The Spoiler is still on holiday this week soaking up the South African rays, as England progress to the last 16 in The World Cup… so this week we bring you exclusive Market Editorial for July from GlassGuide.co.uk

July 2010 Market Editorial

Having gone through the dramatic falls in used car prices in 2008 to be followed by an even more dramatic rise in 2009, this year was expected to see a pattern of price changes more typical of the earlier years. That is to say, an increase in the early spring, a decline during the summer months, a brief recovery in early autumn before a more marked drop in the final quarter.

To what extent has this happened so far this year?

The first column in the following chart shows the month-on-month changes in auction prices between January and May, expressed as an average of the last five years. The third column shows the month-on-month changes for 2010.

The first point to make is that the general direction in prices this year is the same as the five year average. In other words, in each of the first three months, prices have increased from one month to the next, and in the following two months prices have fallen. The second fact is that prices were slower to recover in January and February, but when the recovery came in March it was more marked than the five year average. The most likely explanation of this is that the bad weather from the end of December to the middle of January had the effect of reducing sales by at least 25% over this period. This, in turn, delayed trade buying activity and the associated competition for stock that stimulates prices.

During the second quarter, prices have been falling at a slightly more accelerated rate compared to the previous five year average. The reason for this is largely the result of the bumper registration month in March generating a correspondingly high number of part-exchanges that suddenly became available to the market. In the interests of accuracy we should exclude the Scrappage registrations from the March total because Scrappage deals only produce cars for the dismantlers. However, even allowing for this qualifying statement, new sales - and therefore part-exchanges - were still more than 10% higher than March 2009. On the other side of the equation, used retail sales were several percentage points lower than a year ago. The inevitable consequence of more supply and less demand is a fall in prices and, more importantly, the extent of the movement has been a little more severe because the elements of supply and demand are a little more out of kilter compared to the average of the last five years.

So what is likely to happen next? ...Logon to GlassGuide.co.uk to read the full story!