The New Plate Change & Used Car Impact

John Hughes, MD

 

The September new plate change is always a peak time for the UK retail motor industry, but what will the market look like this year? The market for new cars has slowed this year with dealers commenting on the impact of broader macro-economic circumstances being compounded by supply issues. In the year to date the latest NFDA report points to concerns that some manufacturers have struggled to supply dealers with the stock that customers are looking for as the appeal of environmentally friendly alternative fuelled vehicles gain popularity. So, what will all of this mean for the used car peak that traditionally follows the new plate change period?

As a starting point, the broader macro-economic situation points to some challenging conditions with the ongoing uncertainty surrounding Brexit sure to loom large as a factor in buyer confidence. While as a business, Mann Island is naturally a ‘glass half-full’ organisation, on this occasion, the broader consensus amongst economists is that planning for a no-deal is the prudent approach. So, we will follow the same path, basing our expectations on current live data and our in-depth market expertise.

The New Car Market  Forecast July 2019 (SMMT)

New car activity has a significant impact on the used sector traditionally with part-exchanges feeding the used car stocking cycle. More new car sales = more used cars to sell. Against this formula, it is not just supply that matters, so does demand.

The SMMT’s latest data forecasts that 2019 new car registrations will fall by 1.8% when compared to 2018. That said, in what is traditionally a quieter month, July registrations declined by -4.1% to 157,198 registrations – the lowest July market since 2012. The September market will be crucial to the 2019 figures. Currently, without significant pre-registration activity, achieving even the 1.8% decline could be a challenge.

It is important to point out that the decline in new car sales cannot be credited only to the economic backdrop. The lingering effect of WLTP and the tidal switch to AFVs are playing their part. Within this, the July registration figures for battery electric cars are encouraging. Sales almost tripled to take record monthly market share and new EV forecast suggests full-year share could double in 2020.

Putting this all together, the likelihood is that the supply of part-exchanges may well be lower than in previous years.

The Used Car Outlook

After a period of growth, 2018 saw overall used volumes fall marginally, but dealer demand for stock was high as more franchised dealers looked to the used car market for profit and as supply was stifled by WLTP. Into 2019, this situation has, to a large extent, reversed. Remarketing channels have indicated that supply has improved and demand has weakened. It seems some dealers have reduced their stock levels.

The overall trend in 2019 has been of reducing used car values at auction. The average value of used cars at the three-year, 60,000-mile point fell by 2.2% during July, according to cap hpi. This was the biggest July drop it has ever recorded, using its real-time Live tracking product.

Reductions in values in 2019 can largely be seen as a correction for the stronger prices seen last year. In terms of the new September plate changes impact upon used values, it seems likely that the reduction in new car registrations will continue and this will feed through into fewer part-exchanges. What is less clear is what level of demand the market will see.

Traditionally, in tighter economic conditions, consumers look to the greater perceived value available from a used car. The increasingly grey area when trying to forecast whether this will happen this year is the emerging environmental factor. cap hpi pointed to this factor in their latest valuations, noting; “With clean air zones appearing there could well be some regional bias on pricing going forward and wholesale vendors would do well to be mindful of this when choosing where to sell, and we have already seen the early signs of this in our retail data.” 

One positive side of lower values in the remarketing cycle may be the potential to increase returns and here finance could be crucial. The trend of recent years to try and gain top spot on car aggregation sites as the lowest price provider should be seen as unhealthy and damaging to motor retailing. The more natural route to market cars has to be the way in which people buy and that is dominated by monthly budget. Dealers need to lead their used car marketing on monthly price, offering a transparent and fair price that customers can afford.

The immediate future for used cars does look to be challenging but making cars affordable can help to keep the wheels moving.

 

 

Notes & Sources:
https://www.nfda-uk.co.uk/reports/dealer-attitude-survey
https://www.thecarexpert.co.uk/third-buyers-dont-haggle-used-car/
https://www.businesscar.co.uk/news/2019/wc-july-29/cap-hpi-reports-major-drop-in-used-car-values
https://www.smmt.co.uk/2019/08/new-car-market-declines-in-july-but-pure-ev-registrations-almost-triple/
https://www.smmt.co.uk/wp-content/uploads/sites/2/WEBSUM-SMMT-CARLCV-MARKET-OUTLOOK-Q3-19-Final-050819.pdf
https://www.am-online.com/news/used-cars/2019/07/22/used-diesels-sell-faster-than-petrol-equivalents-find-cap-hpi

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