Leasing Professionals

Rupert Pontin argues that distortions in the UK new car market are likely to re-bound on retail finance deals

pontin rupert

A falsely buoyant picture is likely to be painted by this month’s new plate change – despite the probability that it will show the 42nd consecutive monthly increase in new car registrations.

The situation is being complicated by record levels of pre-registrations and there are some worrying factors about to come into play.

The new car market is 6.5% up on the year and this is clearly good news. However, there are some clouds on the horizon. Notably, the volume of sub-one-year-old cars is also up by 43%, indicating a huge rise in dealer and manufacturer pre-registrations.

Pre-regs are not a bad thing in themselves but they do create a growing distortion in the market. Customers need to see a sensible pricing difference between new cars, nearly new pre-regs and older vehicles. The flood of pre-regs creates substantial downward pressure on older vehicle values, which are falling.

The more pre-regs that enter the market, the stronger these distortions become, especially bearing in mind that many new vehicles are currently being sold at nowhere near their official list price in the first place.

Personal Contract Purchase (PCP) and other highly attractive finance deals continue to fuel sales of new and nearly new cars but that no-one knows where the saturation point for these kinds of sales will lie.

We have seen an ongoing explosion in PCPs but manufacturers have to make them ever more attractive in order to continue to sustain growth in the market. At some point, we will reach a situation where no matter how much manufacturers provide support in terms of finance; customers will stop signing new leases. How will manufacturers then cope with huge volumes of cars leaving their factories?

Also, it could be that in Q4 2015, we start to see the new UK government’s austerity policies take effect. There was some interesting sleight of hand in the chancellor’s Summer Budget but most people will find themselves with less disposable income, which could affect their next car choice.

However, for those who can afford to buy new and nearly cars, the market remains a very attractive place in which to go shopping.

This is especially the case if you are happy to drive one of the models that are around in large quantities as pre-registrations. These are not hard to identify just by looking at a few dealer forecourts. There are some excellent deals to be had.

Rupert Pontin is the Head of Valuations at Glass’s.