Automotive Industry Digest

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Residual value update

Used car values to remain relatively stable, reports Cap HPI

Automotive data experts at Cap HPI expect used car value movements to remain relatively stable for the next five years.

Values will change because of the shift in the balance of supply and demand, influenced by Brexit and the clean air debate, but movements should be gradual and predictable and are built into Cap HPI’s Gold Book forecasts.

Andrew Mee, senior forecasting editor at Cap HPI, said: “We are planning to conform to our original timetable of sector reforecasts and do not consider it necessary to embark on wholesale reforecasts due to changing economic and market conditions.

“As we predicted, the movement in exchange rates since the Brexit referendum is already causing new car registrations to fall. By the end of September, registrations were down 3.9% compared to 2016 and we expect this trend to continue.

“Forced registration activity is decreasing and UK volumes are being diverted to other European countries where there is still pent-up demand for new cars following the financial crisis almost 10 years ago.”

He continued: “HM Treasury forecasts do not predict a recession, just a slight reduction in GDP in the short term but recovering after that. Forecasts for inflation and unemployment also show no apparent signs of concern.

“In summary, the effects of a slightly slowing economy in the short term will be mitigated by a reduced supply of vehicles as new car sales decline.

“The protracted nature of the Brexit will allow time to assess future economic forecasts published by HM Treasury, and we will modify our gold book forecasts if required.”

Looking at the impact of the clean air debate, Mee said: “New car registrations are moving away from diesel, mainly into petrol, and also into alternative fuel vehicles.

“In the medium to long term this change to the supply of used cars will help support diesel values and start to put petrol values under pressure.”

Cap HPI says that throughout 2017 diesel values have held up well, and have seen better than average seasonal depreciation for each of the past four months. Petrol and hybrid values have been particularly strong in recent months as buyers seek an alternative to diesel where available.

Mee said: “We consider this current strength is not sustainable beyond the short term and values will start to fall back as they start to look too expensive and use supply starts to increase.

“Our gold book forecasts take into account the anticipated gradual change in the balance of supply and demand for different fuel types, which will vary by sector.

“We do not believe that diesel values will fall off a cliff, but they will erode more quickly than petrol values, particularly for smaller cars, until the balance of used supply starts to switch to petrol.”

Automotive Industry Digest

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