Glass’s provides a review of 2015

Rupert Pontin, head of valuations at Glass’s offers his overview of the automotive sector in 2015.

With long nights and short days December is one of the most difficult months of the year for many industries, not least because of the lack of daylight. Most markets worldwide suffer as consumers focus firmly on the festive season and, unless your product or service is focused on gifts or entertainment, it is a time for review, reflection and strategic planning. Now is the time to put plans in place to right some of the inefficiencies of the year and there are few senior executives and management teams that miss this window of opportunity to set a clear path for the year ahead.

As a point of reference, this editorial seeks to help by raising some of the key issues and events of 2015 and provide some discussion points to steer positive-minded organisations to a successful 12 months trading during 2016.

Market conditions
From a new car perspective, 2015 has been another record breaker and this has come as no surprise. At the time of writing, registration figures were up by 6.4% year-on-year and, whilst the expectation is for November and December figures to be above comparative months in 2014, the final year-end figure is likely to be just over 5% up on 2014, which Glass’s forecast a year ago in the face of a number of lower estimates. This has been a great year, although consideration must be given to the difference between “registrations” and “sales”, as 2015 has also seen a significant increase in pre-registration activity. This propensity to push cars into the market is a worry and has had a detrimental effect on used values, but is likely to continue during 2016, as European markets continue to struggle to recover adequately enough to take their share of new car production.

Market values
With pressure on late-plate values driven by pre-registration activity, 2015 has also seen the beginnings of the increase in used stock volumes across all market sectors that had been anticipated market wide. This has come as a direct result of the increase in new registrations post the economic collapse of 2008 and the subsequent slow recovery of the UK economy. While volumes in the used market have slowly increased all year, it is the end of 2015 that has seen greater defleet activity, driven by contract renewal, and volumes returning to the trade market really accelerate. As such, values have been declining at a steady rate all year and accurate market intelligence and relevant and appropriate translation of market data has seen switched on vendors and buyers able to cope with the changing conditions.

Auction activity
Action in the auction halls nationwide has generally been good, with seasonal peaks and troughs excepted. It is worth noting that what has been a vendor’s market for many years has migrated to a buyer’s market. The dynamics in the hall have changed and vendor representatives have had to work harder to move certain stock that at the beginning of the year would have sold easily and, in most cases, in raw defleeted condition. In recent weeks the requirement for the refurbishment of certain cars has become more prevalent and the need to rely on a professional remarketing partner ever more essential. Market intelligence has also helped make the difference, and Glass’s have been inundated with requests from vendors and buyers alike to help understand what is influencing today’s market and that of the year to come.

Contract hire, leasing and rental
It is these vendors that have been forced to move more swiftly than most to deal with their own returns programmes. The pressure on late plate values and increase in defleet volumes has threatened the ability to meet the residual value expectations set some years ago, when companies were eager to get cars on the road. Increased volume has meant a more aggressive approach has been necessary to facilitate speed of sale and maximisation of values on certain “volume” product.
In addition, more and more companies are not only using auctions but also their own electronic remarketing platforms or other wholesale platforms, whilst also looking to get cars on sale further upstream. This has meant altering defleet processes and often working with new remarketing partners, eager to help with high quality solutions that ensure accurate charge back to end users well in advance of the final defleet date. The net result has meant an increase in defleet costs but a quicker turn of key stock. This has been critical to mitigate potential residual value losses on figures set some years back based on inaccurate market forecast data, not appropriately linked to the reality of today’s used car market.

Franchised and non-franchised dealers nationwide have had a pleasingly rewarding year and both new and used car sales have flourished in one way or another. However, this has brought a number of challenges around space and preparation. On a more disappointing note, margins have been squeezed harder and some of the latest consumer rights legislation has brought around the need to make contingency plans that were not required hitherto. Unfortunately, some of the legislation looks to be poorly planned and overly weighted in favour of the consumer.

The finance market has been a very innovative place during 2015 with the major lenders being pushed hard to provide cost effective and competitive schemes to put customers into new cars. The PCP product has been vital to the success of new car sales but has brought some demons too. High residual value expectations that are key to keeping monthly payments at a competitively low figure may well come back to haunt a number of operations in coming years. New car finance schemes have also made things very difficult for the used car market. A new car for a monthly payment of sub £100 a month raises questions of value for money of a 3 or 4 year old car for £150 a month, although there are an ever increasing range of used car PCP finance options in the market and more due in early 2016 aimed at alleviating the situation.

2015 has seen significant improvements in many types of technology during the course of the year. Advances in active and passive safety have been consistently impressive and connectivity has been a very important issue for the “direct debit” generation eager to buy new cars that will fit with their choice of mobile phone and “lifestyle”.

However, it is the advances in propulsion methods and the steps forward taken in the development of autonomous vehicles that have been most impressive. Fully electric cars are here and it is just range and infrastructure that are the stumbling blocks. With the current rate of development, there is little doubt that by 2020 there will be a number of fully autonomous electric vehicles on our roads and Alternative Fuel Vehicles will take a significant proportion of the new car market as a whole.

There have been a number of other key events during the course of the year. The DVLA have pushed forward with changes to their service that, despite some teething problems, have begun to justify the closing of so many of their offices nationwide. The general election provided the country with a strong foundation for the future. Whatever the political preference, the fact that there is a majority has been good news for business even if the majority result was unexpected by some.

The re-emergence of clocking has been a surprise negative side effect of the PCP explosion in recent years. It is crucial to highlight the fact that this is a consumer driven problem and, for once, the trade is the victim. Low mileage PCP deals sold on a cost per month basis have resulted in customers breaking the law and altering mileages before returning their cars, rather than taking a penalty charge for excess mileage.

Finally, there has been VWgate. Despite the fact that older diesel cars had been identified as contributing greater levels of pollution than originally anticipated, it is the Volkswagen Group that has surprised consumers and the trade alike by misleading everyone for what appears to be many years. The wrong choice of technology as a result of the drive for profit has resulted in what may yet be the one of the most important events in motoring history. However, it is the consumer that will decide the outcome and, whilst there is an element of distrust of the group as a whole at the time of writing, used values have stabilised. It will be fascinating to see how the situation plays out and it is interesting to note that, as a society, our concern for the environment seems to run only as far as our pocket rather than a genuine desire to protect our environment.

In summary, 2015 has been an invigorating year, offering both challenges and opportunities in so many different areas. There is little doubt that 2016 will be as exciting and, arguably, more challenging.