Rupert Pontin, Glass’s Director of Valuations, reflects on a market better than most expected – and the Glass’s perspective on the months ahead
NOT a day passes without some new comment on the state of the UK and European economies and the complexity of the forthcoming Brexit negotiations.
One could be forgiven for thinking that there is nothing else to be discussed and that UK industry has all but stalled whilst the politicians and economists discuss what will have to happen, when it needs to be done and how bad the impact will be.
However, the reality of the current position for most industries nationwide is somewhat better than most people expected and none more so than the UK motor trade.
From a new car perspective let us not forget that the market is still running at 2.8% up on 2015 and that August 2016 new car registrations were up 3.3% on the same period last year.
Fleet sales continue to drive the market and sales of petrol cars and alternative fuelled vehicles are the focus of the increase that we have seen year to date, although diesel sales remain ahead of last year too.
There has been discussion on whether the growth of the new car registrations has been due to forward orders placed before the referendum and that in fact we will see a tail off in the later part of the 3rd quarter and the remainder of the year.
There has also been plenty of pontification around the increased level of pre-reg activity which is not only a fact but it is also possible that the abundance of pre-registered cars on pitches nationwide is why in recent months there has been a drop off in private registrations as private buyers destined for new cars are tempted into pre-registered models instead.
The chart below quantifies the current new registration position.
The market as a whole will start to slow down from the end of September and as we head into the final quarter of 2016 the hitherto frenzied level of new car activity will recede a little.
Dealers will then seek to focus more on used car activity and if there are challenges to be had this year from a leasing and finance sector it will be coping with the increase in volume of vehicles returning to the market, and the factors that impact the defleet and remarketing process.
Where there is an increase in supply there will be a dissipation of demand as trade and subsequently retail buyers search to find the very best stock available for the lowest price. It is therefore logical to expect there to be a greater downward pressure on values and it is probable that the days to sale will also increase.
Therefore the long anticipated buyers’ market will develop, leaving leasing and rental companies the unenviable task of having to find a way of moving the needle in the right direction to facilitate a quicker return on investment.
Whilst the first chart clearly shows that new sales in recent years have been increasing, the chart below shows how volume coming to the used market is declining.
The shape of the chart is encouraging for 2016 as it shows consistency with previous years, indicating that we have a normal market. However, the minimal drop in market volume is not encouraging as it implies that we may have a marked increase in cars in the weeks to come.
New registrations have to come back at some point and this should be the time for those cars to filter back to the wholesale and auction environment.
In addition to coping with the needs of improving the defleet and remarketing process, the overwhelming need for intelligence will become more evident.
Interrogating internal data will be critical to understanding each different customers’ position but the real value comes in self sourced data is compared with independent market data highlighting area’s of strength and identifying weak spots that need further development.
In summary, the new and used car markets are running well at present.
Unfortunately, there is a danger that as a nation we may talk ourselves into a short term decline if the industry is not careful, but overwhelmingly the market news remains steady with a dash of caution advised.
Proper use of independent market intelligence will undoubtedly be essential for those looking to make the difference towards the latter part of the year to ensure they retain not only the required return on investment but also the speed of sale they have enjoyed thus far.
Rupert Pontin
Glass’s Director of Valuations
