The story of the used car market in 2009 has undoubtedly been one of rising values. Average value increases that have exceeded expectations of many in the industry and that have left those of us fearing the worst from the recession positively blooming. The bleak state of values throughout most of 2008 created much concern for the future, and with the recession causing manufacturer and dealership casualties across the country optimism for 2009 was not particularly high. However 2009 has seen the used car market recover from the doom and gloom at the start of the recession and by the end of this year the used market has been left in a much more stable position.

Throughout the year CAP has seen evidence of strong disposals at auction with sales of 3 three year-old cars consistently performing well. March saw the largest over-performance when compared to that month’s Black Book values, with disposals achieving an average 106.5% CAP (See Chart 1). As CAP’s ‘Clean’ valuations represent cars of a condition that is ‘ready to retail’ three year-old cars at auction will invariably require an element of reconditioning to reach that condition. Therefore, taking this into account when interpreting auction sales against CAP values, three year-old used sales are invariably benchmarked around 97%-98% CAP so a performance as high as 106.5% was not only unusual but a huge boost to previously depleted values. For most of the rest of 2009 sales of three year-old cars typically achieved the 100% CAP mark with only the last couple of months seeing this performance drop off.

The Leasing companies communicating with CAP have also throughout 2009 reported good performance against CAP, with ex-fleet disposals averaging over 100% from February to September. Leasing company conversion rates have also benefited from levels over usual seasonal norms, averaging between 80-95% each month for most of the year, a significant increase from the 60-70% conversions seen in 2008.

The good news has not only been limited to the Leasing Companies. Whilst Dealers may have had a more competitive time sourcing and buying cars in the auction halls due to low levels of available stock, those surveyed by CAP, have, on the whole, reported consistently high levels of showroom traffic and reported used vehicle sales that are significantly better this year than in 2008.

This strength in the market has been reflected in CAP Black Book’s average value movements with a cumulative effect that saw average values increase 24.2% from December 08 to September 09. The last two months have since seen average movements fall again but most values remain significantly higher this year than the same time last year, with, for example, three year-old cars worth 15.6% more in December 2009 than December 2008. One of the most spectacular tales has been that of the 4x4 sector. By the end of 2008 4x4 values had plummeted with prices driven down by low consumer confidence and changes to the Vehicle Excise Duty on CO2. In December 08 a three year old 4x4 averaged in value at £8,707 (See Table 1), whereas the same vehicles on a three year old plate in December 09 on average were valued at £11,039. In a year still plagued by recession 3yr old 4x4s had on average increased by £2,333 or 29.5%. The remarkable recovery by the 4x4 sector was by far the biggest success story in the used car market but was by no means the only sector that benefited this year. In fact all sectors’ average values at 3 years old are higher this year, the lowest change being a sector less affected by last years fall in values - the Supermini sector, which saw values increase by an average 5.9%.

CAP Black Book 3yr60k Like for Like Comparison Dec-08 v Dec-09 % Change

So 2009 has been a good year for used car values but what has caused values to rise so much and so significantly? Without a doubt the downturn in 2008 caused values to fall too much, with low consumer confidence, limited credit availability, record fuel costs and a weak economy all contributing to the sharp reduction in values. Whilst some of these factors have still lingered on into 2009 the impact has been more subtle and for most of the year consumer confidence has been higher. This has been further aided by the Government’s introduction of the scrappage scheme which has been a resounding success for the New Car market and has had an encouraging effect on consumer confidence in the used car market.

However a major driving force behind rising values this year has been supply. In 2007 before the economic downturn took hold the market could have been said to have been ‘over supplied’. There were significant levels of ‘short cycle’ business, possibly unsupportable levels of self-registration and higher volumes of new car production. By 2008 manufacturers started to feel the pinch with new car production levels dropping off and further caution evident by the reduced levels of short-cycle business. A year later and the number of nearly-new cars available dropped and supply began to dry up. Demand began to outstrip supply and competition for the best cars and deals increased.

Whilst the majority of 2009 has seen average values rise, the last two months of the year have seen values fall, with values falling by an average -4.1% into December’s Black Book. This was the biggest fall of the year and a bigger fall than average December movements in the last four years, suggesting that this month’s valuation reductions are reflecting more than just a typical seasonal slowdown before Christmas. After a year of largely seeing values rise in the used car market, November and December's decreases may only be part of a re-adjustment of values which have risen too much over the year. However it is also possible that this could be the first signs of a difficult new year to come for the used car market.