Residual Value Outlook 2017
12 February 2017
December 23, 2016
Three years of consistent rises in new car registrations is putting increasing pressure on residual values across large parts of Europe, according to the latest report from Autovista Intelligence, Residual Value Outlook 2017. Autovista Intelligence predicts that residual values will continue to decline in the UK, falling by around 1% in 2017. Meanwhile, growth will flatten out in Germany and Spain. The outlook in France and Italy are more optimistic, as valuations are expected to rise by 1% and just shy of 3% respectively.
New car sales volumes have been buoyant across all of the Big 5 European markets, with the three largest markets – France, Germany and the UK – all emulating their pre-recession peaks in 2016. The three countries will see high volumes of used cars being returned to the used car market between 2017 and 2019, putting pressure on values. In the UK, the impact is likely to be compounded by the economic uncertainty surrounding the country’s decision to leave the EU. An anticipated rise in inflation rate sparked by a weakening of the pound, coupled with declining consumer confidence could lead consumers to increasingly question the need to make major investments such as car purchases.
2016 has been marked by a number of events that have rocked the political establishment, including the UK’s vote to leave the EU and the election of Donald Trump as President of the US. The political landscape could be further reshaped in the coming 12 months, as the rise of populist movements across Europe continues. Front National candidate Marine le Pen already looks set to make it through to the final round of voting when France holds its presidential elections in late April and early May 2017; Brexit and the election of Trump are widely considered to make her election more likely.
The political tide of recent years in France has been firmly away from diesel cars. While le Pen is not a climate change sceptic or denier like President-elect Trump, she has said that environmental policy should be focused on national interest and patriotism rather than international agreements. She may be tempted to dismantle policies against diesel if that favours local carmakers.
For the time being, however, Autovista Intelligence believes the press on diesel will continue. As a result, residual values of petrol cars are expected to outperform those for diesel vehicles across most of the Big 5 European markets. Stricter emissions regulations on diesel cars across the continent, particularly the threat of bans on diesel cars in major cities, including in Madrid, Milan and Paris is serving to reduce the appeal of diesel and to narrow the margin between the two fuel types. The exception is Italy where, despite the political tide beginning to turn against diesel vehicles, public perception has yet to be dented to the extent seen in other markets and diesel valuations could rise.
Valuations for alternative fuel vehicles (AFV) look set to increase at a faster rate than the overall market, particularly in France and Spain where growth of 2-4% is anticipated each year between now and 2019. Increased regulation of diesel is stimulating interest in AFVs, but with sales of electric and hybrid vehicles still relatively low, the volumes of second-hand cars making it on to the used car market is limited, bolstering valuations.
After strong rises in recent years, used car valuations in Spain are expected to stabilise over the coming 36 months and, indeed, growth in residual values has already begun to flatten out in the second half of 2016. Valuations for young used cars have been under pressure as incentives such as the Programa de Incentivos al VehÃculo Eficiente (PIVE) make a new car appear more attractive. While there could be some scope to increase the price of older vehicles, the wealth of 36-60 month old vehicles beginning to enter the market in the next few years will begin to have a deflationary effect on prices, resulting in price stabilisation.
For further information on the Residual Value Outlook 2017 report, please contact insight@autovistaintelligence.com