Insight September 2021: future used EV and hybrid car values

Insight September 2021: future used EV and hybrid car values

A recent exercise comparing new car registration data from the German and UK car markets was thought-provoking on the subject of future used car supply and future used car values.

In July 2021, 236,400 new passenger cars were registered in Germany: 25% fewer than in July 2020. While this was the first monthly fall in Germany after four consecutive months of growth, the YTD total was still up 7%, with c. 1.6 million cars registered. That said, the 2021 total is still down 25% compared to the first seven months of 2019 – the year before corona.

UK new car registrations for July fell by 29.5% to 123,296 units, according to the Society of Motor Manufacturers and Traders (SMMT). The decline is artificially lessened in comparison with July 2020, when registrations rose dramatically as showrooms enjoyed a full month’s operation following the first 2020 lockdown.

However, July’s performance was down over 22% on the average recorded over the past decade, as the ongoing semiconductor shortage and the ‘pingdemic’ impacted on both supply and demand. Consequently, this was the weakest July for new car registrations since 1998, prior to the introduction of the two-plate system.

Most sales were lost in fleet which, at 61,140 units, was almost 30% lower than the average recorded over the past decade. Private registrations fell by a lesser extent vs average: down 11% to 59,841 units. A decline in fleet business for July did not match the YTD trend, which is still up almost 30% year-on-year, but then it is only up thanks to woeful 2020 numbers.

The YTD total for all sectors was 1,033,269: a 24.7% increase on the same period last year. So, while fleet registrations have kept pace with general market performance thus far through 2021, anyone with an eye on the economy and changing work trends will acknowledge the risks to the fleet sector. August was another poor month, with 12,627 fewer fleet cars registered: a fall of more than 27% vs August 2020.

While new cars sales are down for several reasons, including the chip shortage and the pandemic, this fall in registrations and changing market patterns could hurt future used car buyers in several ways.

Firstly, supply of used cars in two to three years is going to be lower than we have become familiar with, so if you’re used to buying your main car at three or four years old with 60% of depreciation behind it, that may be different next time around. It is also worth bearing in mind the fall in private sales over recent years; it is getting harder to buy a three- or four-year-old car privately these days. Thank you, We Buy Any Car.

Secondly, national used vehicle stock may be made of up fewer fleet cars and more private cars. Many private buyers do not spend as much as fleet buyers and are drawn to cheaper brands. Private buyers in the prestige sector are often on lease and PCP plans and are encouraged by manufacturers to take cars from UK stock, so reducing the level of new car personalisation. This could lead to fewer interesting and high spec examples in the future and a further rise in value for well optioned cars. This will need to be reflected in insurance payouts.

Thirdly, surging demand for the latest battery electric, hybrid and plug-in hybrid vehicles has led to their registrations rising 32%, 46% and 72% respectively. Demand for plug-in hybrid has outpaced battery electric in five of the last six months since changes to the Plug-in Car Grant were introduced in March. There are now some 130 plug-in models on the market and the numbers are growing. All electric vehicles are expensive and have likely been written up by finance and lease companies at strong future values/final payments, but these numbers will still be well below the cost and potential extended lead times to replace these cars with newer models when the contract period expires.

It may be reasonable to imagine that, with the high standard spec now seen on so many new cars unlikely to be rendered significantly obsolete for quite some time, and with a three- or four-year-old car facing slower depreciation, many private buyers on HP, PCP or personal lease agreements may opt to keep their cars when the contract expires rather than hand it back and start again with another expensive purchase. This would be another issue for supply of used electric vehicles – exactly what most used car buyers are likely to be looking for in 2025 and beyond.

So, if you’re a private buyer who’s been looking at the electric market and planning to jump in circa 2024/2025 when the technology is a little more proven, it may be worth considering your options in the face of low new cars sales through 2020 and 2021 and what this could mean for you as a buyer in what is likely to be quite a strong market (assuming no economic disasters). Electric vehicle demand is unlikely to slow down any time soon, while supply of the most desirable models will be limited and prices will be high as a result.

While I have not crunched the numbers as yet – there may be no numbers worth crunching until this situation plays out a bit further – current trends suggest that depreciation on the most desirable EVs over 36 to 48 months could be very low. This might be particularly true for prestige brands including BMW, as the UK’s entrenched badge obsession is unlikely to change. Despite the big push around electric vehicles, if the likely supply of good used examples does not improve, then we may all end up driving internal combustion vehicles for many more years than is currently imagined.

Insight May 2021: Rising UK Used Car Prices

Insight May 2021: Rising UK Used Car Prices

The latest results from the Auto Trader Retail Price Index show that the average price of a UK used car in April 2021 was £14,124; a year-on-year increase of 7.1%. The increase comes after thirteen successive months of rising prices.

Auto Trader’s Retail Price Index is based on daily pricing analysis of circa 900,000 vehicles. The trend of rising prices is fuelled by surging market demand in the market, which increased 36% in April 2019, boosted by the long-awaited reopening of physical car showrooms.

Traffic on the Auto Trader marketplace recorded a similar lift, reaching a total of 69.3 million cross-platform visits: a 36% year-on-year increase. April also saw a rise in online dwell times, with consumers spending a whopping 16.5 million minutes on the site every day. This increased activity resulted in a 74% growth in leads sent to retailers. As well as highlighting strong underlying demand for used cars, the growing volume of enquiries reflects the change in buyer behaviour to make contact before visiting a forecourt.

Underlining dealer confidence in the market, as well as the influence of supply and demand dynamics, there’s been a significant acceleration in the number of retailers making positive price adjustments to their stock.

Of the 2,316 car dealers who adjusted their prices last month, more than one in five made an overall price increase across all stock on their forecourts. This is up significantly on the 16% who made increases in March and the 15% in February. The trend has accelerated even further into May, with now more than one in four (27%) of the retailers adjusting prices upwards.

Insight March 2021 – Insurance Write Off Valuations

Insight March 2021 – Insurance Write Off Valuations

As a professional valuer, a lot of my work involves agreed value insurance. I provide pre-agreed valuations for classic and modified cars and motorcycles, helping owners to be fully protected should the worst happen and they end up in a total loss scenario.

Agreed Value Insurance is essential

Agreed value insurance pays out a pre-agreed sum in the event of a total loss claim. While owners of valuable new cars – usually low volume, high-performance models – often take out guaranteed value policies to account for the market premiums that can quickly double list prices for oversubscribed new models, agreed value policies are mainly seen on classic and modified cars and motorcycles.

Agreed value is essential on any classic car or motorcycle insurance policy. There are many reasons for this, but the main one is to ensure that your vehicle settlement in total loss matches the value of the car as closely as possible. Taking classic car insurance at market rate can lead to lower settlements, as insurers have control: they know your situation involves a major financial loss and most people just want to do the best they can in these cases, while also keeping stress to a minimum.

We have all heard stories from friends who, in total loss situations, were sent several low offers based on eBay project sales, later followed by one that was broadly in line with average market value. People often take the first sensible offer that comes in, rather than debating to obtain the correct market value, as they have endured enough stress by that point.

When an insurance write-off valuation is too low

I always recommend agreeing value up front, but this is not always possible. Such was the case in a recent valuation for an E91 Touring. The car was a high-spec example that was hit while parked just a few weeks after purchase. The damage was significant enough to make the car an uneconomic repair. By the time I was contacted, the owner had been offered low sums that were not supported by market observations. He was looking for assistance to build a portfolio of evidence to support a higher payout.

I don’t usually get involved with litigation unless instructed by solicitors, but there was good market data and it was a very recent purchase, so I did a little exercise to provide market clarity. The insurers went on to pay out the purchase price, as I felt was correct in this case, given the quality of the car and decent demand in the face of quite low supply. It is difficult to argue with well-presented data.

One area where people often go wrong with agreed value policies on modified cars is trying to insure for replacement cost, rather than market value. Well-researched market value leaves no chance of later debate, should the worst happen and the policyholder be in a total loss situation. One does not need to find selling prices for cars that perfectly match the spec of the car in question; comparables will do if the observations are correctly adjusted. But insuring for market price based on close observations makes the valuation more difficult to challenge down the road.

A recent client enquiry related to this: the owner opining that the point of agreed value was to bridge the gap between market value and replacement cost. This is not how I see it. In my opinion, the point of agreed value is not to narrow the gap between market value and replacement cost. The point is to capitalise on the opportunity to maximise market value ahead of a total loss situation and save oneself a boatload of stress. In doing that, we narrow the gap, but the point is maximising the cover, not pulling the market data and target numbers close to each other. Market data is what matters.

In some ways, valuations are self-revealing. By following a rigorous process of data collection and adjustment, every valuation writes itself. Owners sometimes feel that their build costs to date justify higher numbers but, if there is no market data to support a higher number, then it is a difficult position to justify. In such cases, there has to be some give and take with insurers to get things on cover – one should set the highest number possible and look for data to increase it later on.

Good market observations for similar cars are super important. A modified car may look great and have many cool mods, but the insurer primarily wants to know what it’s worth to the market. Finding good data is key. Insurers will usually express an opinion on where they would value it and you will likely have an idea of where you see it. My role is to find data to enhance insurer awareness and set the value as high as is reasonable. It is always possible to lift value later, should new data pop up.

Market data does not always have to be UK-based. The global population of many rare cars is so low that all data is relevant as long as it is verified. Although insurers know there is a low likelihood of a claim on a classic car policy, they are usually reluctant to go beyond their comfort zone and owners should also be careful about how they attempt to lift the bar. A zero-stress claim is the goal. Make sure the policy also has salvage rights, as that helps mitigate losses if you can’t get the value where you want it at the outset.

Insight January 2021: Investors target online auctions

Insight January 2021: Investors target online auctions

The continuing search for alternative investments drives classic car prices ever higher. So much so that one private equity firm has staked €150 million on the future market opportunities in high-end collectibles, including classic cars. Despite a slow start to the 2020 classic car season, due to a fairly uninspiring economic picture in the midst of Brexit that was followed by the onset of COVID, the market eventually picked up, as classic car enthusiasts and collectors accepted that attending physical auctions would be difficult in the midst of a pandemic and embraced the upswing in online auctions instead.

Reduced commuting costs and the Government’s financial handouts improved many car-buying budgets, not to mention the extra spare time some people had on their hands due to furlough schemes and zero commuting due to working from home.

These factors and a lower supply of high-quality vehicles helped to support classic car market conditions through 2020, as buyers looked for classics that could help tick some bucket lists and investors sought other ways to sidestep dire economic forecasts.

The market had already seen a steadying in some classic car prices through the end of 2019 and this was encouraged by better trading through the second half of 2020, again encouraged by low supply of nice examples. With supply constrained and trade buyers keeping away from cars needing work, due to fewer people working in bodyshops and difficulty in obtaining many spare parts, the demand for project cars and barn finds was also given a boost.

This increased activity in classic car and higher-value asset sales was one factor behind the decision by UK private equity firm Permira to invest €150 million in Catawiki, a Netherlands-based “curated marketplace” targeting wealthy consumers with high-end collectibles including classic cars, art and movie memorabilia.

Founded in 2008, Catawiki describes itself as “the most-visited curated marketplace for special objects in Europe, providing a safe and reliable experience to over 10 million passionate users. Every object is carefully selected by one of its 240+ in-house experts who are specialised in collectables, art, design, jewellery, watches, classic cars and more. Its unique business model has earned a strong vote of confidence from its users, enabling the company to earn over 80% of its revenue from returning buyers and sellers.”

Catawiki announced Permira’s €150 million investment in early December. Existing shareholder Accel also participated in the funding round. Catawiki aims to use the investment to grow its user base by investing in technology, marketing and hiring more experts across Europe. The investment will also provide liquidity for a number of early investors and employees.

Ravi Vora, CEO of Catawiki, said: “Our mission is to become the most popular destination for special objects across the globe, starting with Europe. This investment is the latest confirmation that we are delivering on this mission.”

Martin Gibson, partner at Accel and Chairman of the Board at Catawiki, said: “Catawiki’s business model is unique as it enables everyone to discover and buy special objects that help them fulfil their passions. And while the company is already a fast-growing business with healthy profit margins, it has only just begun scratching the surface of its addressable market.”

A visit to the Catawiki website invites one to bid on over 65,000 newly added special objects every week. The items are curated by 222 experts and divided into sixteen categories, from Art and Archaeology to cameras, watches, wine and whiskey. There are currently 258 classic cars listed for auction, including ten BMWs across the classic and youngtimer categories. A two-owner BMW Z1 starting at €33k is an interesting find, and there are some interesting E21-era brochures listed in the automobilia section.

While the site remains underpopulated in terms of car content, the better-stocked categories suggest that the concept may have some legs. Meanwhile, Collecting Cars and a raft of new imitators (including a new online auction platform at Car and Classic) are competing to grow their market share or gain a steady foothold in this emerging gold rush territory.

The short-term issue is that a splintered Internet with countless niche platforms like Catawiki offers little incentive for classic car owners to stray too far from the tried and trusted eBay or Car and Classic routes. Catawiki will have to step up awareness if it wants to compete with these behemoths in the busy UK market (as it should, with a 9% income on car sales).

Across the classic car and motorcycle sectors that my valuation business follows, supply of desirable items at sensible prices remains tight. With returns staying low in conventional investment schemes, classic car investors who do not face economic stress in 2021 will leave their four-wheeled assets in storage and this will limit the best opportunities to buy. Client advice for the moment is to buy a little ahead of the market if needs be, as one simply doesn’t know what if anything is coming up next.

One new factor to consider will be the effect of Brexit: how might cross-border purchases be affected by the new rules and will fewer European buyers in the UK markets (due to potential changes in currency rates and access constraints) have an effect on selling prices? Will more challenging EU market access for UK classic car buyers – so used to bringing cars across the Channel with little or no paperwork to complete and no tax to pay – compel them to buy at home? This is something worth watching.

Insight October 2020: Hybrid Cars Rising

Insight October 2020: Hybrid Cars Rising

The latest new vehicle registration data gives us an indication of the state of play up to the end of September 2020. Figures released by the Society of Motor Manufacturers and Traders (SMMT) show that, despite a fall of less than 5% in year-on-year registrations during September 2020, year-to-date new car registrations are down some 33%. It is not hard to spot the losers.

New diesel car registrations are down 56% over the year to date: 270,000 fewer diesel cars have been registered so far in 2020, with a total market share of 17%. Petrol car registrations are down 40%: some 485,000 units year-on-year, giving petrol a market share just shy of 60%. The big change – and no surprise – is that ‘alternative’ – i.e. part or full electric – drivetrain vehicles are rising.

So far in 2020, 314,655 hybrid and plug-in electric vehicles have been registered. This means that alternative drivetrains now outsell diesel roughly 3 to 2. The combined market share for part- and full-electric cars is now 25%.

Looking at new car registrations by brand shows the scale of the shift faced by some manufacturers. Of the forty vehicle manufacturers listed in the SMMT new car registration data, only four have seen a year-on-year fall in registrations of less than 20%. They are Bentley (down 17%), Lexus (down 12%), Porsche (down 13%) and Toyota (down 16%).

Volumes are obviously significantly different between these brands. Year to date, Bentley has registered just over 1,000 cars, while Porsche is higher at 8,653. Lexus steps up a bit with 11,341 cars YTD, but Toyota has registered 73,067 units in the UK this year. To lose just 16% of sales this year versus last, while other manufacturers lose up to 50% year-on-year shows that Toyota has got something right.

A recent press release gives some clue as to how Toyota has managed it. Cumulative sales data for the hybrid models in Toyota’s portfolio shows that sales of its hybrid models through 2020 are up on last year: 50,608 units this year compared to 48,359 unit in 2019. Toyota’s global hybrid sales now top 15 million units, with the UK accounting for 356,000 Toyota hybrid sales in an EU total of 2.8 million cars (approx. 12.7%).

This number is a bit of a surprise, as the UK is a bigger market in European terms, with a usual share of the EU and EFTA market circa 15%. One might surmise that the lower penetration of hybrid technology into UK car sales may be linked to company car taxation policy favouring diesel models, but it was a no-brainer for me to pick a Prius when I ordered my last company car some twelve years ago and that EV tax advantage has only increased since 2008. More likely is the UK’s fascination with premium brands and the slow adoption of hybrid alternatives offered by premium (mostly German) manufacturers encouraging a general mistrust of hybrid drivetrains. As we see from the latest data, that perception is now changing rapidly.

Looking at the diesel figures, one might be encouraged to announce the death of diesel drivetrains. Some commentators have written on the subject. It didn’t take a prophet to see that the Volkswagen emissions scandal would hurt diesel sales and that the numbers would fall. The dieselgate effect and the rise in support for EV drivetrains has helped to accelerate diesel’s decline, but as the new sales of diesel vehicles continue to fall and the used car market faces lower supply of diesel cars, prices will be some way supported. The theory that (used) diesel purchase is financial suicide does not add up quite yet.

As more manufacturers discontinue their diesel programmes and electric vehicles begin to arrive on the used car market in more volume, the cost to change from diesel (or petrol) to electric will become more attractive. The inevitable day when new and used sales of part- and full-EV drivetrains outnumber combined sales of solely combustion-powered cars will be a real turning point. Those manufacturers who have not invested in shifting from new sales of diesel and petrol cars to the used EV forecourt stocks of tomorrow may soon find themselves with little to offer used car buyers, in terms of used EV stock.

At present annual mileage, my current daily driver – a diesel Honda Civic Tourer – will be up for a change at the end of 2023, so it is interesting to play the motorway game of ‘what’s my next used car’? I quite like the idea of a BMW i3, which, at present prices, might cost something like £20,000 for a 3-year-old, 20k-mile example with range extender and a decent spec at an independent dealer. A Honda Jazz IMA hybrid to similar criteria is currently close to half that from a Honda franchised dealer. There are some advantages to an i3 when one factors in brand and residual value, but twice the price from one to the other? I’m not sure that my inner used car buyer will be £10k keen to go with the roundel when the time comes to change. In the meantime, I’ll keep playing the game.

Insight Sept 2020: Online Auction Platforms

Insight Sept 2020: Online Auction Platforms

Stuck at home during lockdown with money to spend and no physical auctions taking place, buyers have warmed to online auction platforms and one winner from this has been the Collecting Cars website.

Launched just over a year ago by a couple of petrolheads, recently broke through £20 million in total sales. Not bad for a purely online sales platform with fewer than 50k subscribers on Instagram, but much of that success has arrived since the onset of lockdown. The platform is gaining traction fast and its fee-free model is shifting the online auction space.

A good example of the robust market and the Collecting Cars effect can be seen in an E36 M3 Coupe, registration number M246 WEO, which was offered for sale via the online Classic Car Auctions website in August 2019. Finished in Avus Blue, the 1994 3.0-litre was described rather plainly: “This car is all standard and has much service history. It also comes with the sports seats. The current vendor has given it a thorough overhaul, spending £4,000 on it. The E36 chassis M3 was touted as one of the best handling cars of the 1990s and is now considered something of a modern classic.”

The Classic Car Auction details showed the odometer reading as 118,000 miles, making the estimate of £18-23,000 rather confusing. This would be well over the top for a 3-litre Coupe with £4k recently spent and (presumably) plenty more needed. Unsurprisingly, the car failed to sell and disappeared from the market until popping up again during lockdown.

Offered to the market at the end of May/early June, the online ad text carried the same photos, but with more detail this time around. The car had three previous owners with the most recent owner covering just 300 miles in his four-year tenure of the 3-litre Coupe. The total mileage was less than 40,000 as supported by the online MOT history.

The history also supported the mileage, with five main dealer and two independent stamps. The Light Grey leather interior looked immaculate. With a bit more effort put into presentation (not a great deal more, it has to be said) the car sailed past the previous top estimate, to finish at £23,500: a great result for a standard 3-litre M3 Coupe in an entirely online auction and an interesting result for those of us with similar cars in the garage.

The strong finish highlighted another difference between the two platforms: costs and commissions. Classic Car Auctions charges £250 plus VAT for a “Premium Ad” with 4% plus VAT of the final price as a seller’s commission. Had this car achieved £22,000 from a Premium Listing on Classic Car Auctions, the fees would have totalled £1,356, giving a net return to the owner of £20,644.

On, there is no charge to list and sellers receive the full final bid amount with no commissions. So a £22,000 sale gives a net return of £22,000. This is quite a different proposition for sellers.

Collecting Cars has been likened to an Anglicised version of the Bring A Trailer website but there are several differences. Bring A Trailer grew organically from a blog highlighting classified ads for interesting unfinished projects and old race cars that were not road legal (hence Bring A Trailer), into a classified platform in its own right and later into its current guise as an online auction platform. Its growth and development is supported by a large user community: some 400,000 registered users and 150,000 registered bidders, according to recent estimates. The users pass comment on the auction lots – some positive, some negative – and the site claims this “vetting process” helps with auction transparency.

As with most other online auction platforms, Collecting Cars has no such community, instead relying on enthusiasts and social media sharing to amplify its sales. An apparently select and savvy curation process means that the list of sold items is a good place to be. Unlike other classic car auctions, including eBay, the only obviously poor condition projects are proper old classics: V12 Lamborghinis and Jensens with rock star history. It’s a browser’s paradise and the CC model seems good news for sellers, but whether buyers come away with their dreams intact is a story for another day. Sufficient BMWs – including M-models, Alpinas and more – have now sold on the platform to make an “I bought a Collecting Cars BMW” feature seem doable. I’m not in the market for another BMW, but you never know what’s going to pop up next.