Used cars: Leasing companies will have to ‘work harder’

Hitachi Capital Vehicle Solutions says the industry will have to ‘knuckle down’ if values are to be achieved in a post-pandemic used car market.

As lockdown restrictions are lifted and the remarketing industry begins to ramp up sales, albeit online, pricing experts have predicted some volatility in used car prices.

Initial analysis of the impact of the coronavirus pandemic on used car values by Cap HPI has not shown a seismic shift in prices being achieved.

However, it has urged caution and warned vendors to expect “volatile” price movements over the coming weeks.

Jon Lawes, managing director of Hitachi Capital Vehicle Solutions, told Fleet News: “It will be challenging in the short term, but once the initial stock levels have washed through the market over the next couple of months, we expect the market to recover reasonably quickly, as there are less new vehicles being produced.”

Lawes expects an element of demand will remain as there will be a lower supply of used product in the market.

As a result, Hitachi Capital Vehicle Solutions is expecting a quicker recovery than some market forecasts.

However, Lawes said: “It’s important for leasing companies and sellers to prepare stock really well and to find the right buyers in the right location and to work harder to achieve the realisable value of the vehicles.”

BCA and Aston Barclay were able to remain trading thanks to established online sales channels and available stock.

As restrictions have started to be lifted, allowing vehicles to be moved safely, others have also now begun trading through their online platforms.

In fact, virtual sales channels are expected to grow at the expense of traditional physical sales in the post-pandemic used car market.

Lawes said: “It’s been really good to see the market starting to sell vehicles again and have adapted really well to managing this in a safe, socially distanced way.”

Used car volumes are expected to increase in the coming weeks. In April, Cap HPI observed around 7,500 sold records and that number has already been exceeded by the middle of May.

However, Hitachi Capital Vehicle Solutions says it has seen a “significant increase” in the number of customers extending vehicle contracts, which means the level of returns is a lot lower than normal at this time in the year.

Lawes said: “Despite this, we do expect there to be an oversupply of used vehicles in the market, with less demand in the short term, and have reviewed all of our vehicle remarketing strategies to ensure we maximise our position and provide the best return for vehicles.

“We do expect this to flatten out reasonably quickly, as we’re expecting supply volumes to be lower.”

SCRAPPAGE SCHEME

Carmakers are calling on the UK Government to introduce a scrappage scheme or other incentives to boost new car sales in the wake of the Coronavirus pandemic.

Lawes believes a scrappage scheme for both new and used cars could help kick-start the market. He said: “We believe the success of the car scrappage scheme in the last downturn in 2008 was a huge success and we would call upon the Government to promote a scrappage scheme for new and used car purchases to enable the market recovery.”

Fleet and business new car registrations declined by 96.3% in April, according to the Society of Motor Manufacturers and Traders (SMMT).

Year-to-date, fleet and business registrations now stand at 258,973 units, some 44% lower than the 463,631 cars registered in the first four months of 2019.

Overall, 487,878 new cars have been registered in the UK this year, compared to the 862,100 units registered during the same period last year – a 43% decline.

As a result, the SMMT has downgraded previous expectations to just 1.68 million new car registrations in the year. This puts the sector on course to record its worst performance since 1992’s 1.59 million units, below the levels seen during the financial crisis and some 27% lower than the 2.31 million new cars registered in 2019.

Lawes said: “New car production will be significantly lower this year, but there will be a requirement for people to replace vehicles and we expect there to be a shift to a demand for used cars in the autumn.”

For more on the used car market and Covid-19’s impact on residual values, see the May edition of Fleet News.