There are almost 500,000 used cars offered for sale by dealers at any particular point in time, all vying for the attention of retail customers. These retail customers are making buying decisions based on a wide range of emotional and practical needs and wants. What is distilled from these buying decisions is the typical price that is paid for any model, at a given age and mileage. This typical selling price determines what a dealer will pay in the trade for a similar car having calculated an acceptable trading margin (i.e. the difference between buying and selling price). It is this trade price, or the residual value, that gives us the means for assessing market preferences on a model by model basis. The exercise to look at the best and worst performing models was last undertaken in August 2007 – just before the market fell into disarray. We have seen some notable changes between then and now that we shall include in the review of our findings. The following table shows the top 10, 3 year old cars (i.e. 55 plate). They are the models that retain the highest value as a percentage of their original list price. Top 10 Ranking Manufacturer Range & Model(s)% Residual value ('55' plate, 37,000 miles) 1 BMW Mini 1.4TD/1.6 3Dr & Conv 63.2 2 Citroen C1 1.0/1.4 TD 3/5Dr 61.2 3 Ferrari F430 Coupe/Conv 60.9 4 Toyota Aygo 1.0 3/5Dr 60.6 5 Peugeot 107 1.0 3/5Dr 57.4 6 Smart 700 3Dr56.7 7 Seat Leon 1.9TDI/2.0 TDi 5Dr 55.4 8 Lamborghini Murcielago 6.2 2Dr Coupe 55.2 9 Toyota Prius 1.5 Hybrid T4 5Dr 55.0 10 Porsche911 Carrera 2/4 (997) Coupe & Cab 54.8 Our key observations are: The Mini takes the prize as the market's best residual value performer – a position that it held in our last survey in August 2007. What makes this car recession proof is that it retains class and image in abundance, and it is seen as a good compromise for those who need to downsize and down price from a larger premium brand offering. Not surprisingly, the Mini's residual value (RV) of 63.2% falls well short of last year's 71%. Apart from the Mini, only the Seat Leon and Porsche 911 have remained in the top 10 but their RVs are some 8 to 9 percentage points lower. However, the most recession resilient Mini One 1.4TD has still lost over £600 based on similar aged examples between August 2007 and November 2008. This is a reflection of the market downturn that has taken its toll on virtually all used cars. The newcomers to our top 10 are typified by being small, fuel efficient and available to buy at low cost. The Citroen C1, Toyota Aygo, Peugeot 107, and Smart on the 0555 all fall into the most popular retail price bracket of between £4,000 and £5,000. Furthermore, they all qualify for the lower Vehicle Excise duty as they emit less than 120g/km of CO2. The Prius is another new entry, and whilst it is around twice the price at 3 years of age, it has undoubted appeal with those people who have strong 'green' credentials. Super sports offerings still feature in our top 10 although the players are different. Apart from the evergreen Porsche 911, Ferrari and Lamborgini have gained higher positions and now feature in the top 10. Once again their collective RV position has deteriorated because they have been far from immune to the downturn in trading conditions. More affordable high image sports coupes and convertibles are conspicuous by their absence in our latest review. The once high flying Mercedes SLK200 Kompressor, Volkswagen Golf R32, and Nissan 350Z have fallen from grace partly because they are at an advanced stage of their product life cycle, and partly because in a more difficult economic climate they are perceived as a less justifiable luxury. At the opposite end of the spectrum are the bottom 10 models with the lowest residuals at 3 years of age. Bottom 10 Ranking Manufacture Range & Model(s)% Residual value ('55' plate, 37,000 miles) 1 Alfa Romeo166 2.0/3.0/3.2 4Dr 12.0 2 Rover 75 1.8/2.5/4.6 4Dr Sal 14.6 3 Rover 451.6/1.8/2.0TD & MG ZS 1.8/2.5 4/5Dr 15.9 4 Saab 9-5 2.0/2.3 4Dr Sal 17.4 5 Kia Magentis 2.0 4Dr Sal 17.5 6 Vauxhall Vectra 2.2 4Dr Sal 17.8 7 Jeep Cherokee 2.4/3.7 5Dr 18.4 8 Renault Vel Satis 3.0 dCi 5Dr 18.6 9 Mitsubishi Shogun Pinin 2.0 5Dr 18.8 10 Rover City Rover 1.4 5Dr 19.4 Our key observations are: Obsolescence is the notable feature shared by the majority of these models. This point is most strongly made for Rover as we see this once great bastion of British motor manufacturing fall from grace and off most customers' choice lists. This is why Rover occupies 3 slots, and for the 45 and 75 there are many versions of specification and engine size sharing a similar lowly RV. Model obsolescence is a shared trait amongst the bottom 10. Apart from the Vectra that is now being replaced, and the 9-5 that will reappear in a new guise next year, the others have been out of production for some time. Ageing product life cycles are the death knell for most used cars. This situation is akin to the clothing market where many customers frown upon wearing last season's colours and styles. The most positive thing to say about the models in the bottom 10 is that they represent unrivalled value for money. A 3 year old Rover 75 1.8T Contemporary SE with 37,000 miles had a list price of £22,700, and yet its trade value today is only £3,300. This means that it has depreciated by £19,400. Dealers will be offering examples well under £5,000 and retail buyers will be virtually guaranteed trouble free motoring for the next 3 years, and will not suffer a further significant loss in value. In 3 years time a dealer is still very likely to offer a minimum of £1,000 in part exchange. For the most part this group is a collection of bland, functional saloons, hatchbacks, and 4x4s. Small cars are notably absent apart from City Rover. Its low esteem is the result of old East European styling and poor driving dynamics that were evident at launch! Even though the Vel Satis would never be described as bland, it certainly did challenge the conventional wisdom of car design. In fact it was such a radical departure that customers failed to identify what its functional purpose was. Estate versions of the 75, 9-5, and Vectra are missing because, as a general rule, their added versatility translates into a slightly better residual value performance. The desirability of diesel engined derivities is also sufficient to elevate them to positions beyond the bottom 10. So what do the promotion and relegation prospects look like in 12 months time? There is little doubt that the top 10 will be populated with more fuel efficient small cars because, whether we are still in the midst of the current downturn, or slowly clawing our way out of it, easy credit will still be a thing of the past, and money will be tight. This means that the dominant residual value position of the premium brands will be challenged by the smaller mainstream offerings of the other European and far eastern manufacturers. However, we are not predicting the demise of the premium brand products. Each of the last three recessions is testament to the fact that there was a significant revival of interest at the top end of the market. This was spurred on by shortages created from a protracted period of low new car sales. Furthermore, the smaller premium brand offerings like the A3 and 1 Series will attract greater appeal in the aftermath of the current difficulties. We are firmly of the belief that cars with a strong image in terms of styling and pedigree will still be sought after. At the other end of the scale, anything that is considered to be obsolete will continue to suffer and large engined versions will be additionally handicapped. Larger diesel powered cars will not be immune as the supply increases. At the same time desirability may fade if the premium at the filling stations remains at 11 or 12p per litre. Market Trend New car sales The SMMT reported the greatest single monthly fall in registrations seen so far this year as the October total only reached 128,352 units. This represented a 23% decline from the same time last year. Year-to-date sales are down 8.8% but this conceals a much more marked deterioration in recent months. The manufacturers' response to the sudden downturn has been variable. Some have eased the pain a little for dealers by reducing targets, allowing dealers to qualify for bonuses at these reduced targets, cutting future supplies, and being less rigorous about the maintenance of certain standards. At the other end of the spectrum, some franchise dealers have complained that there has been very little manufacturer intervention. One area of slight relief concerns the retail supply of nearly new cars. Numbers offered for sale have fallen significantly in the last 2 months as dealers distress marketed the cars entering used car stock when the demand slipped further. Currently, the volume of '58' plated cars sitting on forecourts is around 25% lower than the number of '57' plated cars being offered this time last year. This is one trend that needs to continue. Used car sales Last month we reported that retail demand was precarious but just about holding its own. However, shortly after going to press, activity dropped back and there were a number of dealers expressing the view that market conditions resembled a typical December even though we were only at the end of October. DuringNovember retail interest was erratic and any bursts of activity were modest and short lived. The general sentiment was that any improvement before the end of the year would come as a very welcome shock. Wholesale market With September and October new car sales in rapid decline and used car business faltering, the numbers of part-exchanges entering the market were also in decline. Initially, this did have the benefit of reducing auction inventories and stabilizing prices, but as retail demand slipped from the end of October, trade buying followed suit. Auctions everywhere are enjoying brisk business of presentable 'price range cars,' requiring little remedial attention, that can be offered below £5,000. Beyond this price level, demand is less assured particularly as fleets were presenting cars that have had an extended life – and this is reflected in the slightly inferior condition and slightly higher mileage. This also meant that there were fewer 'ready to retail' cars from the premium brands like BMW, Audi and Mercedes with interest in the less than perfect examples at a very low ebb. The small and lower medium sized cars from these marques continued to outperform the sector. Generally, auction attendances were reasonably good but buying was restricted to 'must haves'. The used car wholesalers are also in a position of having more than enough cars to serve the immediate needs of dealers. In all areas of the wholesale market demand has been stimulated slightly by franchised dealers turning their attention from new to used cars. Trade prices Trade prices for 3 year old cars fell by 3.3% between September and October and this compares with a deduction of only 1.5% during the same period in 2007. 3 year old prices have now been falling more severely each month since May when compared to the previous year. Prospects As the end of November approaches, what normally happens is that dealers think about making speculative purchases in readiness for the start of a New Year. Perhaps, not surprisingly, there was little evidence of this happening. This was either because of the cost and availability of stocking finance, or because of a belief that prices will only get lower and that the cars will be freely available on demand as they are needed. Few would argue that the market will run short of cars before the end of the year but saying that all cars will be freely available is questionable. Small cars of most descriptions are already difficult to source and it is only reasonable to expect that the supply will only become more limited with time. This is because the influx of part-exchanges and fleet cars is now reaching the low point for the year so the choice will largely be limited to what is already out there. Dealer groups and supermarkets looking to source ex-manufacturer and ex rental cars may also not get everything their own way. In the first instance, rental defleets are not around in the numbers traditionally seen at this time of year and the manufacturers only have a finite number of the small 'price range' cars to offer. However, for the most part, prices are expected to carry on falling in line with recent trends during December. As for January, it would be dangerous to predict any lift in prices apart from anything that could be considered to be the height of desirability. Guide values Values are down between 4% and 5% for December. The amount of the deduction is, once again, broadly determined by the size of the car. However, there are a lot of exceptions based on how individual models and ranges have been affected by the downturn.