Residual values could fall by 10% over next year, warns BVRLA report

Residual values could fall by 10% over the next year as the economic effects of a recession and high unemployment bite.

The prediction is included in the BVRLA’s latest Leasing Outlook report, which warns the vehicle leasing industry is braced for yet more challenges as “the most turbulent year imaginable” comes to an end.

The report says the sector remains agile but is also seeking clarity around the impact of Brexit, the Covid-19 pandemic and the transition to zero-emission motoring.

BVRLA members expect battery electric vehicles to hit 6% of the total lease car fleet by the middle of next year, with plug-in hybrids hitting 9%.

Petrol’s market share will begin to plateau at around 38%, with diesel slipping under 50% for the first time at 46%.

Andrew Mee, head of forecast UK at Cap HPI, told the report: “On average, used car values are now around 7% higher than they were a year ago and we consider this unsustainable.

“As we move through Q4, we expect that the strength in the used market may start to slowly ebb away, as pent-up demand is satisfied and the typical pattern of falling values in the latter months of the year could be re-established.

“A fall of 10% over the next year looks reasonable.

“It is broadly similar to 2019 and is nowhere near as bad as we saw in 2008.”

The report says there will be an improvement beyond 2021, but it will not be as rapid as it was in 2009, due to Covid having a much broader and more complex set of impacts on the economy and automotive market.

The three other broad themes covered by the report are:

• Supply chains - leasing companies are looking forward to a rebound in demand for fleet vehicles as the economy recovers but are concerned about the potential for extended lead times and the reputational damage that could ensue.
• Brexit - The type of EU-Exit we get will have a huge impact on business confidence, lead times, the cost of new vehicles and the ease with which they can be moved around the UK and Europe.
• Liquidity - The financial and administrative burden of providing forbearance to those hit by the pandemic will last well into 2021 and there are signs that the supply of motor finance is also tightening.

The report can be downloaded by clicking here.

The future of leasing and funding was the subject of the FN50 webinar held last month, where a panel of experts dissected the current trends.

Panellists included Jaama managing director Martin Evans, Association of Fleet Professionals chair Paul Hollick, Lex Autolease managing director Richard Jones, and EY director - valuations modelling and economics Mark Main.

The recording can be viewed by clicking here.