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Prepare for a subdued 2011

Increased list prices and reduced forecast values have led to a downward shift in the percentage of list price retained during the course of 2010.

One of the major factors in this has been the weakness of sterling.

Many car manufacturers increased list prices as a direct response to the fact that a weaker sterling meant the economics of exporting cars to the UK market had changed.

During 2010 we also saw reductions in used values, predominantly driven by a shift in the used car market from an under-supplied position in 2009.

However, despite the downward movements seen since early summer, depreciation levels have been more akin to those in a typical market.

As for the coming year, CAP Monitor does see some significant downward movements for many models in terms of forecast residual values.

In practice, much will depend on the way in which retail customers react to the growing economic difficulties which are bound to emerge.

If those who really do need to change their cars are encouraged to focus more on the used market, then additional demand may grow in that area.

However, it seems unlikely that 2011 will not otherwise be a traumatic year.

Public spending cuts will lead to rising unemployment before any prospect of private sector growth providing significant opportunities to absorb the newly jobless.

Rising VAT and the likelihood of rising interest rates set the scene for very low consumer confidence.

The latest research among independent dealers at CAP confirms the current business climate is described by the majority of dealers as ‘poor’.

Another 39% report that it is stable and only 5% suggest that it is ‘good’.

Aside from an expected resurgence of activity in January, the scene is set for a very subdued 12 months.

An inevitable problem whenever the market is weak is the widening gap between those cars which are immediately desirable and those which represent a greater risk by requiring investment in reconditioning.

For vendors this will be very important to address because failure to account for changing market conditions could lead to the build-up of volume if expected prices are higher than the market will bear.

Only one thing can be stated with confidence – next year will be a buyer’s market.

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