CommercialFleet

Values: There may be turbulence ahead

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by Tim Cattlin, light commercial vehicle consultant

It doesn’t seem that long ago when I was selling ‘new’ vans which, as it happened had been stored in a field for anything up to three years prior to sale. This was the late eighties / early nineties when the motor industry was plagued by overstocking.

Manufacturers, under pressure to keep production lines going to pay overheads pumped out vehicles with what seemed like no consideration to the level of demand. Either stockpiled by themselves or sold to the financial institutions who funded dealers stock, ultimately they were disposed of using every ‘distress selling’ tool in the book. The long term damage was done though and some manufacturers never recovered from this somewhat less than healthy strategy.

Echoes of this were felt as recently as 2009. Despite the recession manufacturers were committed to a certain level of production and once again the storage compounds started to fill. Heavy discounting became the norm and a very well known model of 1 tonne panel van was available to anyone for well under £10,000.

These tactics had a consequential effect on the already freefalling values of used vans and it took years for these to recover.

Fast forward to late summer 2016. After two or three years of record breaking new van registrations and soaring values in the used market a correction is imminent. New van sales are stabilising. Used values are under pressure from the increasing level of disposals hitting the remarketing arena and are forecast to drop significantly over the next two years. Add to this a question mark over the strength of the economy and, of course implications surrounding Brexit and the clouds on the horizon look increasingly stormy.

Senior sources at manufacturer and dealer level have told me that over the summer a chill wind has started to blow and the heady days of the last couple of years are looking like soon becoming a memory. The market is weakening and, manufacturers who had undoubtedly forecast the good times to continue and who committed to production from their worldwide manufacturing plants now have to take a reality check. To make matters worse some European manufacturers, previously seeing the strength of the UK market in comparison to other countries upped production destined for these shores. The units are still being built but homes for them are not immediately apparent.

Unprecedented levels of financial support are being offered, not just to fleets but also the retail buyer, all to fight off the competition who all have credible and competitive offerings and at least one major manufacturer has substantially reduced its internal sales forecasts for quarter four 2016.

A glance at the main dealer websites show vans previously only available as a factory order as being in stock for immediate delivery, often labelled as a ‘cancelled fleet order’ in a bid to stave off any suggestions of distress or, marketed with a headline lease rate to avoid pricing transparency. It can also be presumed that the end of September will see a hive of end of quarter pre-registration activity with some very aggressive retail pricing from dealers keen to clear the decks of stock which will usually be self funded.

So – what does this mean? New vans at used van prices? This will have a major effect on used van values already under pressure, particularly for late models. It’s not bad news for everyone though, the new van buyer seeking a bargain will be spoilt for choice. If he’s lucky, in three or four years time when he comes to dispose of it used values will have started to stabilise and he’ll recoup a reasonable proportion of his initial investment. All the manufacturers can do to ease the issue is to take a realistic and pragmatic approach to production levels. If only it were that easy, I hear them say…

Hold onto your seats, it might just get a little bumpy.

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