With so many imponderables facing fleet decision-makers it’s hardly surprising sales of new vans are softening and interest in the used market is on the increase . By Dean Bowkett
After two good months for the second quarter, June saw new LCV sales drop 5.8% to 35,182.
The uncertainty around Brexit, concerns about investing in new vehicles while councils remain inconsistent with their clean air zone plans (CAZ) and speculation about a 0.25% rise in the Bank of England’s base rate (which was confirmed early last month) have helped push down investment in new vans resulting in sales for the first half of 2018 of 180,696, a 2.3% fall compared with 2017.
The Bank of England increased the base rate to 0.75%, citing low unemployment, the inflationary impact of rising wages and attributing the slowdown in the first quarter to the Beast from the East bad weather.
The base rate had been upped from 0.25% to 5% last November.
Domestic demand is a key driver of growth for the UK and according to the Office for National Statistics (ONS), the average British household spent £900 more than they received in income in 2017.
This is the first time average domestic finances were in deficit since the 1980s.
It is also worth noting that wage growth may be rising, but it is still below pre-crisis levels.
We also have unsecured household debt climbing to a record high of more than £205 billion, of which £69bn is debt being hidden from one partner by the other, according to a recent survey.
That hidden debt equates to an average of £8,293 per person according to the survey carried out by poll company Opinium for Direct Line Life Insurance.
With rising costs to borrow and concerns about domestic demand falling it is little wonder companies are becoming more reluctant to invest in new equipment.
New LCV sales loses continue to be used van sales gains, as the used commercial vehicle market remains strong compared to this time last year.
Shoreham Vehicle Auction (SVA) commercial vehicle sales manager Tim Spencer seems to agree, citing that “some end user customers are prepared to pay £15,000-25,000 for a nearly new van rather than buying a new one.”
His reference relates to nearly-new ex-rental stock from six-to-18 months old and this seems to be due to the demand in the market for used vans meeting Euro 6 compliance as businesses continue to look for ways to meet the impending CAZs across the country.
According to Spencer, franchised dealers seem to be following the lead of the independents and “increasing their focus on stocking and selling more used vans” which should be music to the ears of the daily rental industry.
BCA is also reporting strong performance in the nearly new sector. According to BCA, the average age of vans dropped by a couple of weeks to 867 months and average mileage fell 13% to 10,203 but the average value shot up by 21.8% to £16,414.
In addition to CAZs, a further complication for LCV trade sellers is the utter confusion around WLTP (the Worldwide harmonised Light vehicle Test Procedure), which may explain the move from new to used among trade buyers.
The September deadline for new model introductions is all but upon us (September 2019 for all LCV registrations) and yet there is a real lack of clarity around the implications for fuel consumption and CO2 emissions.
Cap HPI also points out that the drop in new LCV sales could actually result in a dearth of stock to meet demand as we approach the end of 2018 and into 2019.
Andy Picton, Glass’s chief commercial vehicle editor, reported average prices falling by 1.7% in June compared to the previous month.
While he also noted the average age increased by 1.1 months to 63.1 months and mileage rising by 1,500 miles that is not enough to cover all of the drop in prices.
But before panic sets in about a potential collapse in used van prices, the rest of the gap noted by Picton is little more than the softening of values we often see as we head into the holiday season and prices remain the best part of a £1,000 higher than June 2017.
BCA also saw June LCV values easing back over the previous month with BCA COO UK Remarketing Stuart Pearson reporting: “Fleet and lease LCV values fell by £198 (2.3%) to £8,180 in June.”
But, he added that this is still “the fourth highest value on record and significantly ahead of the same period last year”.
According to data from BCA, the 14% year-on-year increase in fleet and lease van sales prices to £8,180 was partly due to the average age falling by around three weeks to 38.76 months and average mileage dropping by 1.9% to 58,557 but market demand remains the key driver to price increases.
Cap HPI is not perfectly aligned with Glass’s as it reported the average age as falling by a month to 60 months although it also saw mileage rising from 75,631 to 76,993.
Manheim seems to be seeing a much stronger market than others with June prices up 3% from the £6,125 in May and a staggering 19% over June 2017, with age and mileage holding steady.
Picton also noted conversion rates tailing off, down to 80% in June from 83.3% the previous month, but still outperforming June 2017.
Once again, the auction houses are not fully aligned to the trade guides with Matthew Davock, head of LCV at Manheim reporting conversion rates improving by 9% compared with 2017 to 84.4%. Spencer said SVA was also still hitting 90%+ conversion rates.
Maybe the heatwave is making some reluctant to buy in stock needing to go into overly warm workshops but demand continues to focus on ready-to-retail LCVs with plenty of equipment.
Picton noted: “Anything requiring more than a minimum of preparation has found prices and interest fall away.”
The increase in interest rates will add to the pressure to avoid LCVs having to be funded while they are tied up being refurbished.
If you are due to offload your current stock of vans it may be worth keeping this in mind.
With a shortage of quality stock in the large van sector, in particular, it may be worth considering getting your vans refurbished before entering them into the auction halls and capitalising on this gap.
Maybe the different reports we are seeing from the auction houses and the trade guides may explain why, in Spencer’s words, we should “throw the used value guides out of the window as buyers will pay whatever it takes to secure the right stock”.
That said, 4x4 pick-ups still do not seem to be the right stock for most buyers with demand remaining low as Picton noted “too many in the marketplace and with indifferent demand”.
The one thing the guides and auction houses seem to agree on is that the holiday season should see little more than a slight calming of the waters before demand picks up again in September.
But with interest rates, CAZs, WLTP and taxation rules I think many will need a rather stiff drink.