A softening of future values for fossil-fuel cars is inevitable

Demand for quality used stock was strong throughout 2018 with average values rising at auction sustained by a combination of strong dealer demand and retailing success.

These were increasingly driven by PCP finance with PCPs themselves benefitting from the strong values being achieved at auction.

However, this virtuous circle looks set to come under pressure in 2019. Environmental changes mean that today we are operating in unfamiliar territory when it comes to forecasting the key element of a PCP, the vehicle’s future value.

Getting this prediction right is essential for all parties; the dealer, finance company and end customer.

An increase in EV sales in the next three-year window, for which today’s PCP value forecasting must account, is very likely.

Conversely, diesel and petrol car sales are expected to decline at an accelerating rate with the advent of Ultra Low Emission Zones (ULEZ) across the UK, the first of which comes into force on April 8thin London.

For me, a softening of future values for fossil-fuel cars seems inevitable, even if demand and values today are strong. The key questions are when and by how much?

Right now, our approach is one of commercial prudence and agility as we react to the views of the trade valuation experts.

We expect this to be echoed across the lending market. I’m not expecting EVs to simply flick a switch and turn off the lights on petrol and diesel cars.

Far from it, the likelihood is that there will be a steady and controlled dimming, but I would expect this dimming to start influencing future value forecasting very soon.

John Hughes is managing director of Mann Island Finance