Car makers have reduced the values of used cars by sending more new cars to the UK in response to falling demand in mainland Europe and the high value of the pound, Glass’s Information Services claims. The vehicle valuation specialist says that the UK now has the poorest residual values in Europe with a typical two-year old car worth 59% of the original cost new. In Germany and Spain the value is 69% and in France 73%.
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“In the race to be number one, manufacturers have committed themselves to chasing volume and the UK is currently better able to soak this up,” Glass’s editor Chris Smith said. “New cars have consequently become more readily available in the UK and, coupled with an abundance of discounts and offers to encourage potential buyers, used cars have looked increasingly expensive by comparison.”
European and global registrations are dropping while registrations in the UK are rising. In June 2000 the UK accounted for 15.5 per cent of European registrations. By November 2002 this had risen to 19.1%.
However, Glass’s points out that continued efforts to direct more vehicle production to the UK may not be sustainable. “Although demand for new cars in the UK is running at a higher level than in mainland Europe, there may well come a point at which this appetite is satisfied. There is evidence that such a point may be close at hand,” Smith added.
Glass’s says the rate of increase in UK car ownership, although continuing, was slower in the 1990s than in any of the previous three decades. Since 1998 there has been no overall increase in the number of households with a car or van (72%).
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“We believe that the same households with a car now have two or more and that the recent sales boom merely reflects a shortening in replacement cycles, encouraged by the lower prices,” said Smith.
If UK demand slows as it has in Europe, overproduction will become even more pronounced, hitting the revenues of manufacturers and further harming used values.
Demand is inextricably linked to the prices of new vehicles, of course. Since the end of last year, the value of the pound in relation to the euro has reduced by almost 10%. This means manufacturers’ profit opportunities for European-sourced cars is falling, and they are already showing signs of increasing prices or reducing their marketing spend, Glass’s claims.
Smith added: “The obvious solution is for manufacturers to reduce production, but unfortunately this cannot happen without inducing the wrath of shareholders. Cutting output creates a perception that the carmaker is admitting it can’t compete, which in turn would mean that their share value suffers. This conundrum will be hard to resolve.”
