Remarketing: Euro fever
19 December 2018
Author: Jack Carfrae
The used van market has been in great shape for years, but fleet operators need to act fast if they are to avoid next year's looming issues. Jack Carfrae reports.
It's fair to say the vehicle auction industry has had a pretty good run of it lately. Excepting the usual seasonal factors, cars are booming, driven largely by a shortage of new and used stock, while vans have been "absolutely on fire" as one specialist told us.
Going by BCA's monthly Pulse reports, second-hand LCV values have increased for at least the past three years, smashing records along the way. Though the rise hasn't been totally consistent, the broader figures speak for themselves: the company's average selling price for a van in September 2015 was £5,607 and in September 2018 it was £7,568 - a £1,961 increase and 15% up on a year ago. The uptick is even starker with ex-fleet and lease models, average sale prices of which rose by £2,101 over the same period, from £6,416 to £8,517 - the latter being the highest figure on record.
Many credit the boom to a difficulty in procuring new vans, as buyers turn to the used market to make up the shortfall, while others suggest the economy may, for the moment at least, be in better shape than we are broadly led to believe. Tim Spencer, commercial vehicle manager at Shoreham Vehicle Auctions, cites the former.
"We've noticed a lot of the main dealers coming to auction now to source their nearly new product, because they can't get hold of it through their own lines," he says. "Ford main agents, Renault main agents are coming in and buying six-month/one-year-old products and they're paying astronomical money for them. Previously we probably saw one or two of them a year; now they're at every sale."
"It reminds me very much of the recession," adds Andy Picton, chief commercial vehicle editor at residual value specialist Glass's. "The new market fell off a cliff and the used market seemed to get stronger and stronger. I wouldn't say it is quite at those levels. but generally, anything rare, clean and tidy, with the right miles, service history, all the usual criteria, is performing very, very strongly, and that hasn't really changed at all this year."
James Davis, Manheim's customer insight and strategy director for commercial vehicles, says conversion rates are the real headline figures.
"Conversion rates are the ones that stand out," he says. "At the moment, they are tracking mid-80s, but some vendors are still enjoying 100%."
It isn't exactly news, but those who know used vans continue to speak of a two-tier market for mid-sized, Transit-style models, where those with plenty of equipment, metallic paintwork and in ready-to-retail condition make exceptional money, while basic, white vehicles with some damage typically fetch less or take multiple attempts to sell. BCA's COO for UK remarketing, Stuart Pearson, explains.
"Well-presented, retail-spec vans have continued to perform strongly, particularly those vehicles that have infotainment systems, added extras and car-like specification," he says. "Lower-specification vehicles in base colour schemes need to be sensibly and realistically appraised at remarketing time. A combination of basic spec and poor condition needs to be very carefully assessed when determining market price expectations."
Pearson adds that specialist vehicles are also doing particularly well, again driven by a lack of supply.
"Late-year, low-mileage, well-presented twin-rear-wheel tipper and dropside configurations are currently in short supply, and therefore demanding a premium,"
he says. "It's likely that we will see an uplift in values on larger panel vans and Luton/box vehicles in preparation for the seasonal demand around the Christmas holiday period."
Outside of the specialist arena, small,
car-derived vans and pick-ups are performing especially well according to Davis, though Picton claims the latter are abundant and therefore subject to the same two-tier state as the likes of Transits and Transporters.
"There are too many pick-ups about in the used market, so there is a cherry picking of the nicest ones. It tends to be those at the top end - the high-spec, lifestyle ones - that do well. It has got to be automatic, with a canopy, ideally with a full service history and sensible miles."
Despite its ongoing strength, the used van market has an elephant in the room, which is the introduction of the Ultra-Low Emission Zone in London in April 2019, coupled with similar clean-air initiatives in a number of other UK cities, which will require applicable petrol vehicles to meet Euro 4 emissions standards and diesels to meet Euro 6 in order to avoid fines.
Five cities - Birmingham, Leeds, Nottingham, Derby and Southampton - were mandated to introduce such zones by the end of this decade (though Nottingham claims other air quality measures will put it below the legal air quality limit, and is no longer pursuing a specific clean air zone) and other local authorities continue to show interest in similar measures.
The exact vehicles to which charges will apply are still to be confirmed in some cases, but vans will be hit in London and Birmingham at least. In the capital, non-compliant vehicles will be required to pay £12.50 on top of the existing £11.50 Congestion Charge and the zone will broaden from the current Congestion Charging zone to the boundaries of the North and South Circular roads on 25 October 2021. The upshot is that anyone utilising a non-Euro 6 diesel van in London or Birmingham will either have to update their fleet or shoulder the fine, and ramifications for the used market have already begun.
"My prediction is that Euro 6 will attract a premium in the next 12-24 months," says Davis. "If you think of how old that van can be from when Euro 6 became law [in September 2016], the average age of vans we sell is five years, so most of them are still out there with fleets - especially if they are extending them because they are not sure about what is happening with the economy, so I think there will be a shortage of supply.
"Interestingly, year-on-year, within Manheim, we are seeing a bit more stock. There is a lot of ex-daily rental product in the market - 17-plate, Euro 6 - which is driving that average selling price. It's a healthy market, without a shadow of a doubt, but when did you normally see
one-year-old vans in the marketplace?"
Over time, the move is expected to erode the value of anything Euro 5 and older, as Picton explains.
"Fleets will need to start targeting where they remarket their vehicles to get the strongest price," he says. "Next year they will be OK, because Euro 5 will, I think, still be accepted, but as we go two, three, four years down the road, it is going to be a big issue targeting a customer base that can use a Euro 5 van anywhere."
The concern is that access to Euro 6 vans will become increasingly limited. Yes, new models are compliant but all new vans will become subject to WLTP regulations from September 2019, and if the recent saga with passenger cars is anything to go by, there will likely be production
hold-ups. Equally, sources say manufacturers are prioritising the supply of new vans to mainland Europe over the UK, rendering them even harder to acquire.
The advice is that if you are fortunate enough to be operating Euro 6 diesel vans in the vicinity of urban areas with imminent clean air policies, then be sure you can replace them before you defleet. For those with older, Euro 5 models, ditch them now while the going is good, and grab a Euro 6 if you can.
"The hardest thing is replacing Euro 6," says Spencer. "Everyone who has got Euro 6 needs to be sitting on it until they are sure they can replace it. At the moment, if you've got Euro 5 stock, there is a market for it and now is the time to be pushing it out the door. It is always going to be sellable, but this time next year, the price is going to be well below where it is now."