There is nothing in the current trade or retail data to suggest that used car values will crash due to the COVID-19 coronavirus lockdown period. It’s essential to keep this in mind as we unpick the used market.
There are claims in the media of market drops greater than 9% in some sectors and speculation by some national journalists that motorists will be trapped in PCP contracts. The same voices shouted unsubstantiated opinions throughout the dieselgate issue and whipped up speculation that was ultimately proven unfounded.
Now is the time for calm heads and measured comment. Data from across the supply chain will fluctuate from day to day, and there will be outliers that need to be evaluated and understood for what they are.
At this time, data should be interrogated and analysed with a combination of analytics and experienced eyes from industry professionals who have seen tough market conditions before.
Indeed, trade data volumes are significantly reduced at the moment. The wholesale market is down but not out, and we are still seeing online auction volumes, albeit in smaller numbers. In the last week of March, retail price data fluctuated daily by up to 7% in both directions as stock came on and off various online platforms.
We would urge car retailers not to base decisions off short-term fluctuations being reported in some quarters. Decisions must be made on the real monetary value of the vehicle rather than merely a retained percentage from new.
'Reducing prices will not stimulate the market'
At the current time, our advice would be that reducing prices will not stimulate the market.
While there is such a scarcity of cars selling, our teams of editors, analysts and data scientists around the world will be closely tracking retail volumes and prices, but not adjusting any trade values from these.
It is the role of a valuations provider to reflect what is happening to transactional prices in the used car market at the time. In a crisis, it requires a pragmatic approach.
At Cap HPI, the editors analyse data daily, and a sophisticated database points them towards the changes that could be necessary. Still, no movements are made without an editor making the change. Algorithms based purely on retail advertised prices can be dangerous if used to measure the market, without that editorial expertise.
Over the next few weeks, it is clear that both used and the new car sold volumes will reduce significantly. During this time, Cap HPI will be analysing retail and wholesale data as always, but not adjusting used values while there is insufficient data to reflect the market. No overall market adjustments will be made based on historical data or opinion; outliers and unrepresentative sample sizes will not be reflected.
It is worth noting that the current disruption to new car registrations will mean less used supply in the future, and potentially that could be good news for used car values.
The impact on the economy and buyer confidence could put some downward pressure on values, especially in the shorter term, but is likely to have less impact on the longer term, although this is very much dependent on how long the current crisis continues for.
Full-blown recession can be avoided
On a positive note, the government has taken action to try to protect people’s jobs and income during the crisis. It is hoped that these steps support a strong recovery. The current view from Cap HPI is that a full-blown recession can be avoided, providing the current restrictions are lifted within a reasonable time frame.
In the short-term, it is clear that both used and the new car sold volumes will reduce significantly, we have already witnessed this in the immediate aftermath of the country lockdown. It is why we are taking a sensible approach in these unprecedented times, and cap hpi always has a duty to reflect the market.
Both the current valuation and forecast teams at cap hpi are working tirelessly throughout the crisis; all data and services are maintained and remain available to inform automotive decisions at this difficult time.
Author: Derren Martin, head of valuations UK at Cap HPI.