May 21 Valuations Webinar
In our May webinar our team of experts reported back on the latest findings and looked at some of the economic indicators focussed on our industry, specifically focussing on the most recent extraordinary and unprecedented situation in which the market finds itself.
As we see out May, retail sales are now showing a strong recovery – above forecasts, so it is fair to say that the retail economy has enjoyed a much-needed boost; but we should still note that the long-term impacts on the retail economy, such as the closure of several large businesses and others reducing their footprints, will take longer to rectify.
Given the re-opening of retail, it should not come as a surprise that there has been a slight decline in online retail activity, but it remains significantly above pre-pandemic levels.
Looking at current new car sales data, comparing the year-to-date with last year and 2019 we can see that once the market reopened, deliveries improved considerably, but volumes remain below 2019 levels and April will have benefitted from delayed March registrations.
Unlike cars, LCV new registrations, seen in a year-on-year context, have been much less impacted by the lockdowns, and April 2021 monthly volume represents an historic peak.
In the used LCV market the weekly volumes have fluctuated since the first lockdown, but what hasn’t is the strong weekly performance. Across all ranges of LCVs performance in 2021 surpassed that of 2020, but this was expected. What was also to be expected due to the reported issues surrounding the supply of new vehicles is that the volume of used vehicles in 2021 would be behind the average from pre-covid years, except for vehicles that are under 1 year old.
Already we are witnessing used LCVs being sold wholesale for more than an advertised new one, in addition some 3-year-old models are being displayed in the retail world for more than they were when they were new. Based upon our wholesale data values have gone up for the twelfth consecutive month by on average 3.4% for all vehicles up to 5 years.
In the used car sector, May will probably go down in history – we’ve certainly never seen anything like it. The average movement at 3-years, 60,000 miles during May is a 6.7% movement up. May has an increase of more than three times last month’s record. It is difficult to stress just how large and unusual an increase that is.
Prior to last month, the largest movement up was 1% in February 2018. Since 2012, there have only been 21 of the 113 months when values have gone up & 8 of those have been in 2020 or 2021, 3 of them being the last 3-months. Values have not gone up at this time of year previously, except for in 2009.
6.7% at the 3-year age point is equivalent to an average of £825 per car. That average amount of an increase on that age of car in such a short space of time in the wholesale market is extraordinary, particularly as values also went up by 2%, or £270, during April.
1-year old values have not increased to quite the same degree in percentage terms, going up by 5.6%, but this amounts to an average of over £1,200.
Older cars have increased in value, but not to the same degree, “only” increasing by 1.2%, or £100.
Every sector has seen values increase in May, not just niche sectors which in recent times have risen by more due to having more aspirational cars within them. Even many mainstream cars have risen by unparalleled amounts.
It is also abundantly clear that retail advertised prices are not keeping up with trade. Much of this is due to many cars being advertised being bought at previous prices, so being advertised to achieve a margin, but dealers won’t be able to replace cars at the same prices they paid for them. Retail prices are generally going up, but at the moment the majority of increases are still lagging behind trade. We have seen a definite & significant uptick in our retail data over the last week or so though.
So where do we go from here? The used market had been slightly slower to pick up than we had expected following the announcements on the schedule for re-opening. This month vendors aggressively increased pricing and the used market spiraled upwards. But this extreme positivity is clearly not sustainable. At some stage demand will soften. Dealers’ margins have been squeezed and increasing retail prices may stifle demand, especially if the timing of this coincides with the pent-up demand from lockdown being used up.
We now think movements will be positive for the next 3 months, but revert to decreases for the remainder of 2021, with a slow start to 2022. The further we go out, the more positive the picture.