Poor Used Car Values Affecting Contract Hire Rates
Thursday, 4. July 2019
As if things weren’t bad enough for those looking to change their cars this year or to take out a contract hire agreement for the first time, we are now hit with the news that used car values have taken a dive.
Brexit has had an adverse effect on most industries but especially on the car industry. For over 30 years we have benefitted from ‘dumping’, not my favourite expression but used to explain the way European manufacturers use the buoyant UK market to keep their production lines moving or to dispose of excess stock. Got a problem – bung a few more cars in the direction of the UK!
But times are changing. Many manufacturers don’t see the same future in the UK so are heavily investing in Europe, educating them into the methods of acquiring cars more cheaply rather than heavily discounting cars destined for the UK. The net result is higher cost of cars with fewer available forcing up prices even further. Poor exchange rates have affected costs also which in turn has pushed up rates.
The saviours over the last 2 years has been a very buoyant used car market which has had the effect of reducing rentals as lenders factor in strong resale values at the end of each lease. But for the last two months we have seen close to a collapse of used car prices giving the leasing companies the jitters.
2016 was a mega year for new car leases with the most popular lease period being 3 years so we knew that supply would increase this year but with demand dropping it has made matters worse. Whilst things may be wildly different in 3 years, as current cars end their lease period, this drop in used car prices, largely unexpected, has put the leasing companies on the backfoot.
Industry experts have suggested the old argument that this is a re-alignment of used car prices and that used cars had been overpriced for a while but will that wash and remove the panic to re-align lease rates time will tell but for the moment I wouldn’t expect lease rates to do anything other than increase. See a bargain – nab it before it goes. By Graham Hill
