11 March 2020
In this second part of Autovista Group’s impact analysis of the coronavirus (COVID-19) on the automotive industry, senior data journalist Neil King considers the implications for used-car markets and residual values. You can read part one here.
A sustained weakened economy, whether globally or nationally, can quickly lead to a recession. The escalating COVID-19 outbreak could also cause a large drop in consumer confidence, leading to a fall in spending, which would affect big-ticket purchase items first and so is likely to impact both the new and used-car markets.
Ordinarily, new-car demand suffers more than used cars when the economy is under pressure. New-car supply could also be impacted if manufacturers are unable to source components from affected countries. Even temporary closures will result in missing parts and vehicle production will inevitably be stopped for days, weeks or even months in some cases.
In terms of residual values (RVs), the impact of COVID-19 could be beneficial. New-car supply issues of any kind tend to lead to increased demand for used cars and if prolonged, RVs will benefit. The outbreak will particularly reinforce the attractiveness of models that are subject to long delays and deliveries, with a positive impact on their values.
Another possible side effect of reduced supply is that if the coronavirus situation deteriorates, there could be an impact on the list prices of new cars and/or the discounts on offer. In addition to the new-car supply constraints, this would also support the RVs of affected cars.
Similarly, delays to new-car deliveries would result in fewer tactical, short-term registrations as dealers would only be able to sell the cars they have available. This would also increase or at least stabilise RVs of younger used cars because their volumes are reduced.
German used-car supply to fall
Fleet registrations in Germany have been running at an all-time high but Autovista Group expects a reduction in fleet purchases as companies cut investments due to economic uncertainty. This will cause a drop in used-car supply for the years 2022-2024 and could have a positive effect on the used-car market and future RVs.
Taking this into account and given the saturated market for private car buyers in Germany, the volume of tactical registrations will probably rise or at least stabilise at a high level unless production capacity for the European market is significantly impacted. It is worth noting, however, that the 10 most important model launches for the German market in 2019-20 are all produced in Europe. They are therefore less likely to be harmed by a lack of personnel or shutdowns in Asia, but could still be derailed by components shortages and/or if similar measures are imposed in Europe.
Top 10 new model launches for the German market
- VW Golf
- Skoda Octavia
- Opel Corsa
- BMW 1-Series
- BMW 3-series
- SEAT Leon
- Ford Kuga
- Mercedes B-Class
- Audi A3
- VW ID.3
As it stands, the new-car market is expected to contract in Germany in 2020 and OEMs will offer higher discounts to retain market share. The used-car supply for 2020 has already been produced by the ‘new-car factory’ and assuming a limited impact of COVID-19 on private used-car buyers, they are expected to react very slowly, if at all. Given this, the current expectation is that RVs will continue to slightly decline this year, with petrol cars suffering from higher volumes more than diesel cars.
Autovista Group expects that electric vehicles may get a push due to the lack of tactical supply, but demand is not rising as quickly as it needs to. PHEVs are the ‘easy choice’ and may benefit slightly, compared to previous expectations of oversupply in 2020.
Andreas Geilenbrügge, head of valuations and insights at Schwacke (Autovista Group) in Germany contributed to this article.
In the final part of this coronavirus series, King will discuss the implications for manufacturers and electric vehicles, especially if supply is not restored by the end of the year. You can read part one - Automotive industry cowered by COVID-19? here.