The first half of 2012 has been a turbulent period for the economy, as the UK slipped into recession at the start of the year and concerns about the stability of the Eurozone continue to make headlines and hit consumer confidence.

But, surprisingly, the market for used vehicles hasn’t suffered as much as it could have done. Still feeling the after-effects of low new car volumes during the recession and longer lifecycles from fleet buyers, underlying problems with volume have been masked by stable values as dealers fight over good quality stock.

There’s a continued challenge coming for the remainder of the year, too. Jubilee celebrations, the Euro 2012 football championships and Olympic and Paralympic Games look set to distract buyers away from forecourts during the already quiet summer holiday period. But resurgence in consumer demand wouldn’t necessarily be a good thing.

What’s performing well?

Low stock levels means values across the board are stable but with consumer finances squeezed, the trend towards low cost motoring continues as buyers look to cut their outgoings.

Simon Henstock, UK operations director at BCA, says this isn’t necessarily favouring the latest eco-friendly models: ‘In broad terms, there’s plenty of interest in smaller, more economical cars, while the compact crossover and small SUV remains very fashionable, although these cars can look expensive compared to similar small SUVs.’

But the market has become polarised, and image is still important to buyers. Against a struggling D-segment, the core fleet sector being hampered by a move towards increasingly car-like MPV and crossover SUV models, the Volkswagen Passat has returned strong values and high demand used – popularity attributed to its desirable badge.

The first half of 2012 has also seen strong demand for certain luxury brands. Compact executive models, particularly German brands, and coupes derived from them, are popular and high in value. Jaguar’s facelifted XF is also outpacing the previous model year by as much as £2,000 according to Richard Crosthwaite, prestige car editor at EurotaxGlass’s.

Alan Senior, head of valuation services at VIPDATA, points to the Range Rover Evoque and Audi’s Q3 and Q5 as being strong performers in the luxury segment so far this year. A lack of new vehicles means dealers are selling ex-demonstrator Evoques for nearly new money, and the compact Audi SUVs are in similar demand, he says. But with a refreshed Q5 on the way, there could be trouble looming for the outgoing car.

What’s struggling?

Summer demand for SUVs is traditionally slow but this year has been particularly bad for the 4×4 segment. After two harsh winters, the snow came too late in 2012 to sustain buyers’ interest and rising fuel prices have pushed them into other segments as a result.

Recent weather hasn’t stimulated demand for cabriolets and roadsters either, with heavy rain dampening buyers appetite for open-top motoring.

Alan Senior explains: ‘Cabriolet and convertible values haven’t moved up like they normally do, mainly because people look at them as nice to have. But in these times of austerity, as far as peoples’ incomes, they want something that’ll do another job as well as pleasure. So there are more cabriolets on the market, and that’s an area that’ll suffer this year.’

An increasingly diverse market for family cars has hurt the traditional D-segment, though. A core part of ex-fleet stock, these are losing out on demand compared to the emerging and growing compact SUV sectors.

Continued rises in fuel prices aren’t helping less efficient vehicles. According to figures from the AA, the price of oil per barrel peaked at $125 per barrel in March and has since declined 22% to $97 per barrel in May.

But forecourt prices have been slow to react, with average UK petrol and diesel prices peaking at 142.5 and 147.9 pence per litre respectively in April, falling back to 133.8 and 139.3 pence per litre in June, a drop of 6%. Despite this drop, a near-future return to stability for less efficient cars isn’t expected.

Supply and demand

The used market is feeling the effects of the decline in new car sales three and four years ago, resulting in a continuing restricted volume of fresh, low-mileage stock over the last 18 months. This is claimed to be as much a 25% lower than pre-recession levels.

Mike Hind, communications manager at CAP, says: ‘Trade confidence is helped by the absence of over-supply. This has also led to increased competition in the open market for used cars with good retail appeal because 2012 has also seen many franchise dealers actively buying stock due to a shortage of part exchange business.

‘Although it is commonly said that smaller, more economical cars are favoured in poor economic circumstances the truth is that they always are. The figures show, if anything, that it is not economic variables which influence in today’s market but the simple balance of supply and demand.’

This shortage continues to favour used values. BCA has reported a two-year high for average fleet and lease stock values in May and higher than 2010 and 2011 monthly figures throughout the first half of the 2012. Good quality vehicles are elusive, and the average age and mileage of fleet stock coming to market has increased year on year.

So has their values – although average age and mileage of fleet and leasing vehicles sold in May 2012 had increased 0.6% and 1.7% respectively year on year, average prices were 5.3% higher compared to the same month in 2011 and closer to CAP figures too.

But Richard Crosthwaite believes this is making life tough for dealers: ‘Consumer confidence remains low, and so retail asking prices are not seeing the stability that trade prices saw of late. So margins have fallen.’

Alan Senior says longer life cycles have also made it slower to defleet vehicles. With more mileage covered these are taking longer to bring back to ready-to-retail condition, with others beyond the point where it is financially viable to do so.

‘There’s not a great deal of movement in guide values,’ he says. ‘Consumer confidence usually pushes values down, but the models that are out there are hard to find. It’s probably a good job the market doesn’t pick up. If suddenly consumers found money to buy cars they’d realise the supply chain was in a bad state at the moment.’

What do consumers want?

According to figures from GfK, consumer confidence dipped during March and April in line with the troubles in Greece and Italy. Although it rallied slightly in May, those surveyed said they were less likely to make large purchases than they were at the same point during 2011, reporting a worse personal financial situation for the previous 12 months and for the next 12 months than they did last May.

The result is consumers are buying based on financial reasons above all others, says Simon Henstock. BCA’s most recent Used Car Market Report says the most important factors for choosing a used car were improved fuel consumption (27%), lower CO2 (19%) and getting the best price (18%).

Sector by sector depreciation

Adjusted to factor out new models and plate changes, the following CAP-supplied figures show asset depreciation from Q1 to Q2 of 2012 compared to 2011. The values are reset at 100 at the end of March, and compared to the same figures at the end of June.

Depreciation across the market, even for the weakest sectors, is slower this year than it was last year with the usual seasonal uplift in open-top vehicles. Notable for its stability this year is the luxury executive sector, likely due to being a segment of the market where buyers are less affected by economic uncertainty.