As the festive celebrations fade rapidly into the distance, the trade will begin to pick up quickly and launch itself into the often frantic and surprisingly unrewarding first couple of weeks of the New Year.
It is highly likely that franchised and non-franchised dealers will by now already be selling new and used cars at a frenetic pace, in many cases facilitated by traditional New Year sales programmes that have become synonymous with the beginning of a fresh selling season for “big-ticket” items in almost every consumer market in the UK and Europe.
This heralds an expeditious spell in which the wholesale sector springs back into action and turns the supply of used car stock back on by taking delivery of the new 65-plated cars held over from December, and restarting defleet programmes. The supply of stock will start to feed the often desperate auctions with fresh stock for the avaricious trade buyers. Often during this time, dealers can be at their most stretched from a margin perspective, with strong retail demand and low trade supply resulting in the need to spend perhaps a greater level of money on sometimes poor quality and un-exciting stock left over from December sales to fill the empty spaces on the used car pitches. It is a wonder why the trade puts itself through such a frustrating window and 2016 will be no different.
The question is: What will 2016 bring to the trade overall and what are the key factors that will influence trading in both the retail and wholesale sector? Looking at the high-level factors first, it is clear that the economy in the UK is expected to continue to perform well and this will result in a general improvement in both wholesale and consumer activity. Confident businesses will be compelled to buy new cars, as will a financially comfortable consumer.
Glass’s economic partner, Oxford Economics, forecast that interest rates are unlikely to increase until the fourth quarter of the year and employment levels will continue to increase through 2016 and into future years. Personal disposable income is also set to increase and the House Price Index is gently increasing too. Combined with a steady currency rate against the Euro and the Dollar for the next 12 months and understanding that the European economies of UK neighbours are still in a fragile state of flux, means the UK is a good place to be.
From a new car perspective, it does mean that there will be further pressure on new car sales and the practice of pre-registration will not be disappearing any time soon, unless more draconian legislation is passed to restrict the practice. A number of the key manufacturers claim to want an end to this new market distortion and working with the SMMT may see some changes during the course of the year that might help, although Glass’s suspect that the need to enhance “sales” will be a necessity for most companies during 2016. The total volume of new car registrations will also increase once more, and whilst Glass’s prediction of a 5 percent increase during 2015, hailed by many as too high at the time, has actually been exceeded, it is our opinion that the market will increase by a further 3 percent by the end of 2016.
With new car sales set to improve further and the acceptance that pre-registration will be a fundamental part of that, consideration must be given to how that will impact the used car market. Specifically, this will result in more late plate, often zero mileage cars feeding into the top of the age profile. Naturally these “used” cars will need to show a saving over a new model and that reduction will be directly related to the level of discount given on a new car, although these days discount levels are often hidden by the PCP deals that drive private new car sales. PCP activity will need to stay sharp to keep new car sales moving too. That also raises a problem as the new car deals have been so good it has impacted on the late plate low mileage market place by pulling buyers of up to three-year-old cars to a new model because of such appealing monthly rates. Therefore, from a financial perspective, the greater development of used car finance products will be essential to keep older cars selling to the buying public.
With so much excitement in the new car market, not to mention the finance sector, it would be easy to forget that vendors will be working in an ever more difficult wholesale trade arena. 2016 will see the pressure of increased volume in the trade as a whole necessitate some cute changes to both defleet and remarketing strategies. As 2015 ended, many contract hire and leasing companies faced increased volumes of a greater variety of cars and this position will continue as the new year progresses. The speed of moving these units from end users back to the trade, and thereafter to the retail forecourts, will be a major consideration all through 2016. The accountants will be seeking to mitigate losses expected by optimistic forecast values that were set some years ago by businesses eager to create the most competitive monthly rates. It is also key to remember the rules of supply and demand.
2016 will also be a landmark year for the Volkswagen Group. Whilst coverage of this debacle has continued worldwide, each week brings a new twist and turn, although one would like to think that all the facts are now in the open. The dramatic drop in new car sales is an underestimation of the impact the group has felt once pre-registration is also considered and there are a number of companies that have taken Volkswagen group cars off their “user chooser” order lists. This position may continue for some time whilst trust in the company is re-established.
From a used car perspective the chart on the next page shows an index of diesel car value performance in the market as a whole related to VW Group diesel products and then specifically VW diesel values.
Trade Price Index 7th December vs. 2nd July
VW brand vs. VW Group brands vs. all brands, Diesel 3-Year-Old Vehicles
Taken from a start point in July 2015 in a stable market, the chart clearly shows that VW Group diesels are now running at 0.8 points behind the rest of the market, whereas the Volkswagen brand diesel performance is running at 1.7 points behind the rest of the market. As a comparison, the position at the time of the discovery of the emissions irregularities in the volatile September market showed Group diesel engine performance at 0.08 points behind the whole market, whilst Volkswagen brand diesels were running 0.13 points above the general diesel market.
What must also be considered is how the modifications to the affected engines will impact the market. If assurances from Volkswagen that the cars will drive and perform in exactly the same way as they did prior to adjustment to meet NOX and CO2 emissions do not hold true, then there is likely to be a further adverse effect on the used values for a period of time. Indeed there may be a number of cars that, as a direct result of reduced driving performance, do not have the update. Aside from potentially damaging the environment and public health further, this will result in the need for the trade to rectify these cars when they are brought in as part exchanges so as to comply with requirements at a later date, creating longer term confusion.
2016 will also reveal how the VWgate debacle may damage demand for diesel vehicles as a whole and potentially accelerate the shift to alternative fuel vehicles. This would be a good thing in some respects but cause problems, specifically for the manufacturers, in other ways. The penalisation of the industry as a whole as a result of one key player would be unfair but this is a real possibility. It is worth noting that diesel engine market share for 2015 is down 1.7 percent on last year at the time of writing, whilst petrol has increased by 1 percent and alternative fuelled vehicles by 0.7 percent.
In summary, 2016 will be another enthralling year, fraught with risk yet with the potential for great success. Generally speaking the picture is good and the UK car industry as a whole will enjoy another fine year of trading, excepting extreme events, and the year will prove exciting for those prepared to move fast and embrace technology. The need for accurate values and relevant market intelligence to help guide them through the year will be critical and informed businesses will have the upper hand as the market evolves. Rupert Pontin Head of Valuations
New Car Registrations
Following October’s decline, the first in 44 months, registrations in the UK returned to growth as forecast by the Glass’s editorial team. The market saw a 3.8 percent increase in November despite an almost 20 percent decline in the Volkswagen registrations. Year-to-date registrations in November stood at 2,453,426, up on the equivalent period for 2014 of 2.310,237, representing a 6.2 percent increase. Alternative fuel vehicles improved once more in November, with units registered up by 8.6 percent, taking the total number year-to-date to 66,969 vehicles, an increase of 41.1 percent on the 47,465 equivalent period registrations in 2014.
In market sector terms, the largest increase in November was the fleet sector, with an upturn in volume of 8.7 percentto 94,462 units over 86,903 cars in November 2014. Overall year-to-date registrations in the fleet market are up 11.6 percent from 1,087,941 units to 1,214,563 on the same period in 2014 and this represents 52.8 percent of the year-to-date total market figure. Private sector activity also saw an increase of 2.0 percent to 78,994 cars from 77,463 and this reflects a market share 0f 44.2 percent, a fall of 0.8 percent on the equivalent period in 2014. In November the business market registered 5,420 cars, a fall of 31.9 percent on the same period 2014 of 7,961 units.
Looking at fuel types, the diesel market share during November fell to 51.2 percent, compared to 51.3 percent for November 2014. This continues the downward trend in the diesel market share year-to-date, with a fall to 48.4 percent of the market compared to 50.0 percent by the end of November 2014. The market share for petrol engines remained static at 45.9 percent of total registrations, compared to November 2014. Year to date, January to November 2015, petrol registrations were 48.9 percent of the overall market compared to 47.9 percent during the period January to November 2015. Alternative-fuelled vehicles continued their growth trend at the expense of diesel, growing 8.6 percent during the month and represent an overall 2.8 percent market share, compared to 2.8 percent for January to November 2014.
The top three bestselling vehicles for the month reverted back to Ford Fiesta in first position. Vauxhall Corsa and the Ford Focus were second and third respectively, with all three mirroring the year-to-date top three. The Volkswagen Golf was pushed back into fourth place for the month of November but retains fourth place year-to-date. We should note that Vauxhall took four of the top ten places during the month, despite only having three year-to-date. It is also notable that neither BMW nor Mercedes Benz appear in the top ten for the month or the year to date.
In summary, following a marginal fall in October, new car registrations returned to growth. With the final push through December, new vehicle campaigns are still in place and are expected to last through to the New Year. New vehicle campaigns will be just as competitive through January, as manufacturers push for the initial 2016 numbers to achieve ever-stretching targets.
Wholesale Activity
The Glass editorial team reported a continued plentiful supply of stock, with the auction volumes up by 14.9 percent on the equivalent period in 2014. Sold units were however down on the previous month by 11.8 percent to 101,453 from 114,986, in line with normal seasonality.
As forecast by the Glass editorial team, leasing company vendor stock has increased further with a larger number of leasing vendors ranked in the top ten of vendors with available and unsold stock. This combined with overage and part exchange stock, continues the trend of higher numbers of vehicles available for sale through to the end of 2016. Larger-than-normal volumes for the close of 2016 and the seasonal exit by some buyers has exacerbated the downward push on values to the end of 2016. The older part-exchange and budget vehicles continue to arrive in larger numbers than in previous years and have supported the first-time conversion rates where other market sector conversions have fallen.
Unlike in previous years, many vendors have shunned the practice of holding back stock over the year end in anticipation of higher values being achieved in the New Year. The general market view is that there will be a greater volume of wholesale stock in 2016 and best practice has been to sell up to the end of the year.
January Guide Values
The values for the January edition of data reflect the seasonality post the holiday and 2015 year-end activity, with only General Market Convertibles moving down by an average of 2 percent. The table below gives a broad brush indication of market movements by category across the age ranges, although, as ever, there will be some larger and smaller moves for certain model ranges.
