PCPs and self-registrations impacting on residuals?


03 Feb 2017, Blog Post

With 2016 now in the past it is wise to reflect on the impact that the year has had to the trade as a whole. Residual value activity has been a very important part of the last 12 months and analysis of what has happened is one of the key considerations for planning a strategy for 2017. Whilst the majority of businesses will already have budgets and plans in place, reflection will add credence to the policies laid for the coming months.

The chart below shows a consolidated view of residual value performance as a percentage of cost new across all market sectors on an annual basis. This displays data over the past 6 years thus including the post recessionary period.

Residual values as percent of cost new across all sectors

When assessing the data in the chart it is reassuring to see a high level of consistency across the age groups compared. It is clear to see that residual value strength increased in 2013, specifically across some of the younger market sectors, and this reflects the shortage of cars in the market following the down-turn in trading during the recessionary period.

Matching expectations

This data not only matches expectations but also supports the claimed reality by many in the industry, which is reassuring for those who do not have the benefit of accurate data of their own.

However, this chart also highlights the difference in residual value trends as the years have passed. Looking at the late and low sector of the market there has been a consistent decrease in values year on year. This perhaps indicates the damage that pre-registration has done in the new vehicle market. It is also worth noting that this drop in residual value could also be affected by the increased volume of PCP cars returning to the trade. It is certainly a phenomenon better explained by some more granular analysis and the detail reveals interesting nuances around both manufacturer and market sector. This is of significant value when setting and reviewing strategy.

Older car market

The data also highlights the strength of the older car market. Although the younger P/X sector values have remained consistent over the past 3 years whilst new cars have declined in value, older vehicles have seen a consistent improvement. This is an interesting development as reports of the early demise of older cars have been widespread. Discussion around over complex and unreliable technology bringing early scrappage may well be premature. This chart indicates that values have improved, although once more the detail is key to understanding why certain models have lifted whilst others have not. Conversely, some cars will have both robust technology and improved exterior and interior quality thus ensuring that the vehicle looks and feels a lot younger than it is. It is also evident that for certain market sectors lack of volume and high demand has also influenced values in a positive way.

The clear message is that data helps define market activity whilst also corroborating other industry views. Where 2017 will provide remarketing and sales challenges for both the trade and dealer markets, accurate in depth analysis is vital to effectively plan ahead. This means looking at internal data against respected market sources to help ensure that 2017 is as lucrative as 2016.

This article was originally written for, and published in, the January 2017 issue of Auto Retail Bulletin (subscription required).