Prestige brand vehicles have increased their share of the UK’s new car market by 112%, in relative terms, over the last 10 years.  According to Glass’s Information Services, a number of factors should ensure continued (if not accelerated) premium brand growth, to the detriment of the volume marques.

In addition, despite additional quantities of prestige marque vehicles now entering the second-hand market, there is unlikely to be further significant falls in their residual values.

Ten years ago the prestige brands’ share of the UK’s new car market was a mere 8%, but by the end of 2003 this had grown to 17%. Significantly, 77.8% of this 10-year growth actually took place during the last five years.

Aside from the inherent perceived desirability of their cars, Glass’s says several additional factors are helping prestige marques grow their market share.

The weakness of economies in mainland European has made new prestige cars more affordable in the UK. “Lack of demand in their home markets has led, for example, German manufacturers to increase right-hand drive production in order to take advantage of the UK consumer boom,” said Alan Cole, editorial consultant at Glass’s market intelligence service.

“Just 18 months ago price incentives on premium-brand cars were virtually unheard of, but the availability of significant discounts peaked a year ago and have been maintained ever since. Transaction prices, even for private buyers, have therefore reduced considerably over the last 18 months, with the effect of increasing the number of prestige cars sold in the UK.”

While this activity has been detrimental to values of nearly-new cars, Glass’s says the values of three-year-old examples have been largely unaffected.

The continuing buoyancy of the UK economy is encouraging buyers to spend more, fuelling sales of desirable premium-priced vehicles. With ongoing house price inflation fuelling mortgage equity release, and with interest rates still at a low level, the consumer spending boom shows no sign of abating. Even the prospect of further rate rises has not yet altered the feeling of relative wealth, and the affordability of finance has encouraged more consumers to spend additional amounts to get behind the wheel of a premium-sector car.

Fleet car buyers have become increasingly aware of the importance of vehicle whole life costs, which is greatly influenced by depreciation. With most disposals taking place after three years, good residual value performance and high levels of desirability are vitally important for companies looking to maximise their return when they ‘de-fleet’.

This is where prestige brands score over their volume counterparts. In the upper medium sector, average residual values for premium models (after three years, 36,000 miles), are in the order of 46%, while volume models’ residuals average 34%. This means a prestige model can often be more cost effective to operate than a comparable volume model.

There has been a great deal of model development by the premium manufacturers into market segments in which they had never previously competed.  This began with the BMW 3-series Compact in 1994, continued with models like the Mercedes-Benz A-Class and Audi A3, and was followed up with the runaway success of the Mini in 2001.

The prestige marques will soon offer an ever-increasing range of smaller cars to eat away at the share of volume manufacturers. Cole said: “Models such as the BMW 1-series and Saab’s 9-1 and 9-2 will further boost prestige sales. Add to this the growth of new niche products, such as forthcoming SUVs from Audi, BMW and Mercedes-Benz, it is quite clear why the volume manufacturers are beginning to feel the squeeze.”

The demise of the Ford Scorpio and Vauxhall (Opel) Omega have illustrated there is little interest in large cars from volume manufacturers in the UK market.

Manufacturers of prestige badge cars may have grown their market share by 112% over the last 10 years, but this still only represents 17% slice of the UK’s new car sales.  This means that, despite concerns in some quarters about possible accelerated falls in residual values, Glass’s believes the strong desire to own a premium brand will ensure these vehicles continue to perform well in the used market.

Cole said: “Relative to the rest of the market, the values of prestige brand cars have reduced slightly during the last three years and are now stable. We see no sign of accelerated falls in values being likely in the short- to mid-term future. There may come a time when values start to suffer more, but we feel market share will have to increase very significantly before oversupply results in a further weakening of values in relation to the volume manufacturers. The market share of the premium brands looks certain to increase as their model ranges diversify further over coming years.”