Industry Conference 2013 Sponsored by Supported by 5 December Promoting responsible transport www.bvrla.co.uk Industry Conference 2013 Break-out session A Residual Value and Remarketing Facilitator: Jim McNally, Asset Risk Manager, Alphabet GB Ltd Panellists: Robert Kingdom, Associate, Invigors Dylan Setterfield, Senior Editor of Forecasting, CAP Automotive Paul Hill, Director or Operational Services, Manheim Remarketing Sponsored by Promoting responsible transport Supported by www.bvrla.co.uk Agenda Used vehicle prices are continuing to hold up well as new car and van registrations remain in the doldrums, but that is no excuse for complacency when it comes to remarketing. Experts share their views about where the market is going so that members can get the best value remarketing ex-fleet cars and vans. Questions to be asked include: New car registrations have risen for 18 months in a row – will this soon bring an end to the current bull market for used vehicles? Used vehicle grading – what impact has it had on the market? How is technology changing the used car market? Is the used van market due for a correction? Promoting responsible transport www.bvrla.co.uk Robert Kingdom Invigors Industry Conference 2013 Break-out Session A Residual Value & Remarketing Sponsored by Promoting responsible transport Supported by www.bvrla.co.uk Will new car sales growth damage used car values? Robert Kingdom 5 December 2013 What’s driving used car values? 2.5 “Supply Gap” New car registrations (millions) 2 1.5 1 0.5 Scrappage Private Business Fleet 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: SMMT 5 December 2013 © Invigors EMEA LLP 6 New cars are very cheap • ‘Hidden’ discounts through low rate finance / deposit allowances • PoS finance penetration at c.75% • Rapid growth in PCP sales 7 New cars are cheaper to run 8 PPI claim – windfall income 9 How long will it last? • • • • New car discounts Interest rates Fuel and running costs PPI windfall 10 Fuel costs 190 Oil price $ per barrel 170 150 130 110 90 70 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Department of Energy & Climate Change – Oct 2012 5 December 2013 © Invigors EMEA LLP 11 Interest rates Bank of England Inflation Report – November 2013 We had a very deep recession … we have a number of years to go … interest rates will remain low for a "sustained period" Spencer Dale – member of MPC – November 2013 5 December 2013 © Invigors EMEA LLP 12 Commercial vehicles Annual LCV Registrations New car registrations (millions) 400 350 300 250 “Supply Gap” 200 150 100 50 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: SMMT • Significant opportunity for rental and contract hire? 13 European car sales You could see a slight pickup in the market, but … realistically, we have to assume stagnation in the European market until 2020. Wolf-Henning Scheider - Bosch European New Car Registrations 17 16 15 14 13 12 11 10 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 f'cast European vehicle sales will rise 2.5 percent next year Source: ACEA Korea Automotive Research Institute – November 2013 14 Threats to UK new car market • Fewer young people learning to drive • Car ownership declining in South-East • Are numbers of cars on the road reaching a plateau? 36,000 UK vehicle parc 3.0% 34,000 2.0% 32,000 1.0% 30,000 28,000 0.0% 26,000 -1.0% 24,000 -2.0% 22,000 20,000 -3.0% Source: DfT 15 One more thing … 16 Conclusions? How much will new car sales growth damage used car values?        Lack of supply has supported used car prices New car market returning towards ‘midterm trend’ levels Retail sales growth may slow despite recovering economy Possible PCP returns ‘time bomb’ Growth in LCV rental Recovery in European car sales may reduce volume pressure in UK a little, but … Heavy discounting to continue and potential increases in ‘short cycle’ fleet volume create risk for used car values December 9, 2013 © Invigors EMEA LLP The UK 1-5 year old car parc is already seeing growth this year, and when the strong new car sales growth is combined with heavy discounting the value of young used vehicles will really struggle as you head into 2015 and beyond eurotaxglass – Q3 2013 Automotive Market Report 17 Thank you 5 December 2013 Dylan Setterfield CAP Automotive Industry Conference 2013 Break-out Session A Residual Value & Remarketing Sponsored by Promoting responsible transport Supported by www.bvrla.co.uk Future Of Mobility BVRLA 05/12/13 Dylan Setterfield 20 Fuel Prices Price (pence) Pump Prices - September 2007 to July 2013 150 140 Petrol Diesel 130 120 110 100 90 80 70 Electric Registrations Mkt Share # Regns Although still increasing, volumes well below expectation and market share less than 0.15% Electric Demand TOTAL PRIVATE REGNS AUG-13 PRIVATE % Leaf 657 25% I-Miev 36 14% C-Zero 50 24% Ion Ampera 103 205 26% 32% Volt Fluence 63 10 51% 13% Zoe 65 30% Lower levels of retail demand for new cars than CAP assumptions Total 1189 26% Evolution of CAP Initial Forecasts Black Book CAP Clean vs. Original Forecasts £ Separate Battery Leasing • Where a vehicle is a complete asset (includes the battery), CAP will provide current & future values in the same way as for a conventionally powered vehicle. • Consultation with contract hire, asset finance and insurance companies has been virtually universal and has raised significant issues with dual title: • Impossible to repossess either asset in the event of default • Operational risk of battery management with lessor - cannot control charge/discharge cycles. Agreements not fit for purpose. • Total loss insurance issues in calculating repair vs. total loss. • Additional admin resource for vehicles with separate battery lease adversely affects potential deal profitability. Vast majority of companies not funding dual asset vehicles Barriers To Adoption • Range anxiety & suitability. • Cost – both in terms of initial vehicle purchase & Total Cost of Motoring comparison vs. ICE alternatives. • Perception that battery will need replacing in a used vehicle. • Charging infrastructure – some progress, but still a long way from a viable solution. • Dichotomy of city centre suitability. • Adoption incentives mainly aimed at new car buyer. • Availability of raw materials required for large scale battery production. Significant barriers remain Alternative Fuels • Fuel cells the likely long term solution - IX35 production ready - Transition from ‘engineering to chemistry’ • Private Sector funding for £1.2mm electric vehicle charging infrastructure • Research into battery technology • Improvements in ICE Hybrids Nigel Paling and Mark Elliott Manheim Remarketing Industry Conference 2013 Break-out Session A Residual Value & Remarketing Sponsored by Promoting responsible transport Supported by www.bvrla.co.uk Used Vehicle Market and Grading Analysis Nigel Paling & Mark Elliott Background • Overall Marketplace • Impact of Grading • Buyer Trends & Future Predictions • Importance of Vehicle Preparation • Technology and its impact on the wholesale market Approach Taken 1. Stock Comparisons 3. Manheim Inspections 2. Compliance with NAMA 4. Impact on CAP NAMA Grading NAMA has agreed to provide its members with a Voluntary code for vehicle grading. The code has been designed to assist:      Vendors Buyers Pricing guides NAMA members Remarketing industry The goal is to establish a common understanding of vehicle condition grading NAMA Grading Benefits to Sellers • Provide consistent, transparent vehicle grading across different auction centres • Insight into the sales performance of vehicles at auction by providing a grading system that correlates to the guide price condition values • Increases confidence in online buyers of vehicles, in turn increasing: o o Number of competitive online bids Sales through other online channels NAMA Grading Benefits to Buyers • Provide consistent vehicle grading that is supported with a detailed vehicle appraisal, carried out by a trained appraiser in appropriate conditions 80% of Glass’s customers wanted greater guidance on vehicle condition Fleetnews NAMA Grading NAMA Grading Grading Mix Cars Entered Overall 35.00% 30.00% 25.00% 20.00% Fleet All Units 15.00% 10.00% 5.00% 0.00% Grade 1 Grade 2 Grade 3 Grade 4 Grade 5 Unclassified Impact on Price Performance Cars Entered Overall – ‘Manheim Market’ CAP Performance % 100% 90% 80% 70% Grade 1 2 to 4 yrs Grade 2 4 to 6 yrs Grade 3 6 to 8 yrs Grade 4 8 to 10 yrs Grade 5 10+ yrs Correlation between a decrease in Grade and CAP % Performance Suggestion: CAP Clean is not a fair comparison for lower grade vehicles Impact on Price Performance Cars Entered Overall “Manheim Market” CAP Performance % 100% 90% 80% 70% 2 to 4 yrs Grade 1 4 to 6 yrs Grade 2 6 to 8 yrs Grade 3 8 to 10 yrs Grade 4 10+ yrs Grade 5 Age impact is greater on lower grade vehicles Vehicle Grading Analysis Buyer Trends Cars 2012/13 Units Split By Buyer Type - Cars 100% 90% 80% 70% 60% Other 50% Private Motor Trader 40% Franchised Dealer Car Supermarket 30% 20% 10% 0% Buyer Trends Cars 2012/13 Fleet Cars Units Split By Buyer Type - Fleet Cars 100% 90% 80% 70% 60% Other 50% Private Motor Trader 40% Franchised Dealer Car Supermarket 30% 20% 10% 0% Buyer Trends | Cars Key Points • Car Supermarkets and Franchised Dealers buy a higher proportion of Fleet vehicles • Both categories have slightly increased ‘their share’ YOY • Franchised Dealers constrain activity around year-end and plate change • Independent Motor Trade account for a significant proportion of overall purchases • Independents are adapting and surviving through specialisation • Continued change and evolvement will be seen going forward Buyer Trends LCV 2012/13 Units Split By Buyer Type - Commercial Vehicles 100% 90% 80% 70% 60% Other 50% Private Motor Trader 40% Franchised Dealer Car Supermarket 30% 20% 10% 0% Buyer Trends LCV 2012/13 Fleet Units Split By Buyer Type - Fleet Commercial Vehicles 100% 90% 80% 70% 60% Other 50% Private Motor Trader 40% Franchised Dealer Car Supermarket 30% 20% 10% 0% Buyer Trends | LCVs Key Points • Fleet make up a significant proportion of overall market • Franchised Dealers and Car Supermarkets account for less than 10% of overall volumes • Independents are still the major force • Car Dealers have diversified into commercial vehicles • More about use and reliability than actual product • Market is still short of product overall Buyer Behaviour • Wholesale Buying Trends have changed, and will continue to change • Margins are being squeezed • Money is “cheap to borrow” yet hard to obtain • Buying for stock in big numbers is not for the feint hearted • Internet has driven the small dealer to specialise or die Buyer Behaviour • Online purchasing continues to grow • Still a desire to ‘touch and feel’ by some buyers • The need for quality description is greater than ever • Stock supply will widen the gap between “Clean” and “Poor” further • Buyers don’t want money tied up unnecessarily Vehicle Preparation • Vehicle preparation has come a long way since “throwing a bucket of water on it” • Buyers want cars “ready to retail” • Advent of larger de-fleet numbers will add pressure for vendors • Recipe for success:  Right Car  In front of the right buyer  At the right time  In the right condition Influence of Technology on Buyer Behaviour Sourcing the right stock • Analytics tools to provide real time information on what to buy • Automated matching on shopping basket requirements • Earlier information on vehicles being offered for sale Better quality vehicle information • Higher quality imagery • More granular data – condition, service history • Live valuations for wholesale and retail environments Influence of Technology on Buyer Behaviour Increased purchasing online • Continued growth of Simulcast sales • More 24/7 ‘Buy Now’ options on stock going through a variety of channels Support services which make life easier • No queuing to pay at the physical auctions • Online interaction to book transport, arrange refurbishment or track deliveries • Wholesale funding at click of a mouse after purchase Transition to retail / integration • Automatic push of data from wholesale to retail environments e.g. images • Push to wholesale channels for vehicles which need to be moved quicker