Supply shortage drives up used van demand

Date: Wednesday, December 22, 2010

One of the biggest questions facing the commercial vehicle market as it heads towards 2011 is whether the economic recovery will prove to be sufficiently robust to withstand the Government’s austerity measures and the negative impact of the forthcoming VAT hike.

From the start of 2011 the standard rate of VAT will rise from 17.5% to 20%. This follows the previous Government’s decision at the end of 2008 to cut the rate to 15% for just over a year in a bid to kick-start the economy. In hindsight this measure was judged to have had little impact, but if a second tax hike in a year gives consumers cold feet, the knock-on affect could be felt in the used van sector, which has seen its supply lines cut by the recession.

Although VAT is commonly recoverable on LCV purchases, if general retail sales slow as a consequence of the increase then the fleets servicing the high street will suffer too, potentially denting the nascent recovery in new van sales and further squeezing supply to the used sector further down the line.
But George Alexander, chief commercial vehicle editor for Glass’s Guide, predicts only a limited impact on the used van marketplace.

“Best guess is that with quality stock remaining in short supply, and as retail demand builds, few will notice any measurable effect.”

Alexander says non-VAT- registered buyers are likely to look for the substantial savings available on “any used van that is offered which does not attract VAT”.
But unless the recovery stalls, he expects pent up demand to give the sector a shot in the arm regardless of the tax regime.

“If the national economy continues to recover, 2011 will be a year when commercial vehicle markets make good headway.”

Although it would be optimistic to assume the market is returning to its pre-recession level, Alexander says: “There is a consensus, barring unforeseen consequences of the Government’s spending cuts, that better times stretch ahead.”

Ken Brown, editor of Cap Monitor’s Red Book – LCVs, agrees that the used van sector is crying out for quality stock.

“There are a number of damaged vehicles out there at the moment with higher mileages,” he observes. “People are hanging on to their vans longer. Good-condition vans are causing price spikes.”

But Brown is less optimistic about prospects for next year, believing the Government’s downbeat forecast for economic growth will put the brakes on the used van market. He foresees a decrease in demand and values going into 2011 with an upturn unlikely before 2012.

“Over the last two months there has been a 2.5% decrease in average values against guide prices,” said Brown.

Despite busy auction halls and competition for the best vehicles, he said overall values slipped 3% in October alone.

“We expect economic factors to reduce demand even when stock levels are lower.”
Brown has noticed a growing trend for trade buyers to purchase vans through online auctions, saving time and money on travel and so prepared to pay a little more for the right stock, despite not seeing it in the metal.


Sector by sector

Glass’s reported an upturn in the market for used small vans in October following a disappointing September.

“Late-year vans remain scarce – a scenario that will not change anytime soon,” reckons Alexander.

According to Glass’s there are no shortage of buyers for clean light vans across the board, with low numbers resulting in high prices for the Volkswagen Caddy in particular. Similarly, Ford Fiesta and Vauxhall Corsa vans are also scarce enough to keep prices buoyant as are Citroen Berlingos and Peugeot Partners. Limited supply of good quality stock has also propped up the values of below average and higher mileage vans. Restricted choice has seen buyers forced to settle for examples lacking features such as side-loading doors and ply-lining.

Glass’s said older light vans were attracting plenty of interest at auction – with 02-53-plated Vauxhall Combos being a noteworthy example.

Cap Monitor said car-derived vans reached 91% of guide in October with light vans achieving 94%, held down by a surge of defleeting from major fleets.

Following a couple of inconsistent months for values of both single and double cab 4x4 pick-ups, Glass’s expects the onset of wetter winter weather to firm up prices with Toyota’s Hilux remaining the trade’s favourite and Isuzu’s Rodeo attracting growing interest.

Cap says pick-ups bucked the trend in October, achieving 101% of guide price.
As for medium panel vans, Volkswagen Transporters continue to top the table at auction with strong returns and close to 100% conversion rate. Helped by limited availability of clean examples, the Mercedes Vito is also in demand, but Brown says: “The Transporter has the edge over the Vito in the used market.”
Late-year Ford Transit T260/280s are highly sought after and selling to guide prices.

Meanwhile, Vivaros outnumber Trafics, which means that despite sharing a platform, the Vauxhall- badged van attracts lower prices than its Renault rival.

In general, panel vans presented with metallic paint and extras such as sports trim achieve top guide values. According to Cap, mid-sized vans reached 94% of guide prices in October.

Glass’s said the 3.5-tonne sector has improved steadily for six months and is well placed to start the next year strongly.

Says Alexander: “The problems of late-year model shortages will not be felt harder in any other LCV sector. Over the past 36 months sufficient new Ford Transits and Mercedes Sprinters have not been sold in the volumes necessary to generate adequate used stock. The consequence is that customers will have to get used to paying more, often for less.”

He says used buyers saw late-plated Iveco Dailys as a credible alternative and were also turning to Renault Master, Vauxhall Movano, Fiat Ducato and Peugeot Boxers, where low numbers have bolstered values.

Large vans averaged 99% of CAP guide in October. Brown suggests that in a sector dominated by the Transit, some buyers had turned to other models simply to provide variety on their forecourts.

Alexander believes low supply suits a recovering marketplace but cautions that confidence remains fragile.

For 3.5-tonners with derivative chassis, he argues that condition is key to achieving strong returns.

 “Forcing buyers to accept the best of a poor lot is a short sighted and wasteful strategy,” warns Alexander.


Age, mileage, demand

The average age of vans sold by Manheim Remarketing this year is 58 months, with mileage averaging more than 74,000 miles. Manheim’s commercial vehicle boss James Davis says the most challenging stock is high-mileage late-registered product because the miles on the clock push the vans out of warranty, putting franchised dealers out of the frame. Such high mileage is also unusual for young vans and therefore difficult to value in the guides.

Davis says rarity and seasonality are two factors that drive demand. He cites late-plate, low-mileage Transit 430 GRP Lutons as being “incredibly rare and very popular” whereas the 4x4 double-cab market has picked up seasonally.
Vans with a 57-plate upwards with mileage within manufacturer warranty is the “truly ready to retail” stock and, says Davis: “Non-white, sexy spec make top money.” But on the other hand, he says: “Duplicate stock must be priced accordingly.”

Davis sees the used van market returning to strength.

“Post-recession it was the daily rental fleets that were first to order replacement vans,” he says.

“For the last six months we have seen strong demand for their product. This was followed by national utility fleets and now, following the 60-plate, we are seeing contract hire and lease volumes, specifically large fleets that extended renewal through the recession.”

This is good news, according to Davis, as, being older and higher mileage, these vans are better value and sell strongly.

With the sluggish recovery in the new van market, Davis believes the supply of used vans can meet demand if the upturn continues.

BCA has also seen an increase in the number of older, high-mileage part-exchange stock at auction.

Duncan Ward, commercial vehicle boss at BCA, says condition is key and can lead to similar vans achieving values hundreds of pounds apart “because of cosmetic damage that could have easily been repaired”.

As he says: “While a decent combination of condition, colour and specification is usually enough to stimulate interest even at a higher mileage, obvious damage is a big turn off.”

Masterlease has noted the trend for customers to opt for extensions rather than sign new long-term leasing contracts, but warns this comes with an increased risk of higher service and repair bills.

But Sarah Marrison, general manager remarketing, says customers who have run vehicles longer and to higher mileages would be more aware of the reliability of the latter generation of LCVs.

“When the next replacement is due they may have the confidence to sign up to longer leases with the cost advantage of writing the depreciation over a longer period. Again there is a tipping point where SMR risk starts to counter this.”

She adds that the lengthening of contracts reduces the churn of replacements and consequently new and used volumes. This raises the risk of manufacturers looking towards short-cycle business to fill factory capacity, which could put RVs under pressure.

Marrison says that while short supply is sustaining used values it is not feasible for RV forecasts to rise indefinitely: “Every product has a price ceiling. At some point it becomes financially a better proposition to buy new.”

Top tips to boosting RVs

• Choose the right specification and keep vehicles in good condition. These are the keys to protecting value in a used market suffering from a shortage of quality stock. The difference in resale value between a well kept and shabby van can be £1900, according to Glass’s.

• Avoid unusual or unpopular colours, which can knock £700 off residual values compared with white vans.

• Use removable vinyl decals as an alternative to permanent painted sign writing on the bodywork for promotional purposes. These should not affect RVs and protect bodywork from minor scratches.

• Fit plywood lining to protect the interior from damage.

• Vans with air-conditioning as standard can fetch £300 more at auction.

• Keep a full record of servicing, maintenance and repairs.

• Speak to the auctioneer to ensure the van is shown when the right buyers are present.

• Buyers – do your homework online before making a bid.


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