Used Car Prices - when will Residual Values Fall?
Discussion
For years now, despite bad economic times etc, there have been an ever increasing number of new car registrations. Something like 80% of new cars are being sold on finance/leases and every 2-3 years (or less) people typically trade in their car and 'buy' a new car. I've had my fair share of this game too where you can buy a brand new car (after discounting) for very little more than a one year old car, but I've been sitting there thinking soon there will be so many 2-3 year old cars traded back in and out there on the used market that the residual values will drop significantly. However this scenario never seems to happen!
For example, someone leases a Golf R on a crazy £150pm deal over 2 years (about 2 years ago now). The car was new at about £28000 (after discounts etc on the list price of £32k). Used 2 year old decent examples are still asking around £22000 which is a lot considering you can lease a new one for not much more (discounting and cheaper rate new car finance than used). You would think that you would be able to pick one up for about £16-18k.
Surely either the residual values of used cars can't keep holding up as they are or people are going to have eventually have not keep buying a record number of new cars each year?
For example, someone leases a Golf R on a crazy £150pm deal over 2 years (about 2 years ago now). The car was new at about £28000 (after discounts etc on the list price of £32k). Used 2 year old decent examples are still asking around £22000 which is a lot considering you can lease a new one for not much more (discounting and cheaper rate new car finance than used). You would think that you would be able to pick one up for about £16-18k.
Surely either the residual values of used cars can't keep holding up as they are or people are going to have eventually have not keep buying a record number of new cars each year?
Maybe down to how good the yield management of a chunk of the ex-lease cars by the franchised networks has become and may explain the stability. And the fact that the trade holds such a large proportion of the supply nowadays, as most people finance/lease and don't tend to sell privately.
nickfrog said:
And the fact that the trade holds such a large proportion of the supply nowadays, as most people finance/lease and don't tend to sell privately.
I think it's this. The dealer networks are onto a smart ruse with the leasing as it means they get the car back and another crack at the whip, probably to whack it out on another £300/mth to the next Joe Public. If all of the 3 year old cars are with main dealers, it doesn't take more than a weekly conference call across the marque DPs to set the selling prices. Cynical, moi?
nickfrog said:
Maybe down to how good the yield management of a chunk of the ex-lease cars by the franchised network has become and may explain the stability. And the fact that the trade holds such a large proportion of the supply nowadays, as most people finance/lease and don't tend to sell privately.
If the used prices are so close to new prices, and people tend to just lease a new car these days, the trade must be holding an ever growing number of part-exchanges which must be just sat somewhere. Surely eventually it'd reach the point where these cars having sat unused for the best part of a year or more will just be dumped onto the market? For example I've had a car which I've traded in in the past and still hasn't been tax (and therefore I assume not bought) after a year...Don't forget finance is also propping up the second-hand market; I don't know what proportion of second-hand cars are "bought" on finance but it has become significant.
I also think some people who buy second-hand with cash fail to appreciate quite how cheaply the car in question can be bought new. If you've never considered buying new, it's not necessarily obvious quite how out of step list prices have become with what people actually pay.
I also think some people who buy second-hand with cash fail to appreciate quite how cheaply the car in question can be bought new. If you've never considered buying new, it's not necessarily obvious quite how out of step list prices have become with what people actually pay.
Edited by kambites on Thursday 29th December 11:28
kambites said:
I also think some people who buy second-hand with cash fail to appreciate quite how cheaply the car in question can be bought new. If you've never considered buying new, it's not necessarily obvious quite how out of step list prices have become with what people actually pay.
That's kind of the explanation I was given by a VW dealer salesman about why his group (Inchcape) had a large number of nearly-new Tiguans that were dearer than discounted new.mike74 said:
Perhaps the dealers are shipping all these 2-3 year old ex-finance cars abroad?
There certainly isn't the glut of cheap 2-3 year old cars for sale that you would expect to see as a result of these finance deals coming to an end.
Because all these 2-3 year old cars are going straight back to the dealer to resell at dealer inflated prices.There certainly isn't the glut of cheap 2-3 year old cars for sale that you would expect to see as a result of these finance deals coming to an end.
mike74 said:
Perhaps the dealers are shipping all these 2-3 year old ex-finance cars abroad?
There certainly isn't the glut of cheap 2-3 year old cars for sale that you would expect to see as a result of these finance deals coming to an end.
Ship to where ?There certainly isn't the glut of cheap 2-3 year old cars for sale that you would expect to see as a result of these finance deals coming to an end.
Where is the nearest RHD market ?....apart from Ireland.
For the Golf R in particular there are loads of them coming through at BCA auctions at the moment, all look to be ex-lease. Residuals have taken a hitting as I've seen them retail for as little as £18k, whereas a few months ago before the influx they'd always be £20k upwards.
Also my Golf GTD is 18-month old this week and has covered 36k miles, I'm getting trade in quotes of literally half its original list price!
Also my Golf GTD is 18-month old this week and has covered 36k miles, I'm getting trade in quotes of literally half its original list price!
nickfrog said:
Evanivitch said:
Because all these 2-3 year old cars are going straight back to the dealer to resell at dealer inflated prices.
Inflated compared to what ? They sell for as much as the market will bear as they make the market what with the majority of cars withing their network.If there's little competition in the classifieds from private and independent traders then they can minimise depreciation and keep the sale price high, but tempt buyers with attractive used car finance packages
It's like the price of new cars - high retail figures but sold with tempting discounts and finance deals. It's a win win for the main dealerships.
The trade are scrapping over private sales and auction fodder the main dealers don't ant to retail
nickfrog said:
Inflated compared to what ? They sell for as much as the market will bear as they make the market what with the majority of cars withing their network.
Inflated in regards to the actual benefit of main dealer versus perceived benefit of main dealer, or even against private.Evanivitch said:
Because all these 2-3 year old cars are going straight back to the dealer to resell at dealer inflated prices.
It works both ways. A private seller would be able to sell their own Golf R at a much higher price as they would have the inflated dealer prices to compare against. Essentially Car manufacturers set the resale value when they set the GFV on all the cars they sell.It was mentioned in the BMW thread on here recently but I'm surprised the investigations haven't already started and they still get away with it.
Used to buying a 2 year old car generally at auction.
Noticed over tha last few years that closed auctions are selling cars much, much below retail(eg £4-5K below retail price on a car forecourted at £25K car) and cannot fathom why. These are fully warranted, FDSH, seviced, grade 1/2 and ready to retail cars of German maque.
I can sometimes get in to the closed auction but not bid/buy and in my experience it seems to the same 6-10 key buyers up and down the country.
Noticed over tha last few years that closed auctions are selling cars much, much below retail(eg £4-5K below retail price on a car forecourted at £25K car) and cannot fathom why. These are fully warranted, FDSH, seviced, grade 1/2 and ready to retail cars of German maque.
I can sometimes get in to the closed auction but not bid/buy and in my experience it seems to the same 6-10 key buyers up and down the country.
Joeguard1990 said:
Evanivitch said:
Because all these 2-3 year old cars are going straight back to the dealer to resell at dealer inflated prices.
It works both ways. A private seller would be able to sell their own Golf R at a much higher price as they would have the inflated dealer prices to compare against. Gassing Station | Car Buying | Top of Page | What's New | My Stuff