Recognising that it used to be ‘fun’ to play ‘inflation-proofing’, Iain Robertson wonders what has happened to consumers fighting for better trade-in valuations and motor traders prepared to slash their margins just to obtain elusive, good quality stock.
Fear, especially of losing money, used to be a major consideration for the consumer, especially in the transport sector. The popularity of renowned brands was aided by their reputations for retaining a solid residual value and would frequently influence the desire to acquire. At the top end of the new car scene, for many years, the Rolls-Royce buyer would trade-in his previous model, full in the knowledge that the amount needed to upgrade to the latest version was minimal…the only issue was being able to afford entry to that class in the first place.
By the same token, chucking away cash at the bottom end of the scene by spending it on a Skoda, a Lada, a Moskvitch, or later Hyundai and Kia models, was almost a given, as their trade-in values would plummet like stones thrown off bridges into deep water. As a result, most of the car buying public would either save furiously, or contemplate their budgets carefully to ‘invest’ in the vibrant medium sector. It is for those reasons that cars like the Ford Cortina and Vauxhall Cavalier could command such a healthy share of the new car market, a factor that would also aid the growth of the company car sector in the UK, with fleet managers seeking financial stability.
Vehicle manufacturers became increasingly reliant on future trade valuation pitches by the authors of both Glass’s and Car Auction Price (CAP) Guides. It is still slightly bewitching science to predict what something costing £30,000 today might be worth in an average three years and 36,000 miles subsequently; a time and distance calculation based largely on figures sourced from the growing company car sector. Yet, such valuations became increasingly valid benchmarks, which led to a growing fascination in retail value guides, as produced by Auto Trader and other publishing houses.
However, I would contend that the volte face occurred during and after the Thatcher years, when the ‘loadsamoney’ culture proliferated. Intriguingly, the archetypal Porsche 911 driving city broker adopted the German sportscar brand, which, today, still retains among the highest residual values of any manufacturer. It is a strange dichotomy, when you consider by how much this Champagne swilling set and Mrs Thatcher, whose government presided over reduced credit controls, became hated by a goodly proportion of the population.
While it was generally accepted that an average new car acquired during that period would lose around 37% of its original list price value after three years, motor dealers would manipulate their profit margins and become more reliant on target-achieving ‘backhanders’ established by their marque suppliers, in order to juggle prices, not just of trade-ins but also of the sales of new and replacement models. Low mileage ‘minters’ could command better valuations than a ‘leggy and dog-eared repmobile’. However, the fleet market was predominated by carmakers like Ford delivering ‘two-for-one’ deals that would impact on residuals. Ford was not the only player. In fact, the motor trade’s glory years peaked definitely from the mid-1980s until the early-noughties, when the timeline was sorely affected by the ‘9-11’ disaster but exacerbated by the 2008 stock market crash, when financial reality bit hard.
For somewhat more than a decade, vehicle trade-in values have dived to an average level of around 50% for a three years old/40,000-miler…but the consumer seems to have accepted the downgrade unquestioningly. Personally, I have never comprehended the reasoning of either the tax office, or accountants, that regard motor vehicles as ‘assets’, when they are actually closer to being fast-depreciating liabilities, which, in business terms, is at the level of claimable corporate expenses!
Yet, the biggest shock is being felt currently, if you will pardon the puns, by the growing Electrified Vehicle market. Remember that the most recent hybrid iterations only started to appear at the commencement of the New Millennium, when the combination of environmental pressures, clean air demands and healthcare issues formulated their unholy alliance. With consumers engaging in their crooked halo salvation of the world, paying a premium for the privilege became a practical marketing tool, not dissimilar to buying organic vegetables and fruit at Waitrose, however misshapen.
Despite all of the eco-promotion, it cannot be particularly satisfying to the hybrid user of either a Kia Optima, or a BMW 330e, to discover that an investment of between £35,000 and £37,000 made three years ago has diminished to a trade value of less than half the initial invoice (53.2% depreciation). Hybrid technology, even prior to the more recent decision to ban the sales of all new fossil-fuelled cars by 2030, has been regarded as a safe halfway-house towards greener transport. Yet, those two models are in hallowed company, with similarly aged VW Passat GTE, Mitsubishi Outlander, BMW 530e, Audi A3 e-tron, BMW 225xe, Mercedes-Benz C350e and E350e all recording around 50% losses.
If you believe those figures to be untenable, take a wee look at those for full-on EVs. The ever-so-popular Nissan Leaf Acenta loses £11,983 of its original £23,690 price tag of three years ago, for 50.6% depreciation. The much-vaunted Kia Soul EV loses 50%, while both the pretty Renault Zoe and the more conservative Hyundai Ioniq also run similar 50% residual values. Now be aware that these vehicles are mostly low mileage examples by sheer virtue of their battery capacities and where they are most likely to be driven.
When Mitsubishi boasts about its pioneering Outlander PHEV that is reportedly the consistent SUV market leader, it will not tell you that its list price of £41,399 (three years ago) has now plummeted by £19,415 to a used value of just £21,984 (46.9% loss). Regardless of manufacturer subsidies that ebb and flow with market forces somebody is picking up the tab and that somebody is the consumer.
Conclusion: Naturally, consumer choice will always affect market behaviour and, while residual values for fossil-fuelled vehicles are still moderate, early EV adopters are paying a heftier and unfair price for doing so, which will not recover as new technology is developed. Caveat emptor remains the final watchword.