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Park Logistics - Creating supply Chain Solutions

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Capitalising on the weather: 4×4 price performance

  • 15 November 2011
  • By James Clark

Darren Kennedy, editor of CAP Black Book Plus, writes:

The more severe winters of the past couple of years have sometimes caused chaos for the car retail sector. But while heavy snow has inevitably brought a price paid in lost sales, as would-be buyers were forced to stay at home, there have also been opportunities. These have been seized by smart traders, as dealers look to service the need for appropriate transport during the winter months.

Research conducted during the summer was already suggesting that this year traders would start to speculatively purchase these vehicles much earlier than in previous years in order to try and be ahead of the game. This is nothing new for the seasoned trader. After all, they will do the same thing with convertibles during the winter months, in time for demand to resurface in the spring. But what has changed this year is that traders were actively seeking 4x4s to stock as early as September. This makes sense, in order to beat the stampede we saw last year when the weather really started to bite and prices were forced up.

The graph below shows the last two years’ trend and how the peaks and troughs represent a distinct buying pattern for this type of vehicle. This does not represent a risk-free strategy, however. Although last year saw prices rise sharply from December through to March,  they also fell away just as quickly, once the perceived necessity for such a vehicle had disappeared.  The difference this year has been that buying started much earlier and brought greater increases than for a few years. October saw an increase of 2.2% when the previous high was 0.8%. November movement was an increase of 1% when historically there has been a negative movement.

4×4 values – comparison between prestige and mainstream models

Furthermore, there does appear to be a small disparity between the performance of mainstream models and the prestige part of the sector. The rise and fall in values is far more accentuated in the prestige part of the sector, reflected by the prestige 4x4s climbing much more sharply than the mainstream models. Research also confirms that demand in some cases is not retail-led but about prospecting for future winter demand, following the widespread media reports of another harsh winter ahead. In short, dealers are making sure they are not caught out this year without the right stock portfolio.

We do, however, advise some caution in relation to this sector. As Figure 2.2 below shows, the 4×4 sector is still tracking considerably over the long-term trend. Given our belief that everything always eventually returns to trend, there could be some significant readjustment at some future point. Since the slump of 2008 the 4×4 market has gone from strength to strength. Underlying this has been a range of factors; the affordability they represented immediately post-slump, the perceived safety and additional visibility offered by the driving position and, of course, more extreme winter conditions. Today the whole sector is littered with examples of vehicles that currently could be argued to look dangerously over-valued. For example, a three year old Land Rover Discovery 3 is now worth more in today’s market than when the first returns came back into the marketplace in 2007.
 

There is a counter argument, however, that the sector’s price performance simply reflects its transformation from a handful of relatively specialist vehicles to one which offers massive variety to suit all people and pockets. The sector now offers vehicles that range from compact 4x4s, which offer the same level of four-wheel-drive ability as their larger offerings, all the way through to luxury 4×4 models boasting fuel consumption figures that would have been unheard of in years gone by.

To illustrate further, the number of three-year-old 4x4s available in 2004 was 18, with only a third of these Compact versions. In 2011, that number jumped to 43, with almost half of them Compact 4×4 versions. Clearly this dynamic is driving further demand to this sector, which may also be contributing to its move to above-trend values. In short, there is the possibility that the trend itself could be adjusting upward.

What will be interesting is what happens if this winter fails to be as severe as the last two. That would certainly reveal how much underlying desirability there is for this sector. We should always remember, in this industry, that long-established ‘facts’ can change. Witness how the convertible sector failed to ignite, as widely expected, this summer. If something similar happens this winter some dealers could be left with a lot of overvalued stock moving into the New Year.

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Article source: http://www.roadtransport.com/Articles/2011/11/15/139733/capitalising-on-the-weather-4x4-price-performance.htm