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Motor Insurance
Sunday, August 1, 2010
Significant rise in used car prices

According to TransUnion, used car prices increased by a significant 4.5 percent in the first quarter of this year after five consecutive quarters of deflation. In contrast, new car price inflation slowed to 7.4 percent from 8.7 percent in the previous quarter and 11.3 percent for the same period in 2009.

These statistics are based on the latest TransUnion Vehicle Pricing Index (VPI), which measures the year-on-year price inflation of a market weighted basket of new and used vehicles.
Mike von Höne, CEO of TransUnion Auto Information Solutions said the turnaround in used car prices was a consequence of a number of factors:
• Relatively high level of new car price inflation experienced through 2008 and into early 2009 as 2008/9 model vehicles are now increasingly finding their way into the used market;
• Improved demand on the back of improved consumer sentiment; and
• Continued shortage of pre-owned stock.

“The gap between new and used prices could simply no longer continue to widen. TransUnion anticipated that this reality, coupled with an ongoing shortage of quality, low-mileage, late model used vehicles would push used prices up once again,” von Höne added.
According to TransUnion, the dealer market continues to report stronger consumer activity for used vehicles with the result that dealer stock days for used vehicles have decreased significantly.
“We anticipate that used car prices will continue to rise as used car dealers are still paying book trade or in some cases above trade for good quality, low mileage used vehicles that fall into the one to four year old category. This is to satisfy demand by consumers in this segment,” von Höne continued.
TransUnion attributed the decline in new car inflation to the stronger Rand, which resulted in manufacturers being able to hold down price increases on existing model ranges.
“Most price increases in this sector were a result of the introduction of new model ranges,” von Höne explained and pointed out that the decline in new car price inflation came against the backdrop of a marked upswing in new vehicle sales in the quarter.
Meanwhile the combination of the slowdown in new vehicle price inflation, the rise in used car prices and the ongoing shortage of quality used cars has resulted in the ratio of new to used car sales swinging towards new vehicles once again.  From a high of 2.16 used vehicles for every new vehicle financed in 2009, this ratio has narrowed to 1.67 to one.
“The outlook for the new and used car sectors for the remainder of 2010 is positive, with revised expectations of between 12 to 14 percent volume increases for the year (albeit off a low base).
“The outlook for the new and used market place is positive if lending criteria are relaxed further by the financial institutions and interest rates remain steady or, though unlikely, experience a decline,” Von Höne concluded.

Copyright © Insurance Times and Investments® Vol:23.8 1st August, 2010
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