen.
“But if they were to now decide to take advantage of the stronger market and bring cars back today, there’s no way of knowing whether that would lead to a softening of prices by increasing supply.”
While optimism is high that the used car recovery will continue, heavy discounting on new cars by manufacturers and the possible introduction of a scrappage scheme may both tempt buyers away from used and back to new.