Glass's predicts continued strength of new and used markets

"Undeterred by a cut in take-home pay and an increase in taxes in the second half of 2003, consumers appear resolute in their determination to extend their spending spree," commented Adrian Rushmore, Managing Editor of Glass's Information Services. "This all bodes well for sales of new and used cars early this year, with plenty of momentum to drive sales forward. What underlies this upbeat message is the widely held belief that household spending is expected to increase by a further 2 per cent this year."

While sales are expected to ease back steadily during the course of 2004, Glass's says consumer demand is only likely to falter badly once interest rates start to approach 5 per cent. "As it stands, 2.35 million new car sales in 2004 looks achievable," adds Rushmore. "However, manufacturers and importers will have to become more creative later in the year when trading conditions are likely to become more difficult."

Glass's says there is plenty of optimism amongst used car dealers, helped by the fact that there was a 2.5 per cent increase in year-on-year residual values for three-year-old cars.

One of the key trends over recent years is that consumers have steadily migrated to younger cars. "Today, six to ten-year-old cars are being bypassed, thanks to the lower purchase prices available for new and younger used vehicles and the willingness of customers to service higher levels of personal debt. Given the expected further growth in consumer spending, this will continue to be a sluggish part of the used car market."

According to Glass's, the attention of buyers in 2004 will be focused on cars that are either aspirational, versatile or both. "These are encouraging signs for most premium brand models, diesels with the latest engine technology, MPVs, 4x4s, sports coupes and convertibles.

"However, this does not mean that prices for used models will automatically rise. For this we need to consider the influence of supply and, given that owners typically replace their cars every three years, the volume of new car registrations in 2001 is a major factor. Most notably, year-on-year compact MPV sales grew by over 60 per cent and premium upper-medium cars - BMW 3 Series, Audi A4, etc. - by nearly 30 per cent. The additional used car supply that these numbers represent will place pressure on three-year residuals during 2004. This could well translate to residuals falling by at least 2 percentage points when the rest of the market is showing little or no change from 2003," adds Rushmore.

"Used diesels will also fall victim to the same problem of increased supply, although there will also be a growing rift in prices between the old and new engine technologies," he concludes.