As the UK market approaches the first new car registration of the year today, we turn our eyes to the used car peak that classically follows the new plate. This year, there are some interesting factors that could influence the market. Here is this quarter’s summary of the outlook from a Sword Apak perspective.
Used Car Activity Trends
Overall, the market is still on a sustained upward trajectory. Britain’s used car market reached record levels in 2016 with 8.2 million vehicles sold – an uplift of 7.3% (SMMT) and signs from auction houses are that the trade buyer activity remains brisk, especially for the ‘right’ stock for both the car and the condition.
Demand for smaller cars continues and superminis were once again the best-selling body type, accounting for more than a third of all used car sales, whilst transactions of city cars grew 11.5%. SUVs’ popularity rose fastest with them now taking an 8.3% share of the market.
In terms of fuel type, petrol still leads the market, but its market share fell slightly by -1.5% as alternatively fuelled vehicles and diesels enjoyed greater growth.
Silver remained the number one used car colour choice for 2016; ahead of black and blue, with brown also entering the top 10 in place of gold.
New Car Price Rise Impact
A key appeal of a used car is value for money. With this in mind, the impact of falling Sterling values last year (which created upward price pressure on imports) could well see used car demand rise. It is a momentum that will be supported by the rising availability of used car PCP finance to aid consumer affordability.
The stark reality is that new car prices have risen, but not universally. In early February, What Car reported that new car prices have risen by an average of 5.2% in the past seven months, well ahead of inflation. Interestingly, luxury cars baulked this trend and their prices dropped by 0.2%. However, performance cars and MPVs rose by 8.4% and large SUVs by 12.3%. There is the potential for used cars to react to these trends at both ends of the spectrum.
Remarketing Activity YTD
The news from the major auction houses has been clear this year so far, sales volumes and conversions are up. However, the picture on values has been more mixed – the overall impact on prices seems to be a neutral one.
Increasing Franchise Interest in Used Cars
An area where we do expect to see change in 2017 is the increasing activity of franchised dealers in accelerating their used car sales presence. For example, Pendragon has set out a plan to double its used car revenues in 2017 and it seems unlikely that it will be alone. Growing interest by franchised dealers could push the independent market towards older stock and/or to specialise in market niches.
The Changes to VED/RFL
New Vehicle Excise Duty (VED) changes take effect for passenger cars registered from April 1st. In brief, this will see:
• The established A-M bandings based upon CO2 emissions will be replaced by a series of dedicated CO2 bands, which will now see all vehicles excluding zero emission passenger cars paying VED fee.
• A variable first-year rate will be followed by a set annual fee of £140 per annum for petrol and diesel cars; £130 for alternative fuel cars.
• Cars with a list price above £40,000 will be subject to the set annual fee, plus an additional fee charge of £310 a year for the 5 years following the first-year rate.
In the short-term, the VED impact will be upon new cars; but when combined with low interest rates and generous PCP offers, during March some buyers may opt for a new car over a nearly-new one to avoid the tax changes and gain a car which could have a modest residual premium.
The signs are positive from the trade bodies, which seem to be reflected in an upbeat macro-economic outlook from The Bank of England. It’s forecast for growth across the UK economy was lifted significantly in January. It now expects the economy to grow 2% in 2017, up from a November prediction of 1.4%, which was itself an upgrade from a 0.8% estimate made in August. The Bank also made a poignant projection regarding savings rate, which it expects to fall to 4% - the lowest rate since the early 1960s.
UK household confidence started 2017 in a positive mood. High employment rates, wages growth of 2.6% surpassed inflation and some recovery in business optimism has encouraged consumers to keep spending.
Consumer confidence rose in the latest quarterly survey conducted by Deloitte published in early January.
In terms of personal borrowing, the upward trend of recent years stalled slightly in December, but the annual growth rate of the UK personal debt rose by 10.6% over the year.
Into the New Year, inflation (CPI) has continued to edge upwards. In January it reached 1.8% according to the Office for National Statistics (ONS), up from a rate of 1.6% in December; the fourth consecutive month the figure has risen. Inflation is now at its highest level since June 2014. Fuel prices have had a notable impact on inflation, hitting a two-year high in early February.
Commenting on market trends from their position as the UK’s leading wholesale financing software provider, Sword Apak’s Executive Vice President, James Powell, reflects;
“While the longer term economic outlook is awaiting further decisions on Brexit outcomes, the UK consumer is busy being confident in their car purchase activity. Purchase activity remains largely rooted in practical choices, centred upon affordability/running costs and the purpose/needs of the car buyer.
With interest rates remaining low and inflation on the rise, the consumer is happy to keep spending rather than saving and with used car PCPs developing, they can often get a better car now for a lower payment than might have been the case on a loan or HP agreement three or more years ago. The outlook is positive.”