2015: The Bubble Bursts!
Discussion
My turn to prophesize that the end is nigh.
As a Pher you'll have no doubt heard all the arguments as to why this is different to the 90's and in many ways it is. There's no doubt the market was undervalued at the turn of the century but the current trajectory has the fragrant aroma of Tulips. Unlike the 90's interest rates are not going to spike up to 15% but this boom will be brought down by different factors.
These are the two key factors that will end the boom in the UK:
(1) Exchange Rates
A European Holiday will be much cheaper this year thanks to the strong £ (weak €) following the announcement of QE and uncertainty in Greece. Before 2007 the exchange rate was between €1.4 and €1.5. It almost reached parity in 2009 thanks to the financial crisis and the UK's exposure to the banking industry. It's taken until January 2015 for us to surpass €1.30.
The steep drop in the exchange rate during the recession meant that buying a new Italian car from 2009 onwards became much more expensive. Think of the price differential between a Ferrari 458 and a F430. In addition, production was lower due to the global recession. The result is that the prices of used supercars has been very strong.
As the € weakens, the above effects are reversed. The price disparity between UK rhd cars and European lhd cars is now very very wide. I'd encourage you to visit http://www.autoscout24.com and see for yourself. It makes the prices advertised by UK Dealers for lhd cars look rather 'cheeky' (that's me being polite).
Given the political landscape in Europe I can see the pound gaining more ground against the euro... €1.4 if you want an exact prediction (assuming no ones silly enough to vote for Red Ed).
The Pound also took a beating from the Australian Dollar during the recession. As a result, the export market to Australia has thrived. Thanks to the commodities slump this is now reversing. After reaching a nadir in 2013 of 1.45 AUD to the pound, sterling has strengthened to 1.95 AUD to the pound. I doubt there will be much interest from that side of the globe anymore.
(2) New Car Registrations
Once again the recession hit the new car market hard. The result is that less used cars came onto the market and residuals remained high. This trend is now being reversed following 34 consecutive months of increasing new car sales.
Reaching a 10 year high in 2014 with almost 2.5million cars sold. Please link from SMMT below:
http://http://www.smmt.co.uk/2015/01/uk-new-car-re...
This trend is driven by people who delayed purchasing new cars during the recession, PPI windfalls and amazingly cheap PCP deals.
The result is that there will be an ever increasing supply of used cars onto the market. This effect will start this year and continue as more 2 and 3year deals come to an end. This increased supply will depress used car values and provide alternatives to the overvalued classic car market.
Conclusion
These two factors alone are enough to stop the exponential growth in prices. As prices moderate, 'investors' will question why they're spending money servicing and storing a depreciating asset. The smart investors will already be quietly leaving the room. The average car enthusiast will benefit from being able to buy and enjoy the car of there dreams.
Many Thanks for reading my post. I look fwd to your responses.
Disclaimer: The opinions I've expressed do not constitute investment advice. Independent advice should be sought were appropriate.
As a Pher you'll have no doubt heard all the arguments as to why this is different to the 90's and in many ways it is. There's no doubt the market was undervalued at the turn of the century but the current trajectory has the fragrant aroma of Tulips. Unlike the 90's interest rates are not going to spike up to 15% but this boom will be brought down by different factors.
These are the two key factors that will end the boom in the UK:
(1) Exchange Rates
A European Holiday will be much cheaper this year thanks to the strong £ (weak €) following the announcement of QE and uncertainty in Greece. Before 2007 the exchange rate was between €1.4 and €1.5. It almost reached parity in 2009 thanks to the financial crisis and the UK's exposure to the banking industry. It's taken until January 2015 for us to surpass €1.30.
The steep drop in the exchange rate during the recession meant that buying a new Italian car from 2009 onwards became much more expensive. Think of the price differential between a Ferrari 458 and a F430. In addition, production was lower due to the global recession. The result is that the prices of used supercars has been very strong.
As the € weakens, the above effects are reversed. The price disparity between UK rhd cars and European lhd cars is now very very wide. I'd encourage you to visit http://www.autoscout24.com and see for yourself. It makes the prices advertised by UK Dealers for lhd cars look rather 'cheeky' (that's me being polite).
Given the political landscape in Europe I can see the pound gaining more ground against the euro... €1.4 if you want an exact prediction (assuming no ones silly enough to vote for Red Ed).
The Pound also took a beating from the Australian Dollar during the recession. As a result, the export market to Australia has thrived. Thanks to the commodities slump this is now reversing. After reaching a nadir in 2013 of 1.45 AUD to the pound, sterling has strengthened to 1.95 AUD to the pound. I doubt there will be much interest from that side of the globe anymore.
(2) New Car Registrations
Once again the recession hit the new car market hard. The result is that less used cars came onto the market and residuals remained high. This trend is now being reversed following 34 consecutive months of increasing new car sales.
Reaching a 10 year high in 2014 with almost 2.5million cars sold. Please link from SMMT below:
http://http://www.smmt.co.uk/2015/01/uk-new-car-re...
This trend is driven by people who delayed purchasing new cars during the recession, PPI windfalls and amazingly cheap PCP deals.
The result is that there will be an ever increasing supply of used cars onto the market. This effect will start this year and continue as more 2 and 3year deals come to an end. This increased supply will depress used car values and provide alternatives to the overvalued classic car market.
Conclusion
These two factors alone are enough to stop the exponential growth in prices. As prices moderate, 'investors' will question why they're spending money servicing and storing a depreciating asset. The smart investors will already be quietly leaving the room. The average car enthusiast will benefit from being able to buy and enjoy the car of there dreams.
Many Thanks for reading my post. I look fwd to your responses.
Disclaimer: The opinions I've expressed do not constitute investment advice. Independent advice should be sought were appropriate.
Edited by 355Chris355 on Sunday 1st February 20:28
Edited by 355Chris355 on Sunday 1st February 21:52
1.4 EURO to the £! As predicted.
Result European manufacturers will be able to maintain record car sales in the UK by reducing the price and offering incentives. Coupled with the rise in supply of used cars coming onto the market will inevitably lead to a fall in prices.
In addition, purchasing a used LHD Ferrari from Europe is now upto 50% cheaper than the inflated RHD prices quoted at UK dealers.
Result European manufacturers will be able to maintain record car sales in the UK by reducing the price and offering incentives. Coupled with the rise in supply of used cars coming onto the market will inevitably lead to a fall in prices.
In addition, purchasing a used LHD Ferrari from Europe is now upto 50% cheaper than the inflated RHD prices quoted at UK dealers.
Edited by 355Chris355 on Tuesday 10th March 08:55
Edited by 355Chris355 on Tuesday 10th March 09:13
BCA reports 3 consecutive months of used car prices falling:
http://www.motortrader.com/automotive-news/used-ca...
Highlights:
- increased supply from cars reaching end of their lease deals and
- strong new car sales generating more supply as people trade in
http://www.motortrader.com/automotive-news/used-ca...
Highlights:
- increased supply from cars reaching end of their lease deals and
- strong new car sales generating more supply as people trade in
Mr Whippy said:
I've been looking around and stuff 2-3 yrs old seems to be roughly following the 20% per annum loss rate.
But stuff in the 4-6yr bracket seems to be nearer 10% per annum.
Dave
The below link is an interesting presentation prepared by Manheim on the UK used car market:But stuff in the 4-6yr bracket seems to be nearer 10% per annum.
Dave
http://www.bvrla.co.uk/sites/default/files/documen...
Slides 10 and 11 highlight the supply effects caused by the recession and help explain why depreciation on certain age groups of cars is not conforming to expectation.
Prices of Jaguar E-Types ''softening'
http://www.classiccarsforsale.co.uk/news/classic-c...
Very candid comments from the Director of Barons Auctions stating that investors are propping up the value of these and that the prices won't be sustainable when these monies are moved elsewhere.
http://www.classiccarsforsale.co.uk/news/classic-c...
Very candid comments from the Director of Barons Auctions stating that investors are propping up the value of these and that the prices won't be sustainable when these monies are moved elsewhere.
Jimbo0912 said:
There are a number of dealers/auction houses behaving in a pretty unscrupulous manner trying to prop up a very obvious bubble with ever increasing valuations for not especially rare cars. Will end in disaster.
Agreed. If they sell one for a new top price then they can dust off the ones in their warehouse and make the same profit margin on them too.Questions:
If an investor owns 3 Ferrari 512TR (for example) is it in their interest to pay over the odds for the 4th? In so doing they can revalue the ones they already own at the higher price. Wonder how much effect this behaviour has on the market?
I also wonder how much collusion goes on in maintaining these record prices.
Used Car Values to 'Burst'. Interesting sector analysis from UHY Chartered Accountants:
http://www.uhy-uk.com/resources-publications/servi...
http://www.uhy-uk.com/resources-publications/servi...
At Silverstone auctions today a lot of lots underperformed or went unsold:
The following all underperformed (hammer prices shown):
Ferrari 456 manual LHD (yellow with blue interior!) £28k (Guide £28k to £32k)
Ferrari Testarossa LHD with 27k miles. £77k (Guide £80k to £90k)
Ferrari 308 GT4 Dino £29k (Guide £30 to £35k)
Ferrari Mondial QV with 29k miles £17.5k (Guide £18k to £21k)
Ferrari 348TB LHD with 30k miles £24.5k (Guide £28k to £30k)
Ferrari 308 GTB (cat D repaired) £27k (Guide £34k to £38k)
Porsche 1968 911 Coupe £42k (Guide £45k to £55k)
Porsche 1971 T Targa £34k (Guide £38k to £40k)
It would be rude of me not to also mention the good performers: Porsche 911 GT2 RS LHD £210k, BMW Z8 £110k, Ferrari 348 Spider £57k and Porsche 996 GT2
The following all underperformed (hammer prices shown):
Ferrari 456 manual LHD (yellow with blue interior!) £28k (Guide £28k to £32k)
Ferrari Testarossa LHD with 27k miles. £77k (Guide £80k to £90k)
Ferrari 308 GT4 Dino £29k (Guide £30 to £35k)
Ferrari Mondial QV with 29k miles £17.5k (Guide £18k to £21k)
Ferrari 348TB LHD with 30k miles £24.5k (Guide £28k to £30k)
Ferrari 308 GTB (cat D repaired) £27k (Guide £34k to £38k)
Porsche 1968 911 Coupe £42k (Guide £45k to £55k)
Porsche 1971 T Targa £34k (Guide £38k to £40k)
It would be rude of me not to also mention the good performers: Porsche 911 GT2 RS LHD £210k, BMW Z8 £110k, Ferrari 348 Spider £57k and Porsche 996 GT2
Edited by 355Chris355 on Saturday 28th March 17:03
Edited by 355Chris355 on Monday 30th March 13:41
Used car prices down 5.7% in March as reported by NAMA (National Association of Motor Auctions). This follows a drop of o.4% in February
http://www.businesscarmanager.co.uk/used-car-price...
In the Supercar section there's a thread on the sheer number of 991 GT3's for sale (circa 50) and a thread on the large number of Huracan's for sale.
Evidence that Porsche and Lamborghini are trying to take advantage of the Foreign Exchange profits available with the strong pound.
Also talk of discounts on the Huracan's. Not surprising given that the strong pound gives these companies the option to maintain volumes by taking a hit on prices.
Once price pressures takes hold on the new stuff it's only a matter of time before prices of the older variants also take a dip.
Evidence that Porsche and Lamborghini are trying to take advantage of the Foreign Exchange profits available with the strong pound.
Also talk of discounts on the Huracan's. Not surprising given that the strong pound gives these companies the option to maintain volumes by taking a hit on prices.
Once price pressures takes hold on the new stuff it's only a matter of time before prices of the older variants also take a dip.
http://www.nama-uk.com/_assets/May_2015_CAR_Auctio...
Average sale prices for used car prices at auction have fallen for 5 months in a row!
Average sale prices for used car prices at auction have fallen for 5 months in a row!
Auction prices are now lower than they were in May 2014 (Per National Association of Motor Auctions).
Page 6 talks of excess supply and that pricing will have to be adjusted accordingly:
http://www.nama-uk.com/_assets/June_2015_CAR_Aucti...
Interesting that the new Astra is both cheaper and comes with more equipment. This tallies with the desire for car manufacturers to keep increasing sales even if it requries lower margins.
http://www.telegraph.co.uk/cars/vauxhall/news/new-...
Page 6 talks of excess supply and that pricing will have to be adjusted accordingly:
http://www.nama-uk.com/_assets/June_2015_CAR_Aucti...
Interesting that the new Astra is both cheaper and comes with more equipment. This tallies with the desire for car manufacturers to keep increasing sales even if it requries lower margins.
http://www.telegraph.co.uk/cars/vauxhall/news/new-...
R11ysf said:
Chris is this post about classic and desirable cars or mainstream stuff? Classics are still shifting at increasing prices, yet you post stuff about fleet cars.
E.g. my mate bought an SLS Gt for £128k in Feb. The same dealer has offered him £160k to take it back and he's seen a similar mileage one sell for £200k.
Fleet stuff coming off lease deals may drag down mainstream prices but desirable stuff is still moving on well and the pension spend from the pension rules relaxation will keep this going for a while longer.
Well played to your mate! Now that they're not making a Gullwing it's in demand.E.g. my mate bought an SLS Gt for £128k in Feb. The same dealer has offered him £160k to take it back and he's seen a similar mileage one sell for £200k.
Fleet stuff coming off lease deals may drag down mainstream prices but desirable stuff is still moving on well and the pension spend from the pension rules relaxation will keep this going for a while longer.
This topic is quite generic as I think there are bubbles across the spectrum. The used 'fleet stuff' is interesting to document as the monthly data is available to accurately follow how the market is behaving.
The Topic below discusses the fact that Porsche 991 GT3 prices are now falling fast. These listed at £100k-£125k. Then rose quickly to £180k and are now back to £140k. Still above list but the direction is now downwards. Also Porsche initially said they'd deliver circa 180 but actually delivered 300. Why? The strong pound will be a big factor.
http://www.pistonheads.com/gassing/topic.asp?h=0&a...
Significant amount of cars unsold at the Silverstone Classic Competition Cars auction today. All the lots that did sell were below the lower estimate. Feels like the market is turning:
https://www.proxibid.com/asp/Catalog.asp?aid=97935...
https://www.proxibid.com/asp/Catalog.asp?aid=97935...
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