With the key March new registration period now underway, the issue of increasing dealer pre-registration activity is very real as dealers seek to drive through volumes that in turn will release the bonuses that are a vital part of profitability.
While to date, retailers have been able to absorb the influx of nearly-new stock that has grown over the last year the sustainability of such an approach must be questioned.
Maintaining the supply/demand equilibrium in balance is essential to sustaining residual values, which, following the growth of PCPs is arguably more important than ever before in our market.
Right now many dealers are resorting to extensive levels of pre-registration activity to achieve the volume targets, which form an essential part of their profit mode.
The growing risk is that the flood of product is exceeding demand bring with it an inevitable downward pressure on values.
On the one hand, this may seem attractive to consumers, but we can see from historic experience that any significant fall in residuals has a knock on ripple effect that can seriously damage consumer confidence.
The risk of negative equity could return and certainly guaranteed minimum future values will be reduced, making monthly payments higher.
The challenge is that while new car and LCV volumes grew in 2015 to a new record levels, by the end of the year this growth was increasingly being attributed to fleet buying activity.
To maintain the upward trajectory and achieve demanding volume targets, dealers pre-registered vehicles at a level not seen in many years.
In May 2015, Glass’ Guide suggested that the number of new cars on the market less than a year old and with next-to-no miles on the clock soared by 91% in the preceding six months.
The evidence suggests that this trend has continued subsequently.
Remarketing is an essential part of the unique car retailing landscape, used vehicle values inherently impact new car sales.
If residual values decline there are no winners and consumer confidence risks being damaged. We need to let the market decide where sustainable volumes should settle, and residuals are part of this equation that excessive pre-registering places at risk.
Author: Paul Hill (pictured), chairman, National Association of Motor Auctions