AM Online

Downsizing is priority in bid to cut motoring costs

All the evidence we gather from dealers suggests that downsizing is the priority for many consumers, driven by the need to reduce overall motoring costs.

This is illustrated by the growth of the city car sector in terms of market share, for example. But for many motorists the requirement is for a vehicle that suits a family – the customer profile that once provided the core demand for used D-sector vehicles.

This year there has been plenty of evidence that, in terms of price performance, the D-sector has certainly been out of favour, with weaker values than previous years, with the exception of 2008.

 

A lot of anecdotal evidence we collect suggests that the lower medium sector benefits from the decline of the D-sector.

However, if this is true, it does not translate into particularly strong value performance. The lower medium sector is simply tracking close to normal seasonal averages recorded during this point in the year.

Furthermore our Black Book+ forecasting tool anticipates that this will continue until the end of the year.

Although the lower medium sector appears to offer the ideal compromise for traders and consumers alike, any downsizing that does occur seems not to stimulate any uplift in values.

Moreover, this performance should be seen in the context of a relative three-year-old car stock shortage due to the collapse in new vehicle registrations during 2008.

It is only when we move down below the lower medium sector that we start to see some impact on pricing from increased demand.

The supermini sector is currently performing well above what might normally be anticipated by this point in the year.

Even though the later part of the year can traditionally be tough for this sector, it is clear that this year has been a real safe haven for traders and dealers.

Again the short-term forecast view of Black Book+ suggests that this sector will continue to outperform the market.

The chart below displays the percentage depreciation over a 12-month period for three-year-old vehicle examples in the three sectors discussed.

Even though – with the exception of the Corsa - there is some element of lifecycle, tracking the previous-generation models the message is clear: the larger the car, the greater the value lost over 12 months.

In summary, if downsizing is happening it does not benefit every sector to the same degree.

The impact is probably best measured by the lack of appetite for certain sectors, rather than which sectors have profited the most.

This mirrors a typical trade phenomenon.

Something desirable tends to become the ‘norm’ while everything else suffers. For example, a luxury feature soon fails to add value to a car.

It is the absence of the feature that pushes values down, leading to a growing price differential.

In this case it might be argued that the economy of small cars does nothing to add value – but the absence of it certainly damages values.

 

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