Vehicle valuation firm CAP has said last week’s Budget has made the UK a less attractive proposition for European brands to offload stock but not changed predictions for residual values (RVs).
The Leeds-based company said the downgraded economic forecast plus Chancellor George Osborne’s stated aim to keep interest rates low would put downward pressure on the pound, making the UK a less-profitable market.
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Adding in exchange rates and Osborne’s aim to increase consumer spending power, however, Dylan Setterfield, CAP senior editor for forecasting, has not adjusted his view of RVs over the next three years.
Discounted imports
CAP previously expressed a fear the relative strength of the UK new car market compared to those in Europe would see brands feeding more stock into UK franchised dealers.
CAP believed, in turn, dealers with little room to extend finance offers would have to discount new stock or be forced into further pre-registering of vehicles.
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By GlobalDataDuncan Aldred, chairman of Vauxhall, added to the debate by telling delegates at the Geneva Motor Show the falling value of the pound may push up prices on UK forecourts, although brands may still hope to use the market "to push more products through at discounted prices".
Residual impact
Citing increased new car registrations predicted by some, the reduced risk of pre-registrations, plus variance in supply during a period of "steady demand", Setterfield and CAP have predicted RVs will fall in the short-term this year with further, "limited" falls in 2014/15.
Setterfield said: "It is good to have the downside pressure on Sterling increased by the Bank of England and sensible to announce a downgrading of the UK growth forecast to prevent the pound rising.
"For a while last year it seemed there was a real risk of the slump in registrations in Europe forcing manufacturers to drive supply into the relatively strong UK. Experience has shown us that when registrations approach levels we saw in 2005 to 2007, then residual values are severely weakened by eventual oversupply.
"The prospects of that being repeated have been receding since Sterling began weakening in the second half of 2012. Sterling initially weakened further, as an immediate response to the Budget statement, and although it recovered in the following 24 hours it remains at a level which limits manufacturers’ scope for heavy discounting in the UK."
richard.brown@timetric.com
