Is Brexit uncertainty boosting RVs of young used cars?
14 March 2019
14 March 2019
A unique upward residual value (RV) trajectory in the UK suggests that Brexit uncertainty is having an impact on prices of young used cars.
RVs of used cars in the 12 month/10,000km (6,200 miles) scenario have been trending upwards in the UK since August 2018. This is in contrast to their pricing performance across the other EU5 markets, where values have been broadly stable or trending downwards as new car supply returns to a semblance of normality following the implementation of WLTP in September 2018.
This trend is unlikely to change any time soon given the UK Parliament’s rejection of Prime Minister Theresa May’s EU departure deal on 12 March. This was followed, in the evening of 13 March, by Parliament’s rejection of leaving the EU without a deal on 29 March. However, the political deadlock has arguably increased the risk of a ′no-deal’ Brexit unless an extension to the departure date is agreed. The UK Parliament is voting on this motion this evening (14 March).
Amid the hectic voting schedule in Parliament, the UK Government announced, on 13 March, that new cars imported into the UK following Brexit will be subject to a 10.6% tariff in the event of a ′no-deal’ scenario. The impact on the new car market and RVs of young used cars in 2019 could therefore be far more dramatic.
The recent RV development of young used cars reinforces the view Autovista expressed back in January, that consumers may opt for a used car more than a new car given the current climate of uncertainty. Essentially, the worse the performance of the new car market, the better the expectation for the used car market and, in turn, residual values. We are now even seeing young used cars retaining more of their value in the UK than in Spain. It is worth noting, however, that RVs had an uplift in September 2018 and March 2019 because of the age-related number plate change that occurs every March and September in the UK.
EU5, trade RV%, 12months/10,000km, January 2015 to March 2019
Source: Residual Value Intelligence, Autovista Group
Attributing the upturn in RVs of young used cars in the UK to a downturn in new car demand because of Brexit uncertainty is, however, not that simple. New car registrations only fell by 1.6% year-on-year in January and even grew by 1.4% in February. Accordingly, new car registrations were down in the first two months of 2019, albeit by only 0.6%.
This clouds the assertion that a downturn in new car demand is translating into stronger pricing for young used cars in the UK. However, it must be reiterated that new car registrations in the UK and across many European markets are currently benefitting from increasing supply following bottlenecks created with the implementation of WLTP.
EU5, new car registrations, percentage change year-on-year, January and February 2019
Source: CCFA, KBA, ANFIA, ANFAC, SMMT
The year-on-year change in new car registrations was better in February than in January in France and Germany, as well as in the UK. Italy’s new car market also performed better in February (-2.4%) than in January (-7.4$) although this is largely because of advance buying before the car registration tax change came into force on 1 March.
Spain was the exception to the trend of new car markets performing better in February than in January. New car registrations fell by 8.8% in February and 8.0% in January compared to the respective months in 2018. Spain’s car market is therefore not yet enjoying the benefits of an influx of new cars, supply of which was delayed because of WLTP. Nevertheless, the improvement in registrations of new diesel cars (-29% in February compared to -36% in January) does suggest that delayed models are now slowly trickling through to Spain too.
This aligns with comments made by Volkswagen Group CEO Herbert Diess at the carmaker’s annual press conference; ′The introduction of WLTP led to delays in production, which had caused a sales downturn. It will probably be the end of the first quarter before all variants are available again.’
The current WLTP-induced boost to new car registrations therefore continues to mask any downturn in underlying demand as UK consumers hold off buying a new car due to Brexit uncertainty. There is one positive side effect at least – increased demand and, in turn, improving RVs of young used cars.