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New Car supply threat Decreases

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Just before the beginning of March there were concerns that motor traders would have to drastically cut the cost of all the vehicles in their forecourts in order to sell them before car manufacturers delivered new ‘13’ registration plate vehicles.  Motor traders were trying desperately to sell new vehicles during a time where many people have little disposable income, and where second hand vehicles were in higher demand.

Therefore, it will come as good news to all car dealers that CAP has announced that the threat of over-supply in the new car market receded last week due to the 2013 Budget, which CAP described as ‘neutral’.  However, CAP has still said that they expect a continued decline in the value of second hand cars for 2013 and even further price falls in the following two years, which means that motor traders need to extremely careful of making sure they budget all the costs for their businesses, including motor trade insurance, maintenance and bills.

Dylan Setterfield, an analyst from CAP, said: “For a while last year it seemed there was a real risk of the slump in registrations in Europe forcing manufacturers to drive supply into the relatively strong UK.  Experience has shown us that when registrations approach levels we saw in 2005 to 2007, then residual values are severely weakened by eventual oversupply.  Sterling initially weakened further, as an immediate response to the Budget statement, and although it recovered in the following 24 hours it remains at a level which limits manufacturers’ scope for heavy discounting in the UK.

“We will still see forced registrations but the intensity of such activity will be limited to specific manufacturers, rather than an industry-wide trend.  The Budget can therefore largely be regarded as broadly neutral in terms of its impact on current residual value patterns and those we have previously forecast for the next 3 years.”  Setterfield based his forecast on assumptions of increased new car registrations, a reducing risk of high volume registrations and fluctuations in supply, and steady demand.

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