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Used car valuation 'freeze' could stem coronavirus impact on residuals

Derren Martin, head of UK valuations at Cap HPI

Used car values declined 2.2% in March as retail and trade demand fell due to the Covid-19 coronavirus crisis, according to Cap HPI.

The car valuations specialist’s data revealed that it was a month of two-halves with trade values impacted to dramatic effects as demand fell from Monday, March 16.

Trade values had tracked down 0.3% from the previous month on Friday, March 13, but the number of cars sold on Friday, March 20, was then 23% lower than the same day a fortnight earlier and 19% lower than Friday, March 13.

Cap HPI said that the total cumulative Live movement during March, leading to April’s monthly values, was an average drop of 2.2% (£275) at the three-year, 60,000-mile point – the majority of which happened in the final 10 days of valuing.

For newer used cars, the drop was 1.8% (£425) at the one-year, 20,000-mile point.

Derren Martin, head of valuations UK at Cap HPI, said: “As you would expect, all of the main sectors have been affected by this decrease in values.

“Rest assured, the movements that have been made in March have been reflective and not an over-reaction to feedback or industry ‘noise’.

“We are aware of reductions by some online car purchasing sites and some remarketers, but our adjustments have been purely as a result of used car transactional data.”

Cap HPI expects both used and new car sold volumes to “reduce dramatically” in the short-term.

'Freeze' used car values

Earlier this week Chorley Group sales director, Adam Turner, took to LinkedIn to ask if Cap HPI and Glass’s could “freeze pricing from March”.

He said: “In the event of a prolonged (inevitable) extended closure all motor dealers biggest financial fears after its workforce will be used car depreciation...”

Martin said that, while its team of valuations experts will continue to analyse used car data, it would “not be adjusting used values while there is insufficient data”.

He added: “In effect, if vehicles are not selling in quantities anywhere close to normal, we will not be adjusting.

“No overall market adjustments will be made based on historical data or opinion; outliers and unrepresentative sample sizes will not be reflected. We will be closely tracking retail volumes and prices, but not adjusting any trade values from these.

“We feel this is the sensible approach in these unprecedented times – we always have a duty to reflect the market, but at present, there is not enough of a market to do so accurately.”

Cap HPI said that the likelihood of some pent-up demand, and a shortage of new cars when the car industry does return to anywhere close to normality, could well be positive for prices of used cars.

Short-term valuation forecasts are predicting no change to values in the next three months, however.

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