Article Type: Insight

Investigating market fluctuations, Rob Donaldson from Glass’s used car Editorial team, asks the question – when compared to retail price inflation, how have new and used car prices changed since the start of the Millennium?

Since 2000, the UK Retail Price Index (RPI) has risen on average 2.8% per year according to the Office for National Statistics (ONS) or 73.7% over 20 years (including 2.8% for 2020). Taking this RPI rate and apply

Source: Office for National Statistics

Over the years, cars have become an indispensable part of life. While traditionally car purchases are the second largest household expenditure after home purchases, is it also true that cars have become increasingly more expensive in pound note terms.

Taking four car models as test cases, all with three-year-old models available today and in the year 2000, the analysis creates a comparison looking at cost new and three year old trade values. The expected values in 2020 shown in the table below, for all test cases, are calculated using the RPI rates above.

• Audi A4
• Volkswagen Golf
• Vauxhall Corsa
• Porsche 911

As expected all four models show an increase in both cost new price and Glass’s Trade value over the twenty-year period. However, when examined more closely the price increases are at lower rates than the expected values based on the RPI.

The chart below shows the relevant percentage increase for both cost new prices and 3-year-old values using the older model as the base.

The chart shows the Audi A4 has the lowest increase in used trade value at under 20% whilst the Volkswagen Golf has highest at almost 60%. Regarding the cost new price, the Vauxhall Corsa has had the lowest percentage increase whilst again it is the Volkswagen Golf that has tracked RPI most closely.

Clearly it is difficult to compare different model generations solely on price alone, as every new iteration of each model improves on equipment, safety, style, reliability, power and economy. However, this analysis clearly underlines the theory that today’s cars, based on RPI increases, are unquestionably relatively less expensive than at the start of the millennium. This means that manufacturers are continuously reinventing their vehicles whilst finding new ways to deliver them at relatively lower prices. The simple conclusion that can be taken from this analysis is that cars continue to improve in the value for money stakes.

The Van’s Headlights

Glass’s continues to monitor the LCV market closely and has an open dialogue with auction houses and manufacturers, leasing and rental companies, independent traders and dealers as well as the main industry bodies. This information combined with the wealth of knowledge in our CV team ensures Glass’s valuations remain relevant in the market place.

This week, the Van’s Headlights analyses the LCV market in detail, investigating vehicles in demand and the volumes sold in May.

The new LCV market

With the coronavirus lockdown continuing to affect the new light commercial vehicle market, registrations fell heavily again in May. The UK new light commercial vehicle (LCV) market declined by 74.1%. Overall, only 7,541 new LCVs hit UK roads during the month, with the majority used to further support the NHS, emergency, pharmaceutical, food distribution and home delivery services.

Performance year-to-date has declined by over 49%, with only 78,835 units registered during the first five months of 2020. Although an improvement versus April, this unparalleled crisis has resulted in further significant drops in demand across all sectors. Breaking the month down by sectors reveals registrations fell 80.3% for Pickups, 84.0% for Vans under 2.0 tonnes, 78.7% for Vans between 2.0-2.5 tonnes and 70.4% for Vans between 2.5-3.5 tonnes.

Top five LCV registrations

The latest April SMMT new LCV registrations re-forecast for 2020 is down 28% to 263,000 units for the year. Lockdown is affecting everyone from the smallest trader to the biggest fleet, with many struggling to remain in business.

The used LCV market

Auction houses started reopening online sales from the middle of May. With the majority of auction locations stocking vehicles from before the March lockdown, the initial aim was to move this dormant stock as quickly as possible.

Glass’s auction data suggests May sales were down 58% versus May 2019. However, already in June, UK auction buyers are adapting to the online world with sales and first-time conversion rising quickly. As logistics become accessible, more used LCVs will become available in the auction channels increasing supply at a time when buyers have growing confidence in buying at online sales.

As online sales programmes increase, there is a definite appetite from trade buyers to purchase good quality stock. Supporting this appetite is data showing average prices across all ages and sectors rose 22.6% versus May last year.

Physical auction sales restart from the June 15; however, many buyers are reluctant to rush back to the rostrum, with social distancing, safe vehicle movement and deep cleaning of all surfaces a continuing issue.

May auction sales in detail

The average age of sold stock in May fell dramatically from 83.0 months in April to 59.9 months. This figure was also 9.6 months lower than the same point last year.

Average first-time conversion rates stand at 54.9%, up from 33.3% in April, but down from 71.7% 12 months ago.

Average vehicle mileage for those that sold stands at 65,758 miles, a decrease of 5,861 miles on April and more than 13,600 miles less than May 2019.

The interconnected nature of the UK economy means that the coronavirus crisis is affecting everyone. For over two months, new and used LCV sales have been on hold, but dealerships and auction houses are slowly starting to reopen with social distancing measures, deep cleaning and appointment bookings as the new norms across the industry.

The new normal – post Covid-19

Restoring confidence in the economy will be critical if operators are to resume some sort of business ‘normality’ moving forward. There has been a slow but gradual increase in fleet renewals of late, but confidence in the economy is critical if they are to continue to reinvest in the cleanest fleets.

With our current data, and assessing data from significant recessional periods in the past we are confident that the UK market has the potential to come back strongly and relatively quickly. As an island that drives on the left, there will be specific supply constraints for the UK which will continue to affect the availability of new LCVs.

The supply of new LCVs could be further curtailed as we negotiate the UK trade deals with Europe. These trade deals are likely to negatively affect the Euro / Pound Exchange rate further increasing the price of new vans and pick-ups, whilst at the same time positively affecting the demand for used LCVs.

As unemployment continues to rise the makeup of the demand in the LCV market is likely to change with it. Firstly, additional unemployment is likely to force a further contraction in the new LCV market. Conversely, this is likely to increase demand in the used LCV market potentially strengthening the recovery of used LCV values, this was last witnessed during the 2008 financial crisis.

Used Car Market Outlook For 2020

Following April’s worst UK new car registration monthly results since February 1946, data suggests that the UK economy continues to plunge into a deeper recession than the 2008-09 financial crisis. Forecasts show UK government borrowing is likely to reach £180 billion (7 per cent of GDP) in the current 2020/21 financial year. However, to kick start the economy, it is likely that the economy will need even more government support.

Lockdown is affecting most UK households, high street shops are closed except for essential stores, and many companies continue to struggle to remain in business. Effectively, large parts of the UK economy is on pause. The interconnected nature of the UK economy means everyone is affected by the coronavirus crisis.

The UK Car Market and Coronavirus

For the UK car market, the Coronavirus pandemic has effectively frozen new and used car sales for an undetermined amount of time. The lives we previously knew are on hold. Increasingly, economic forecasts suggest significant negative effects on the economy.

With no prior precedence, world leaders are unsure about the correct lockdown exit strategy. The overriding concern is the balance between the continued risks to life, versus the ongoing economic impact. Here in the UK, it looks likely that the Prime Minister will make an announcement over the weekend of 9/10 May 2020 to ease the lockdown, although the continuation of social distancing measures is likely until a vaccination is developed.

New and used car sales operations are unlikely to resume normal operations. The adoption of social distancing measures, deep cleaning and appointment bookings are likely to become the new norms across the industry. These measures will ensure the safety of staff and customers similar to the measures already witnessed in UK supermarkets. The additional costs to dealerships will impact margins, however they are an essential cost of continued business and will prevent further surges in the spread of COVID-19.

A slow increase in the commencement of new and used car sales will inevitably lead to some frustrations for customers already in a position to make purchases. With the implementation of social distancing measures in car factories added to the weeks of lost production forced by factory closures around the globe, new car supply issues are expected for at least the remainder of this year. However, other customers may now be unable to go ahead with previously planned new or used car purchases, due to changes in financial circumstances.

The value affect

Fewer new car registrations will quickly impact used car supply especially the six and a half year and over age profile, as these form the majority of UK part-exchanges. This reduction will positively affect residual values of older cars as this age profile remains the mainstay of many retail and trade outlets, mainly due to low acquisition costs and positive margin potentials.

Auction data shows that the number of vehicles over six and a half years old has almost doubled over the past ten years. Despite the huge increase in volume, the following graph shows that first time conversion rates have risen. The popularity of cars of this age continues to increase at auction, helped by improvements in build quality increasing the life expectancy of modern cars.

Glass’s predicts that demand will not soften for this age profile in the future, in fact if the UK enters a prolonged period of recession, retail demand could actually increase as consumers look for cheaper used cars to reduce household expenditure.

If the slowdown of the new car market continues for several more months, this will lead to further reductions in supply of this older age profile. Competition at auction will increase to secure this stock and traders may have to focus on buying younger, more expensive stock. This is likely to lead to some outlets reducing stock levels or needing to secure additional funding to maintain current stocking levels.

Used car operators across the UK are hoping that the lockdown will end soon, and the market settles quickly. As with the food supermarkets, a period of readjustment is likely, the winners in the industry will be those who adjust rapidly and return to selling as soon as possible.

Due to the COVID19 lockdown, there have been no new vehicle launches over the past few weeks. As part of Glass’s continuous programme of manufacturer launch meetings, information shows many of the postponed launches were for full BEVs (Battery Electric Vehicles). These events are in stark contrast to the proliferation of new diesel launches in the early 2000’s.

Consumer choice changes: 2010 to 2020

With significant sales growth of cars with alternative fuel drivetrains over the past 10 years, hybrid, plug-in hybrid and range extenders have grown in popularity. However, it is BEVs that hold the key to the future of motoring. So why has BEV market penetration been so slow over the last ten years?

Step back in time 10 years and remember which BEVs were available to order in the UK. The choice was limited. Firstly, the G-Wiz, made by Indian manufacturer Reva Electric Car Company, although technically classed as a heavy quadricycle, it was a first unrefined trip into the world of BEVs. There was also the Smart Electric and Mitsubishi i-MiEV. At this time, UK registrations were limited with almost all sold on a test basis to corporate clients.

During 2011, Mitsubishi i-MiEV availability grew along with the launches of the Peugeot and Citroen versions of the same car; the Peugeot iOn and Citroen C-Zero. Between the three models there was still only very small numbers registered in the UK. Also, during 2011 the UK saw the introduction of the Nissan Leaf; this vehicle broke the mould in many ways. Produced in Japan as a practical family five-door hatchback, the first generation was only available in one trim level. However, it was the first BEV that made consumers believe that BEVs could work in the real world.

BEV launches were thin on the ground in 2012 and 2013 in the UK, with only Renault dipping their toe in the water, with the introduction of the ultra-low volume models; the Fluence Z.E and the Twizy. Renault also launched the Zoe, which had far more success and has gone from strength to strength ever since. Nissan Leaf sales volumes also grew, mainly because European production moved to the UK and the choice of trim levels increased.

In 2014 the Leaf accounted for over 6,000 UK registrations prompting more manufacturers to start looking at BEVs as viable launch options for the UK market. Hence two significant introductions; the first was the BMW i3 and the second was the Tesla Model S. The i3 was important as it was the first mainstream BEV launched by a premium brand. The Tesla’s introduction was also important as it suddenly gave consumers a usable range that, even for high mileage drivers. However, the Tesla was much higher in price and therefore not accessible to the masses.

Also during 2014 a number of mainstream manufacturers started introducing BEVs including Volkswagen’s e-UP! and e-Golf, Ford’s Focus Electric and Kia’s Soul EV. Commercial vehicles added to the market too with the introduction of the Renault Kangoo E.V Van and the Nissan e-NV200. Whilst Mercedes-Benz had their first foray into the BEV market in 2015 with the B Class EV.

Late in 2016 and early 2017 saw the arrival of Tesla’s next BEV, the Model X, as well as the Hyundai IONIQ Electric. Then 2018 saw the arrival the Jaguar i-Pace. From 2010 to 2018 the market grew from a very limited choice of BEVs, to around a dozen vehicles ranging from approximately £20,000 to more than £100,000.

At the time of writing there are 34 different BEV models available to order in the UK from both established and new manufacturers. Many models have differing battery sizes and trim levels giving a huge choice of around 130 derivatives. Prices for BEVs also vary greatly with the growing choice they now range from under £20,000 all the way up to more than £130,000. Today as technology continually improves, there is a growing number of BEVs with official WLTP ranges greater than 200 miles and some with ranges now over 300 miles. The infrastructure is also changing quickly with more rapid chargers becoming available for quick top-ups that might be necessary on a longer journeys.

Plug-in Car Grant (PICG)

Another change over the past 10 years is the government’s Plug-in Car Grant (PICG). When it started in January 2011, it contributed up to 25% of the cost of new plug-in cars up to a maximum of £5,000. The scheme was extended to light commercial vehicles the following year with a grant of 20% of the cost new price, capped at £8,000. The PICG was not just for full BEVs and included plug-in hybrid vehicles (PHEVs). This grant, alongside the savings in company car taxation saw a surge in plug-in registrations between 2014 and 2016, although most of them were PHEVs rather than BEVs.

There have been changes to the car grant since 2011, and on 11 October 2018; the government ruled that the only vehicles eligible for the grant would be Category 1 – CO₂ emissions of less than 50g/km and a zero-emission range of at least 70 miles whilst the maximum grant contribution for cars is now £3,500.

Summary

Once the Covid-19 lock down eases, we can look forward to experiencing the latest additions to this growing force in the automotive industry. With continual improvements to BEV technology over the last 10 years, and more exciting developments in vehicle electrification on the way the Glass’s team cannot wait to see how the technology evolves over the next 10 years.

Glass’s Live Retail tool, gathers a number of different types of retail data – these include not just the length of time a vehicle spends on the forecourt, but also the asking price when initially listed as well as its final asking price. By collating these data streams, Glass’s can analyse trends and build up a true picture of the used car retail market.

At the beginning of 2019 the Glass’s team reported that whilst Internal Combustion Engine (ICE) cars had performed relatively consistently over the preceding four years, Battery Electric Vehicles (BEV) had shown noticeable improvements in the key metrics of ‘days to sell’ – the number of days a car spends on the retail forecourt – and ‘asking price discount’ – the amount of discount applied between the first and last advertised asking prices.

BEVS had gone from much higher ‘days to sell’ and ‘asking price discount’ metrics than ICE at the beginning of 2015 to effective parity by the start of 2017. Given the growing interest in all forms of Alternative Fuel Vehicles (AFV) it seemed reasonable to expect those trends to continue. However, since that report they have clearly reversed, suggesting retail demand for used BEVs has reduced as they are taking longer to sell and require more discounting:

Usually this kind of reversal is due to a growth in supply sufficient to exceed demand. Whilst it is true that the volume of BEVs sold in February 2020 was an impressive-sounding 138% greater than the number sold in January 2019, the 475 BEV sales only represented 0.48% of the total number of retail used car sales in February.

This low volume should not represent oversupply given the apparent interest in AFVs and BEVs in particular, so it is unclear at this stage why the key used retail metrics are behaving in this way. For example, there have not been any changes to legislation that would suppress demand. If anything, the introduction of low emission zones and similar restrictions should promote the uptake of BEVs.

What is noticeable is that there has been a sizeable jump in the average final sale price of used BEVs. It was around £12-14,000 from the start of 2015 until October 2018, when it began a rapid rise, reaching £21,000 by June 2019. It has continued to climb since then, albeit at a slower rate.

Over the same period, the average age of BEVs has also increased, from 15 months in January 2015 to around 25 months in February 2020. An increase in vehicle age usually brings with it a reduction in value, so the only conclusion that can be drawn is that the vehicle mix has changed to include much more expensive vehicles. This rise in sale price coincides with the increase in stocking times, suggesting that the more expensive BEVs take longer to sell and require more discounting to do so.

New BEV sales have grown rapidly over the last 12 months and that growth rate is likely to increase going forward – indeed it must if we are to meet the targets laid down by the Government. This will, of course, lead to a rapid growth in the number of used BEVs entering the market so every effort must be made to ensure there is enough used retail demand for them if there is to be any hope of them becoming more financially viable, both for the manufacturers as well as the owners themselves.

Each month, Glass’s Commercial Vehicle editors hold a meeting to name the current Used Van Hero in the UK market – the model they believe offers the highest level of versatility, durability and outstanding value for money.

Andy Picton, Glass’s Chief Commercial Vehicle Editor recommends the front wheel drive Fiat Ducato as the “ideal small large van, offering big payloads and a smooth drive.”

Andy added, “Following its launch in 1981, Fiat has proved to be a growing force in the large panel sector, offering a huge choice of vans and variants, with payload solutions for all businesses”.

WHEN WAS IT ON SALE

The Ducato has been on sale for nearly 40 years as part of the Sevel joint venture between Fiat and PSA Groupe.

The first generation was available between 1981 and 1993 and sold as the Ducato, the Citroen C25, the Peugeot J5, the Talbot Express and the Alfa Romeo AR6 in different world markets.

The second generation Ducato was launched in 1993 and remained in production for 13 years. It was also marketed as the Citroen Relay or Jumper and the Peugeot Boxer.

The third generation was launched in 2006 and continued to be served by the three brands of Fiat, Citroen and Peugeot. A facelift was launched in 2014 and was introduced to the North American and Canadian markets as the Ram ProMaster.

Euro 6 versions were introduced in 2016, with Euro 6d-Temp models featuring minor exterior and infotainment improvements launching in 2019.

A Ducato BEV (battery electric vehicle) with maximum power of 90kW, is due for launch during 2020.

WHY

The current Fiat Ducato range

• Four body lengths and three roof heights
• Front wheel drive
• Four trim levels
• Manual and automatic transmission
• Bodies include
  • Panel van
  • 6-seat Double Cab Crew Van
  • Dropside, Tipper and passenger variants
  • Chassis, Crew Cab Chassis, Platform cab and Back To Backs for conversions
• Euro 6d-Temp front wheel drive light duty engine line up
  • 2.3-litre Bi-Turbo diesel engine with outputs of 120bhp, 140bhp, 160bhp and 180bhp

Standard specification on the 2016 Ducato Euro 6 included a full height bulkhead, driver’s seat arm rest and lumbar support, Bluetooth radio incorporating MP3, USB and AUX, steering wheel controls for radio, and electric heated mirrors and speed limiter. Safety features included Electronic Stability Control (ESC). Lane departure warning was fitted to 4.0-tonne and 4.2-tonne GVW models as standard.

Power to the front wheels came from the smooth and efficient 2.3-litre Multijet II EGR (Exhaust Gas Recirculation) engine with outputs of 115bhp, 130bhp, 150bhp and 180bhp, all linked to a manual gearbox. These models did not require AdBlue to achieve Euro 6 standards.

The Tecnico trim level added air conditioning, DAB radio with 5” touchscreen and USB/AUX inputs, Bluetooth connectivity, reverse parking sensors, steering wheel controls, cruise control with variable speed limiter, satellite navigation and an alarm.

WHAT’S GOOD?

• Huge variety of models
• Smooth economical engines
• No AdBlue required for 2016 EGR models
• Good handling
• Well built
• Payloads up with the best in the sector
• Ample storage and cupholders
• Good turning circle
• Three piece unpainted bumpers on all models (except Sportivo)

WHAT’S BAD?

• Engines noisy
• Seats not the comfiest
• Driving position slightly awkward – limited legroom for taller drivers
• Cabin plastics not of a high quality
• Potential gearbox faults. Listen for whining noises
• Electronics issues affecting dashboard, airbags and ABS
• EGR valves known to stick

IDEAL BUY?

Fiat Ducato 30 Technico 2.3 Multijst II 130bhp Euro 6 SH1 van

Registraion plate: 2016/66

Mileage: 45,000 miles

Glass’s Retail £9,525 Excl VAT

Glass’s Trade £7,500 Excl VAT