One year on and VWgate has been all but forgotten by most of the trade and retail consumers. From a value perspective, the initial knee jerk reaction experienced in September 2015 that led to differences of up to four percentage points on the Glass used car index for VW Golf diesel vehicles, and larger for other Group brands, has dissipated and the index now shows a negligible negative impact. Article from Glass.
The financial cost to Volkswagen as a group has been significant and is likely to increase further, but the fact remains that when it came to it, the retail consumer just did not mind about the impact on the environment as much as they cared about their back pockets. The quality and appeal of the Volkswagen brand cars also had a significant part to play in putting the situation into the past.
However, VWgate raised the question as to whether diesel should be a fuel for the future. Diesel emissions were the subject of a number of reports and reviews and the detrimental impact that certain older diesel engines have on the environment as well as health have been proven. The early support given to diesel by previous governments in the UK is reflected in the chart below depicting the growth of diesel registrations in recent years.
Data Courtesy of the SMMT
Since mid-2014 diesel sales growth has begun to slow and where the UK car industry is still experiencing market growth overall there is evidence of a lower increase in diesel sales. It is petrol and alternative fuel vehicles that are enjoying greater traction, particularly the latter. Year to date in 2016 total registrations are up 2.8%, with an uplift of 2.8% for petrol cars, 22% for alternative fuel vehicles and 1.8% for diesel. Total market share for petrol is at 48.8% and 48% for diesel reflecting stability over 2015 for petrol and a drop of 0.5% for diesel. Alternative fuel vehicles now take 3.2% of the market, up 0.5% on 2015.
New car data is not just important for the here and now, but it is also key because it is the framework for the used car market of the future. As little as 5 years ago there was limited interest in the analytics of the used market but, as the economy has improved and more vehicles have come to the used market, greater importance has been placed on reviewing the relationship between new and used car information. Looking at the both sources facilitates robust future strategies built on fact and not feeling which is so critical to today’s investment requirements.
Therefore an understanding of the new car data gives one perspective of what may be happening in the UK motor trade but the data in the following charts starts to demonstrate that, although there are plenty of new diesel cars coming to the market, the ability to make money from them in the used car market is somewhat more challenging than many expect. Taken from a comparison between trade and retail data the charts show the gross margin for petrol and diesel cars on a national basis.
It is clear that gross margin for petrol cars has been running at a much higher level that than of diesel powered cars for over a year. Indeed the closest this has been is 8% in the last 12 months. Looking at the data in more depth reveals some very interesting differences on a regional basis, with two key regions of the UK performing in a uniquely similar way despite having a significantly different financial demographic that might have implied a very different level of margin opportunity. One of the other vital comparisons to make is around the time it takes to sell each fuel type and, reassuringly for those dealing in diesel cars, the petrol models take longer to sell. A further filter is age of vehicle which, when queried, demonstrates a far lower margin percentage on later plate cars although the bias is still in favour of petrol powered cars.
With such low volumes of alternative fuel vehicles in the market it is difficult to draw consistent conclusions, although this picture improves as every month passes. As it stands today hybrid vehicles show margins in the region of 15% to 20%, notably lower than petrol powered cars and a short way behind diesel. Days to sale are similar to other fuel types, as would be expected, but it does raise questions as to why margins would be lower. Pure electric vehicle data shows a far greater level of volatility with margins reaching as high as 45% and days to sale running as long as 90. These results complement each other and are understandable but will change swiftly as used electric vehicle volume improves.
From the information highlighted, one could draw the conclusion that diesel sales are not only beginning to slow in the new car market but that selling used diesel powered cars is less profitable. However, the devil is always in the detail and full market analysis is always essential. It is also important to remember that interpretation of data is different depending on the business model to which it is being applied and by whom, but without the data there is clearly a distinct disadvantage.
In summary, despite nuances and press speculation diesel powered vehicles will be here for some time to come. They are still in demand and still selling reasonably well in both the new and used markets, albeit with regional variations. Alternative fuel vehicles are growing in popularity but are still a very small part of the market overall. It is worth noting that with the development of battery capability and usable real world ranges now being available on electric vehicles, some have questioned the importance and relevance of hybrid technology. Essentially, making use of market data is key to understanding the full market picture and developing both strategy and profitability.
Rupert Pontin
Director of Valuations
Market Trend – October 2016
As expected, the volume of new cars registered in August was the lowest seen this year according to figures released by the SMMT, with 81,640 being recorded in the month. However this total was 3.3% ahead of the same time last year, thanks to 7.7% growth in the Fleet sector. Private retail registrations were down for the fifth successive month, albeit by only 0.2% on this occasion and, despite the year to date position still showing growth, this is now down to only 1%. Alternative fuel vehicles continue to post significant gains, with almost 31% more being registered than August last year. This has taken the tally for 2016 to 53,902 units, which has already exceeded the volume sold in 2014, and is well on the way to exceeding last year’s number by a considerable margin. The proposition for a business to run an alternative fuel vehicle is tangible and the benefits of an individual selecting one as a company car are clear, so it may be expected that the vast majority of registrations this year are from the fleet sector, however almost 40% have been sold to private retail customers.
Eight out of the top ten selling models in August also appear in the year to date list. The Kia Sportage makes it back into the top ten this month for the first time since April and the Ford Kuga appears for the first time this year. The Ford Fiesta remains in first place both this month and year to date, outselling its nearest rival by more than 50% thanks to some incredibly competitive offers on this long standing popular model.
In terms of manufacturer growth, Kia moved the needle significantly in August, registering over 80% more than last year, with 3849 units. The trend towards SUV and crossovers is clearly continuing with 40% of Kia’s registrations being the Sportage model. Infiniti showed the largest percentage increase, albeit based on very low volume, moving from 39 units last year to 280 this year with almost all of their activity being on the Q30 and Q50. Ford, Vauxhall and Volkswagen still remain at the top in terms of volume, but all continue to post smaller numbers than last year.
Used market activity
Despite the recent shocks to the UK economy following the decision to leave the EU, the used car market appears to be holding up quite well. In the immediate aftermath of the vote, uncertainty and negativity were prevalent. This was demonstrated in the responses that Glass’s received to a survey which sought to get a barometer of business expectations moving forward. The responses were not all negative however with some surprising optimism also being evident. Now that we are almost 3 months, it is interesting to review some of the survey answers in light of evidence gathered from the market to see if reality matched expectations. One question we asked was, have your immediate used car stock buying plans changed? Almost 65% of respondents said that they had not, with some commenting that, whilst they were planning to be more selective over stock and were conscious of not over-stocking, it was very much business as usual. In reality, in July, auction sales volumes suffered a noticeable dip compared to both June this year and July last, indicating that many buyers had in fact adopted a more cautious approach. Once the outlook had settled however, confidence seems to have been bolstered once more and the numbers sold at auction in August were significantly ahead of July and August last year, with pent-up demand being suggested for the rise.
We also asked if dealers felt that leaving the EU would weaken their businesses over the next 12 months and 72% of respondents believed that it would. Some added that this situation will negatively impact the whole of the economy, and that the motor industry will suffer a knock on effect as a result of a fall in confidence by consumers. So, has there been a noticeable affect on retail activity recently? If buyer activity is to be taken into account, then the answer is no, in addition Glass’s monitor some key performance indicators in used retail activity using our Radar product. For example, we look at the average days that it takes used cars to sell on the forecourt. We recorded that in July it took slightly longer to move units on than in June, but in August this position stabilised and cars were selling quicker than this time last year, average discounts were also in line with last year and, whilst indicators suggest that average margins have fallen, this is only by circa 1%. We therefore conclude that used retail activity appears strong, which bodes well for the future.
Auction activity throughout August was exceptional, both in terms of conversion rate and prices achieved. This is certain to be as a result of pent up demand following an uncertain July. Activity was particularly strong for units between 2.5 and 4.5 years of age that converted at over 80%. This stock has been selling around this impressive conversion rate all year and feedback from dealers indicates that much more focus is being placed on retailing cars of this age, instead of newer vehicles. The rationale behind this switch is that the price walk between a nearly new car and a new car has narrowed greatly from a monthly payment point of view. This is due to large manufacturer deposit contributions and low rate finance offerings being common place. When given the choice, most customers will choose to buy new. So dealers are turning their attention to selling cars where there is a significant monthly payment difference and, as a consequence, auction performance for this age of car has been steadily increasing.
Numbers in the auction market should be considerable, when we consider that new car volumes have increased substantially over the past few years, and it is understood that the vast majority of private registrations have been funded via PCP. However, the number of cars of this age entering the auction arena over the past 5 years hasn’t increased to the same degree. It is believed that a reasonable proportion of customers are choosing to pay the guaranteed future value to take ownership of the car at the end of the contract. It is also understood that many dealers take advantage of returned cars and buy them themselves, as of course they won’t have to pay additional costs that are payable in wholesale channels, such as buyer’s premiums or transport costs. In addition, many returns are said to be sold by manufacturers directly to their dealers via online portals. The net result is that the majority of PCP returns are kept out of the wholesale auction market altogether in order to maximise financial returns and to protect residual values. However, with demand for this stock growing ever more popular, should more of this type of product enter auction halls, then vendors may be pleasantly surprised with the performance achieved.
Whilst the used car market appears to be responding well following the uncertainty that has surrounded Brexit, feedback from dealers suggests that demand in the new car market is weakening. It will be interesting to see how volumes end up in September. In particular, should retail deliveries fall compared to 2015, it could be very damaging for dealers and manufacturers alike who will be chasing stretched targets following the success experienced in 2015. September remains a financially critical month and, if they are indeed down, it should be expected that tactical registration activity will be prevalent, which may lead to further pressure on nearly new car values and possibly impede dealers’ ability to purchase the stock that they would ideally like to have on the forecourt.
October Data Values
Despite extra volume in the market following September’s plate change, auction hammer prices have held up well against guide values. As a consequence, values in the October edition of the data have only moved on average by -0.8%. As expected the convertible market is beginning to struggle and most models have been adjusted down by more than this average movement. It had been believed that the seasonality associated with the SUV and 4×4 markets had dissipated in recent times, although the latest wholesale evidence has led to a mild increase in values this month.
Jayson Whittington
Chief Car Editor
www.glass.co.uk
