Colin Thompson, senior manager, pricing, for Lex Autolease, reflects on the market impact of record car sales
2015 was a record year for new vehicle registrations and the used vehicle market was equally buoyant. The economy continues to strengthen, and as a result so does consumer confidence and spending with record car sales.
Gross Domestic Product (GDP) has seen 12 consecutive quarters of growth, with 2015 estimated at 2.2% – the strongest economy of all major Eurozone countries. Unemployment is back to pre-recession levels.
With increased job security, consumer confidence is relatively high and this is reflected in the increasing willingness to take on debt to fund large purchases, particularly whilst the cost of borrowing remains low, following a sustained period where consumers have paid off credit card debts and loans.
Manufacturers have taken advantage of this strengthening demand to drive volume of new vehicle registrations. A strong euro exchange rate coupled with relative lack of demand in the Eurozone has meant the UK market has been targeted by many manufacturers keen to move stock.
However, this increased volume of new registrations will have implications on used values over the coming years.
Discounting has also been prevalent in LCV registrations, albeit to a lesser extent than cars.
Following a sustained period where companies were running their vehicles for longer whilst the outlook was uncertain, fleets are now being refreshed and this pent-up demand is reflected in increased registrations. This, coupled with the continuing trend towards home delivery, has seen LCV registrations reach record levels.
Outlook for 2016 and beyond
The International Monetary Fund (IMF) forecasts suggest that the UK will continue to outperform the other major Eurozone economies over the next few years. The euro exchange rate is forecast to remain favourable, at least in the medium term, meaning manufacturers are likely to continue the practice of discounting in the UK.
Whilst the major Euro markets are experiencing growth, the UK is still the only market where vehicle registrations are higher than pre-financial crisis levels.
Following a period where shortage of supply has led to rising used values, the recent significant increase in new vehicle registrations with record car sales means an increase in supply of used vehicles in future. The impact of that volume is starting to flow through into the used market, with values showing signs of softening, and as this volume continues to increase so will the pressure on values.
2016 is likely to be a challenging year for used vehicle values. However, in the longer term, the favourable economic outlook in terms of growth, employment, consumer spending and wage inflation, means that the market will become increasingly able to absorb much of this volume increase, bringing relative stability to future residual values.