Used buyers braced for tough year
Wednesday, February 15, 2012
With operators working their light commercial vehicles harder and de-fleeting volumes in decline, auction company Manheim warns quality stock will be hard to find. James Dallas reports
Manheim Remarketing has warned that demand will significantly outstrip supply in the wholesale used van market in 2012 as the slump in new van sales caused by the recession in 2008 begins to make itself felt in the second-hand arena.
With added strain expected to be put on the supply stream by some large contract hire fleets cutting defleet volumes by about a third and with operators in the south-east plundering three-to-five-year old stock to get up to speed with the expansion of the London Low Emission Zone (LEZ) to include large vans, buyers could find themselves fighting over the scraps and having to travel further afield, both physically and online, to find suitable stock.
Manheim’s commercial vehicle boss James Davis confirms: “Supply will track below demand. De-fleet volumes are reducing right across our network and online activity has increased significantly with the number of log-ons regularly exceeding 150 buyers per auction. Combined with physical attendees some sales are seeing in excess of 350 buyers vying for a diminishing volume of stock. This situation is not likely to get any better as the impact of the near 40% fall in new registrations in 2008 begins to be felt in the used market.”
While Davis says the majority of corporate fleet lease and daily rental fleets will be unaffected by the broadening of the LEZ because their vans are under 10 years old, he reckons up to 20% of operators – running 14,000 vans – are oblivious to the change and could be in for a rude awakening when their first fine comes in.
He expects the market to experience a lull in mid-2012 due to the “extended seasonality” caused by the London Olympics and the Queen’s Diamond Jubilee, and suggests the drastic reduction in de-fleet numbers in the second half of 2012 could see Manheim’s van auction sales restricted to its supercentre sites in Haydock, Colchester, Gloucester and Leeds.
Continuing to gaze into his crystal ball, Davis sees 60% of Manheim vans attracting an online bid in 2012 with up to 30% actually being sold online.
The figure of internet sales through Manheim’s Simulcast system in 2011 was 18%, and Manheim’s MD Mike Pilkington says: “It beats cars – CV dealers have embraced technology.”
In a further response to this trend, Manheim’s CV division has joined Twitter, and in the three months to November had gathered 100 followers.
“We have to embrace it in terms of how customers want to communicate,” says Davis.
Hard at work
The overriding trend in the used
van market in 2011, resulting from the tough economic climate, is that operators are working their vehicles harder.
Fleet lease vans have had contracts extended and are coming to auction older, while daily rental product may be younger, but has been worked harder by remarketing time.
Overall the average age of stock sold through Manheim in October 2011 was 59 months, up seven months year-on-year, while average mileage was 78,723, up 3658 miles. Volumes in 2011 tracked ahead of the previous year month-by-month until September when they dipped 15% – a pattern repeated in October.
“We’re now seeing the drop-off in commercial vehicles coming to market following the recession,” Pilkington says.
But high-profile business failures such as that of property and environmental services giant Connaught and the crisis at Northern Rock, which slashed its workforce in half, unleashed a flood of duplicate stock onto the used market, which lead to Manheim holding back stock to protect values.
“It’s been a tumultuous year in terms of stock profile,” Davis admits. “The market has never faced these dynamics before.”
With the glut of predominantly heavy vans thrown up by business failures having passed through the halls, he says the sector is now braced for a shortage.
Turning the spotlight on the individual segments in the used LCV market, Davis says both car-derived and small vans, because they are not used as companies’ workhorses, were not caught up in the wave of de-fleeting triggered by the economic slump. Nevertheless, the evidence shows they are in worse condition with year-on-year increases in both age and mileage over the third quarter of 2011.
Davis suggests medium-sized panel vans are taking used business away from large vans.
“They are working harder and getting older,” he says. “Where operators can downsize they are doing so.” He adds that smaller vans are becoming increasingly popular with SMEs.
As for the traditional workhorses, large panel vans, Davis notes “significant increases in average mileage while age is tracking flat”.
He adds: “This was the hardest-hit segment in the recession, it closely reflects the state of the economy.”
Overall, wholesale used van values have risen by more than 30% in the past three years and residuals are up 6%, and Davis has an explanation – he claims that in tough times, used vans always make more sense economically than new ones.
Manheim and its remarketing rival BCA have urged vendors to address the issue of end-of-contract damage. Both companies say it is time to ditch the attitude that ‘it’s only a van’, so pre-sale preparation is unnecessary.
BCA says the average cost of damage on vans it inspects has risen by 18% year-on-year to £808, with some damage costing more than £2000 to repair. It claims the trend cannot be put down entirely to contract extensions.
Duncan Ward, BCA’s CV boss, says: “Far too many vehicles are entering the remarketing chain with high levels of damage, which reduces their desirability and value to used buyers even when supply is restricted.
“We are seeing a widening two-tier market where scarce good-condition vans are becoming more sought after while damaged vehicles run the risk of being overlooked.”
Manheim says that while leasing vendors expect money back on their stock, the price must reflect the condition of the vans.
“Reconditioning is not only about monetary uplift, it can also be about getting a bid in the first place,”
says Manheim’s CV chief James Davis.