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CAP: Relentless volume pressures from manufacturers will backfire

The relentless pursuit of volume and market share which sees many more cars registered than customers need will inevitably lead to faster depreciation for car owners, warns CAP.

Now the pressure is back on dealers to register more cars in October than their customers want as 2014 heads toward a year-end record total that could even exceed the officially forecast 2.45 million.

The intensity of the pursuit of new car volume has been revealed in confidential daily registration figures seen by CAP.

 

     
 
 

Philip Nothard: "The pursuit of volume is unlikely to ease now because the manufacturers are caught in a vicious circle. If one car maker stops incentivising their new car sales they will simply lose market share to competitors, so the trend becomes self-fuelling."

 
 

These showed the rate of registrations ramping up in the second half of September - confirming private feedback from dealers to CAP detailing mounting pressure to meet big manufacturer targets.

While 41% of September’s registrations took place in the first 10 days of the month, the final 10 days contributed 45% of the total – many of which were registered to dealers themselves.

The list of incentives offered by manufacturers to dealers in October in many cases exceeds the September push, according to CAP’s experts who monitor behind-the-scenes market activity every day.

Zero rate finance, deposit contributions up to 20% or more of the vehicle’s value, hefty discounts, nil deposit deals and monthly interest rate reductions are all in play in an attempt to push registrations toward the highest total for a decade.

Some dealers are even under pressure to persuade Personal Contract Purchase customers to swap into a new car as early as halfway through their three-year contract term, to help meet new car registration targets.

But despite the apparent economic good news of a burgeoning new car market recovery there is no such thing as a free lunch, say CAP experts. More new cars forced to be sold as used cars inevitably means greater pressure on used car values across the board – which means existing car owners will ultimately pay.

“Our prediction that this September would be the biggest in a decade proved correct and it is now clear that some manufacturers are on a mission to push new registrations hard through the final quarter of 2014,” said CAP’s retail & consumer specialist Philip Nothard.

“A number of dealers have even told me they are embarrassed by having to call people who only recently took a PCP deal and try to persuade them to take yet another one, long before they expected to change their car.

“I have been in the industry for 26 years and have never seen such determination to throw money at new cars in the pursuit of volume.

“While it’s good news for anyone in the market for a new car, there really is no such thing as a free lunch and the ultimate impact will be on the secondhand values of cars.

“With depreciation forming the greatest part of anyone’s cost of motoring, the bill for oversupplying the market in this way will eventually be picked up by motorists.

“The industry itself is already aware of the future impact on used car values because they have the benefit of professional forecasting tools.

“The pursuit of volume is unlikely to ease now because the manufacturers are caught in a vicious circle. If one car maker stops incentivising their new car sales they will simply lose market share to competitors, so the trend becomes self-fuelling.

“But ordinary car buyers need to be aware that today’s irresistible deal almost always translates into tomorrow’s disappointing trade-in value.”
 



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Comments

  • Philip Nothard - 17/10/2014 17:36

    The final Q4 is certainly one that I am sure everyone will be watching closely, as the economy across the EU comes under strain and the rental market is the only sector showing no yearly growth.

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  • joolz4 - 18/10/2014 10:58

    Whilst recognising the broader statement regarding incentives and early renewal of PCP agreements, the suggestion that dealers are heavily involved in self registration ignores the reality of the true economics of operating a modern retail dealership. Volume selling has been with us in one form and another for all of my 40+ years in the industry, and in a general sense is driven by the profit motive.

    Yes .. the manufacturers are vying for rank in the SMMT charts but without profitable networks to sell the 2.45m cars expected this year, it would fall over in an instant. Dealers push for the volumes because it suits their financial objectives, and suggesting that incentivising a customer to take a replacement car earlier in the natural cycle is likely to depress real used car values ignores the fact that used car values and volumes show consistent growth, and if anything there is likely to be a shortage of desirable used car stocks without activity to generate the part exchanges.

    This mantra of "over manufacturing" and "over Selling" is trotted out every time we see true demand and positive growth in the market and seems to be a determined media attempt to create bad news where there is none.

    Yes there is pressure being constantly applied from all directions, but thank goodness for the motor industry's ability to respond and contribute to the broader recovery.

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  • Abner Maload - 18/10/2014 12:01

    Is the moral of the story to always buy used unless you are a corporate customer and already getting high front-end discounts and VRBs? After all, depreciation is a four letter word - loss!

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    • joolz47 - 18/10/2014 17:11

      @Abner Maload - Depreciation is a 9 letter word - REALITY! PCP like other similar profiled finance products mirror leasing and contract hire in effectively paying the depreciation over time rather than taking a hit at the end of a car's working life. Corporate discounts are generally mirrored by retail support - usually through finance schemes and ultimate transaction prices are usually very similar.
      Buying used will usually exclude buyers from manufacturer supported finance products and make them no more attractive a proposition than new unless you are looking beyond 2 - 3 years old.

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    • joolz47 - 18/10/2014 19:16

      @joolz47 - that should read 7 letters!! Duh!

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    • Abner Maload - 19/10/2014 08:19

      @joolz47 - 'ultimate transaction prices are usually very similar'. No, otherwise there'd be no point being a corporate customer. Whilst there may be some correlation between campaign driven front-end retail deals and standard corporate discounts, its the behind-the-scenes corporate discounts and VRBs to large fleets that make fleets buy as fleets, otherwise they might as well buy retail.

      It starts with free metallic paint and it just goes on and on. If a fleet with a 200 cars only gets the same deal as retail customers it needs a new fleet manager.

      How many dealers make b*&%£r all on new cars because the margins have been stripped out and rely on used, servicing and parts to make money? There are a lot of dealers out there for whom a 2% margin on turnover is considered good, but no other industry would tolerate that kind of low return.

      When Rover went pop the remaining brands breathed a sigh of relief as it took volume out of the market and 'improved' the demand vs supply position for a short while. Who has to go under now to take out the industry's surplus capacity and return margin to the business through a better demand-supply ratio?

      Anyway, back to my original point. Why buy new?

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  • ICEAGE - 21/10/2014 19:26

    VAUXHALL VAUXHALL VAUXHALL VAUXHALL VAUXHALL VAUXHALL VAUXHALL VAUXHALL

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