14 Apr 15

Dean Bowkett on Remarketing in Europe: Same crisis, different recoveries

The economic recovery in Europe is also reshaping the remarketing industry. But sunny times don't make for a clearer picture, says Dean Bowkett, independent automotive consultant: “Because the economic crisis had such a deep impact, and because of the variety of counter-measures applied across Europe, the picture is one of very diverse markets. So an overview only makes sense on a per-country basis”.

So what will happen to residual values (RVs) in Europe this year?
“Let's start with the Big Five, which after all represent 73.3% of new car sales in the EU. The UK's economic recovery is the most advanced. Last year, new car sales were just 100,000 units short of the 2.58-million record of 2003. This year, that record will be broken. Because the market is flooded with used cars, RVs are falling sharply. This year, they will go down by 2 to 4%”.

“Spain is recovering fast, and is now Europe's second-strongest car market in terms of recovery. Overall car sales are up – at 1 million now, but still nowhere near the pre-crisis peak of 1.5 million. Because of strong demand, also for used cars, RVs had gone up – but they will stay flat the rest of the year. Main reasons: significant new-vehicle discounts, and the government-sponsored PIVE scrappage scheme: you can get a new car for less per month than a one-year-old car”.

We'll get back to those discounts – but let's continue our Tour of Europe...
“Italy is still in crisis. Unemployment is starting to fall, but the recovery is very slow. Basically, it's lagging behind Spain. Which means RVs still have plenty of scope to recover and will be going up, by 2 to 3% annually for the next 2 to 3 years”.

“The German situation can be explained in terms of the Germans' traditional caution. Germany was the last big market where RVs dropped when the economic crisis started, and when they did, it was less sharply than anywhere else. They've stabilised now, and should start rising again – although not by more than by 0.75 to 1% this year”.

“The situation in France is being influenced by its 'War on Diesel'. At the start of 2013, up to 75% of new cars sold in France were diesels, but because of countermeasures, that has dropped dramatically. By October last year, only 1.9 diesels were sold for every petrol car. Consequently, diesel RVs will drop dramatically – they've already fallen 2% - and conversely, petrol RVs will rise. Sellers from neighbouring countries would do well to get their used petrol cars in France, especially popular models like the Astra, Focus and Fiesta, and smaller SUVs”.

So much for the Big Five, but what about the smaller markets?
“It's almost impossible to provide a one size fits all description however there is clear evidence that a lot depends on local government legislation. The Dutch government actively penalises petrol and diesel through taxation whilst encouraging alternative powertrains. It is one of the few countries where RVs for hybrids and plug-ins are increasing faster than traditional powertrains. Norway is the only other booming post-fossil vehicle market. Incredibly, with new car sales totalling no more than 144,202 units last year, it is the world's third-largest electric vehicle market, after the U.S. and Japan. In the first two months of this year, 4,400 electric and hybrid vehicles were sold in Norway”.

Back to new vehicle discounts: How widespread and how significant are they?
“Manufacturers are aggressively using discounts to get back to pre-crisis sales levels, and that is seriously affecting RVs. The problem is that the crisis has not motivated European OEMs to reduce their capacity. Currently, they're producing 20 million vehicles annually, at 77% of a total capacity of 26 million”.

“Despite the overall improving economic environment the level of discounting is holding RVs for 1 to 2-year-old vehicles down. In contrast, RVs for 5 to 7-year-old vehicles is increasing quite strongly in most countries”.

Why is that?
“Because people have downsized their vehicle ambitions and are keeping a tight rein on their finances often preferring a slightly older but more premium brand vehicle. And because they're moving away from traditional sedans, towards the newer types of crossover vehicles, and C segment SUVs like the Ford Kuga. That at least is one trend that is Europe-wide”.

We've talked about relative changes in RVs. But which countries are outperforming the others as for absolute RVs?
“Again, the UK and Spain are on top. The UK for the last two, three years, Spain  for the last eight to twelve months. Third place is a tie between France and Germany, whilst Italy remains the weakest link. As for smaller markets: the Netherlands, Belgium and Austria are performing at the same level as France and Germany”.

Why the sudden shift in Spain?
“The economy has improved dramatically. It used to be that daily rental companies exported 75% of their used cars out of Spain after the holiday season, to be sold in Germany, Poland and elsewhere in Europe. That flow has decreased to a trickle: with many now only pushing 10% of those used rentals out of Spain – solely because RVs in Spain have shot up”.

“Contrast that with Switzerland, where remarketing is struggling, because of the recent delinkage between the Swiss franc and the euro. The franc increased in value against the euro, initially by 30% - now down to 'only' 18%. That has both made it harder for Swiss used vehicles to be sold abroad, and allowed a flood of cheap imports”.

How exactly has the crisis – and its end - shaped and changed the remarketing industry?
“Because of the crisis, people downsized, and switched from new to used. Now the worst is over, two segments are switching back from nearly new cars to new cars: the top segment, who feel they can now again afford to be seen driving premium large cars; and the lower end of the market, who are getting a smaller new car instead of a used version of their usual vehicle”.

What's the picture on the other side of the Atlantic?
“U.S. automakers were in crisis in 2004, and reacted by cutting back capacity by 25%. They've 'right-sized', and are now producing 16.9 million vehicles at 97% capacity. So: no heavy discounts on new vehicles, because demand is in healthy relation to supply – not to mention: growing strongly for 25 months in a row”.

How does that difference in capacity translate into broader differences between Europe and America?
“In the U.S., profits are made throughout the entire production chain. In Europe, not so much. Many dealers don't make money on new car sales, only on after sales and used car sales. Some manufacturers are selling certain models at very low margins or even at a loss to avoid penalties from their suppliers and to meet the EU's CO2 targets”.

Will alternative motorisations come to the rescue?
“Unlikely, as electric and hybrid vehicles are seen as too expensive, too niche. There is currently too high a disparity between price and practicality in most cases with buyers unconvinced about any financial benefit during the total cost of ownership, and questionable environmental benefit. With the second-hand price of lithium-ion battery packs circa three times those of a refurbished petrol or diesel engine and range anxiety an issue, RVs for hybrids and electric vehicles are likely to remain low. The exception: premium vehicles with new technologies. Somehow, people do accept new technology if it has the right badge, as for example with the Tesla Model S and BMW i3 and i8”. 

Authored by: Steven Schoefs