Current pump prices are at record highs.  British motorists paid a then-record 120 pence per litre for unleaded petrol in July 2008, and the price is now exceeding this figure.  However, unlike in 2008, this time around there have not been any notable repercussions for the upper echelons of the used car market.

Whilst the value of a typical family car has risen by at least 2 per cent since January, large 4x4s have registered a rise of twice this amount.  Also faring well during this period are luxury cars and supercars, which have followed the upward trend of family cars.

“Given the series of fuel price increases, it is perhaps surprising that there has not been any kind of backlash in the premium sectors this time around,” explained Glass’s Managing Editor, Adrian Rushmore.  “In fact, the sector that could be described as the most fuel inefficient appears to be thriving, namely the prestige 4×4 sector that has recorded price resilience not seen in any other area of the market.”

The absence of an adverse reaction to record-breaking petrol prices can be put down to several factors, according to Rushmore.  “Firstly, there is less of the ‘feel-bad’ factor that pervaded the economy and the market in the summer of 2008.  Back then there was also an added buying disincentive in the shape of the large VED increases planned for the following April and plentiful used car supply.  And fuel prices have been rising more slowly in recent months compared to the dramatic increases seen two years ago.  This suggests that the current high price of petrol may, so far, not have appeared on the radar of many motorists, or they are simply ignoring it.

“Fuel is the second largest cost of vehicle ownership, so there is a strong argument that all used car buyers should give more consideration to pump prices,” adds Rushmore.  “A used car purchase only takes place every three or more years, so it is important to consider not only fuel prices today, but also the extent to which they are likely to increase over the entire period of ownership.  For example, a penny will be added to duty in October and a further 0.76p in January 2011, while a commitment to the fuel duty escalator will see pump prices rise by inflation plus 1p a litre each year between 2011 and 2014.  Further rises may also come, if VAT is increased and a duty hike is introduced in a snap post-election Budget.”

Rushmore concluded: “Even though we expect used car buyers to choose more fuel-efficient cars in future, we are not predicting the demise of the large 4×4, luxury, and supercar sectors.  These cars are not necessarily the principal method of transport and could represent the second or even third car in the family fleet.  So the desire for ownership will remain high, and relatively low annual mileage will minimise the impact of high petrol prices.”

Glass Information Services – EurotaxGlass

Andy Carroll comes to Glass’s after a successful track record in the automotive sector over the last 20 years.  He held senior Sales and Marketing positions at GM Europe, culminating in Sales Director for Commercial Vehicles, before becoming Chief Operating Officer of the internet car retailer OneSwoop.  Andy was Managing Director of GM Daewoo UK, and subsequently Managing Director of Chevrolet UK.  More recently, Andy was head of International Sales & Marketing at GAZ Group, and he joins Glass’s from a large dealer group, where he has been working as an advisor to the Board.  Andy has a Masters Degree in Manufacturing Engineering from Trinity Hall, Cambridge and an MBA from INSEAD.

“Glass’s is a tremendous brand that is rightly proud of over 75 years of innovation and insight” said Andy Carroll.  “The past 12 months have been tumultuous ones for all of Glass’s customers.  The business landscape has changed forever, and I am looking forward to engaging with those customers and to further develop Glass’s relevance, excellence and value.”

“Andy is joining the UK business at an exciting time as we are currently implementing a series of initiatives to improve the service quality for customers and launching a set of next generation products to fantastic market feedback. With his many years of experience in the Automotive industry, Andy will accelerate the momentum in driving innovation and customer satisfaction to cement Glass’s leadership position,” said Alastair MacLeod, Group CEO of EurotaxGlass’s International.

Vehicles in the city car segment, including the Ford Ka, Peugeot 107 and Toyota Aygo, are now the slowest depreciating in the UK, retaining an average 49.5 per cent of their purchase price after three years and 36,000 miles.  This represents a remarkable turnaround – as recently as 2006, vehicles in this segment languished in ninth place in the Glass’s depreciation table.

“The improvement in values of city cars is all the more remarkable when you take into account the massive growth in the supply of three-year-old examples – annual sales in 2003 were 95,000, and by 2006 they had grown to 162,000,” explains Adrian Rushmore, Managing Editor at Glass’s.  “Despite the greater numbers available, the sharp rise in demand has promoted values.”

Comparatively low costs have also elevated cars in the supermini sector – vehicles like the Ford Fiesta and Volkswagen Polo – to number three in the league table, a climb of four places since 2006.  Unlike with their smaller relations, the supply has reduced slightly, which has provided a boost to residual values – registrations in 2003 were 753,000 and three years later they had fallen to 538,000, in part due to demand gravitating to city cars.

“Small and supermini cars are the residual value kings of the used car market, a position they are unlikely to relinquish in the foreseeable future,” adds Rushmore.  “Even when we finally recover from the current recession, their eco-friendly credentials are likely to keep demand and residual values high.”

Luxury saloon cars have been the biggest casualty in the Glass’s Top 10, falling four places to number nine since 2006.  “These models now represent less than one per cent of the total market, and it is difficult to see how they will gain much favour during an economic downturn,” comments Rushmore.

Given concerns over motoring costs and vocal opposition from some quarters concerning the use of large 4x4s in urban areas, it is surprising that the residual values of premium-brand SUVs have been so resilient, falling just one place to occupy the number two position in the Glass’s league table.  “Image is all-important in this segment,” explains Rushmore.  “Contrast the performance of prestige SUVs with those of their volume-brand equivalents, which have slipped from second to seventh place.  These vehicles have increasingly fallen out of favour, a situation aggravated by a 40 per cent increase in the availability of used examples.”

Compact MPVs occupy a lowly eighth position, unchanged from three years ago, but the supply of three-year-old examples has since increased by over 20 per cent.  “The low residual value position makes them a sound used-car proposition, only surpassed by the upper-medium sector in 10th place,” says Rushmore.  “If the value-for-money aspect was more widely understood, it is likely these models would appear on more buyers’ shopping lists.”

“Dealer stocks were at historically low levels – thanks to fewer consumers bringing in used cars in part-exchange, as well as the efforts made by dealers to clear used stocks during the last quarter of 2008 – and yet the level of trade buying is unprecedented for this time of year, exceeding all expectations given the broader economic conditions,” explains Adrian Rushmore, Managing Editor at EurotaxGlass’s.

One key reason for the heightened buying activity is a strategic shift in dealer sales strategies.  “It is becoming clear that most franchised dealers are expecting a very large shortfall in income from new car sales during 2009, and the response of many is to plan a concerted assault on the used car market.”

Rushmore says competition for quality used cars has intensified, even for the larger, less fuel-efficient models that have long been falling out of favour.

“There has been lots of competition for the best cars, and the auctions have found their inventories dwindling,” adds Rushmore.  “Even those ‘problem’ cars, such as executive models and large 4x4s that struggled to find buyers in December, have been attracting bids.  This is because the need to restock is great, and because many of the large gas guzzlers now appear very good value for money.”

The high levels of trade demand, coupled with the reductions in available stock, have brought a welcome halt to falling values.  “We started the year with used car prices some 20 per cent lower than 12 months ago,” explains Rushmore.   “Since then prices for most volume-brand used cars have either held firm, or as with some ex-rental cars, risen by the low hundreds of pounds.  Dealers have accepted – albeit reluctantly – that they need to pay the extra to secure the right cars.

“In the auction halls, prices for the more desirable cars have edged upwards, and even the less desirable cars have at least become more saleable.”

Despite the improved trading conditions in the wholesale market, Rushmore is sceptical about prospects for any significant increase in retail demand.  “It is crucial not to lose sight of the fact that the challenges faced by the car market in 2008 have not gone away,” says Rushmore.

“It is quite likely that what we have been experiencing over recent weeks is a respite and not a recovery.  On the positive side, retail demand is likely to remain reasonably good relative to the last quarter of 2008, but at best it will be no better than during the first quarter of 2008.  We are still in a price-driven market, and retail customers are likely to balk if higher trade prices are translated into higher forecourt prices.

“We believe values are finding a level and the current trade buying frenzy will fizzle out within weeks.  The chances that dealers will over-extend themselves as they did a year ago is unlikely, simply because the pain that was inflicted then would be too much to bear again,” he concludes.