Rising new car supply could accelerate depreciation in 2013

BRITISH MOTORISTS saved millions on lower car depreciation last year, but that looks increasingly unlikely to be repeated in 2013.

Depreciation, which forms the biggest element in a typical car’s ownership cost, stood at an average 9.4% in 2012 for a 1 year old car, with 10,000 miles on the clock – a big reduction on the average loss of 16% in 2011.

Some of the most striking improvements in depreciation last year were seen in the large family car segment – home to names like the Ford Mondeo and the Volkswagen Passat – which saw an average improvement in depreciation of nearly 10% compared with the year before.

What caused the strength in used car prices last year – despite the torrid economic times – was a big reduction in the number of cars available. This was due to the collapse in new car registrations after the 2008 credit crunch and the recession that followed. Those events  all but destroyed the new car market in Britain and led to eventual complaints from dealers of a severe shortage of good quality used cars in 2012.

But that dynamic is set to change as car makers target Britain to shore up their new car sales.

Most European new car markets are languishing in the doldrums and the price of that was sadly brought home recently with the announcement of 800 job losses at Honda, due to declining demand in Europe.

But thanks to the relative strength of Sterling, the UK has become a more profitable market for new cars over the past year and many car makers now have big plans to increase sales in Britain during 2013. We have seen some of the intended numbers and, although we can't reveal information shared with us confidentially, they are certainly not unambitious.

This is likely to lead to an increase in the number of competitively priced nearly new cars available toward the middle of the year. Experience has shown us that when so-called late plate supply increases substantially, prices fall, so motorists can expect an increase in general depreciation compared with last year.

Although more rapid depreciation caused by an increase in supply is often portrayed as bad news, it’s only part of the story. Hand in hand with this development will be an easing of credit restrictions for both consumers and fleets and that will mean a chance to benefit from better new car deals than we have seen for a long time.

Although they aren’t felt directly by motorists, there are other benefits to the wider economy in preventing the kind of job losses Swindon is bracing itself for. It isn’t only car plant workers who suffer when demand for new cars is low but the thousands of people employed in the automotive supply chain.

Similarly, it’s easy to portray high used car values as a good thing but try telling that to dealers who need to find good cars for stock – or motorists who don’t have a quality vehicle to trade in and need to find the cash from somewhere to fund their next purchase.

In Britain we are used to average annual depreciation of around 15%, so last year was unusual and certainly brought windfalls for those disposing of large volumes of cars. The prospect of a return to something closer to typical depreciation may not be welcomed by some but for many people there will be opportunities to buy a new car they might previously never have been able to afford.”


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