NEW FORECASTING methods for residual values introduced by CAP a year ago have proved successful, with the used car market ending the year within three per cent of Gold Book forecasts for the major sectors.

With forecast accuracy as close as 0.6% for the fleet flagship lower medium sector, CAP is confident that Gold Book represents the most demonstrably reliable independent forecasting tool in the industry.

CAP’s ‘root and branch’ reform of forecasting methodology for the introduction of Gold Book saw outdated practices, which are still common among rival platforms, replaced with a more sophisticated and granular approach developed in close collaboration with leading CAP customers.

Dylan Setterfield, CAP’s Senior Forecasting Editor, said: “Key to the Gold Book forecast methodology is the differentiation between age, sector and fuel type instead of the more typical ‘one size fits all’ approach that treats the market as a single entity.

"We also changed all elements of the calculation to reflect the true expected evolution of used values, rather than relying on artificial depreciation curves.

“This more sophisticated approach has occasionally thrown up counter-intuitive elements within forecasts, which have nonetheless proved to be correct. For example, depending on type of vehicle and the precise point in the seasonal pattern, cars at certain mileages may see higher values at 42 months than at three years.

“We are therefore delighted to see that the actual market deviated from our forecasts for 2014 by only 1.6% overall and as little as 0.6% for the lower medium sector, which is so important for fleets to forecast as accurately as possible.

“I am especially pleased that Gold Book fell well within the target expectations set by our customers in the major sectors in its first year.  Ultimately that is the best possible return on the substantial investment of time and resources we put into rebuilding our forecast methodology from the ground up.”

Looking ahead to the Gold Book view of 2015, year on year market deflation (YOY%) is expected to increase from 2.8% this year to six per cent next year. This compares with typical historical figures ranging between three and five per cent per annum, depending on vehicle sector.  It is therefore slightly more than would be expected from normal lifecycle factors.

This represents a genuine market view and is not distorted by the impact of new model introductions, which are accounted for separately in the Gold Book methodology.

Describing the market shift in 2015 as “from benign to deflationary”, Setterfield says the change is largely influenced by on-going increases in used car supply coupled with flat or only slightly positive demand.

He said: “In summary, 2015 will be more deflationary than the last three years as supply continues to increase. However, little or no reduction in demand – compared with this year – will mean no repeat of the severe market conditions we saw in 2008.”

ENDS