Mann Island Finance managing director John Hughes has warned that Guaranteed Future Values (GFV) for vehicles are coming under increased pressure from economic forces and market disruption.
The factors Hughes identified as having a potential effect on the market included WLTP, which has created a shortage of nearly-new stock.
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Hughes said that WLTP has also seen many fleets hold back from changing parts of their fleet, thus reducing used car supply in the 3 to 4-year age category.
Hughes expects that WLTP will continue to create demand in the months ahead, but also anticipates that in the medium term it will also increase the move to Alternatively Fuelled Vehicles (AFVs) supported by an increased EV product push from manufacturers switching from non-WTLP compliant cars.
Hughes said: “The current success in the used market reflects a mutually beneficial relationship between used cars and finance, notably via access to PCPs, which now account for 49% of used car finance. However, environmental changes mean that today we are operating in unfamiliar territory when it comes to forecasting the key element of a PCP, and the vehicle’s future value. Getting this prediction right is essential for all parties; the dealer, finance company and end customer.”
An increase in EV sales in the next three-year window, for which today’s PCP value forecasting must account, is very likely. Conversely, diesel and petrol car sales are expected to decline at an accelerating rate with the advent of Ultra Low Emission Zones (ULEZ) across the UK, the first of which comes into force on April 8th in London.
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By GlobalData“If ever the financial services warning ‘Past performance is not a reliable indicator of future results’ was relevant, it would be right now in the context of forecasting future residual values used in car financing. For me, a softening of future values for fossil-fuel cars seems inevitable, even if demand and values today are strong. The key questions are when and by how much?”, said Hughes.
“Right now, our approach is one of commercial prudence and agility as we react to the views of the trade valuation experts; we expect this to be echoed across the lending market. I’m not expecting EVs to simply flick a switch and turn off the lights on petrol and diesel cars. Far from it, the likelihood is that there will be a steady and controlled dimming, but I would expect this dimming to start influencing future value forecasting very soon.”
