The UK Van Market: What Now, and What’s Next?
There have never been so many compounding factors impacting the UK’s new and used van marketplaces. Are van owners and operators aware and ready for these challenges ahead? History would tell us it’s unlikely.
Overall, SMEs don’t seem to be switching from buying new vans to used due to the current economic and political landscape.
There is no evidence that SMEs have been purchasing a significant number of new vans in recent years, let alone switching these for used vans. Instead of a simple ‘new versus used’ scenario, the driving force for SMEs is the availability of different funding methods, and changing trends in their van ownership habits.
In the hands of any business, a commercial vehicle’s main purpose is to cost effectively generate revenue, regardless of who owns or drives it. When it comes to vans, ‘new versus used’ has always been a different value proposition. Every business and accountant will review funding options based on bottom line profitability, cash reserves, credit lines and net tax position after capital expenditure and investment. Business considerations that determine funding terms include usage, lifecycle, business outlook, contract periods, business model and territory, as well as perceived reliability and durability linked to whole life cost.
I estimate the total UK wholesale auction and B2B ‘fleet sold direct into trade’ market combined will transact circa 200,000 used vans in 2017, about 20% up on 2016. Although these volumes increasing in recent years, since 2010 Manheim has seen its average selling price for vans increase by 19%, or £387, despite these vans being nearly a year older (65m vs 54m).
The majority of the UK’s new and existing businesses are sole traders or microbusinesses, and if they need a van, the majority will buy used stock from a dealer. These entrepreneurs select used vans based primarily around budget, whether by cash reserve or monthly finance payment. Outright purchasing and financing a used van is easier than purchasing or leasing a new van – especially during the high risk start-up period – with the latter relying on a larger cash deposit or guarantee to secure. The availability of competitive finance continues to underpin retail sales of used vans to new and existing sole traders and microbusinesses. These buyers have always been the lifeblood of the used van retail market, and they absorb all ages and mileages to suit their budget.
I find it hard to believe that the majority of small and medium sized businesses currently outright purchase new or used vans in a significant volume. While competitive finance and ownership support packages may also be driving a degree of new van sales into the SME sector – whether by broker or manufacturer –this is a relatively small proportion of annual new van registrations. This is as much about their desire for off balance sheet funding as it is negating headcount and potential liabilities managing these vans pre-life, in-life and end of life. With the recent growth of contract hire and flexible contract rental, I would argue that the majority of these small and medium businesses in a changing economic and political landscape will continue to take vans via off balance sheet outsourced funding methods.
Aside from market seasonality and duplicate stock, in recent years, de-fleet supply volumes from first life corporate fleets have broadly fallen short of demand. This has led to a superheating of the wholesale used van market.
I see no reason – other than a major economic downturn – for supply to overpower demand across the entire LCV marketplace. Accepting the duration of any manufacturer deals on new vans will typically impact price for nearly new vans on that specific model in the short term. So while a used van is a better value proposition for many sole traders and micro businesses, it also suits the flexible needs of their businesses. At the other end of the scale, corporate (non SME) fleets continue to dominate the volume registrations of new vans. With the latest technology and a vast array of options as standard fitment, new vans are seen as the most fuel efficient and safest for operators and drivers alike. For first life corporate users, duty of care is key. These annual new van registrations – owned, operated or funded by large corporate fleets – are run over many differing first life contract time periods, and together generate a healthy and steady pipeline of used vans. Some of these large corporate fleets (as well as SMEs) may strategically decide to extend their van replacement cycle, sometimes reflecting economic and political environments. There will be varying reasons driving extensions, starting with extended supplier lead times and then longer term with changes to business requirements, outlook and budgeted spend. Extensions can be for a matter of weeks, many months or even a year or more.
A recent 53 page report commissioned by the RAC Foundation* has concluded that is isn’t the long-extolled increase in home delivery fleets that has driven the growth in new van registrations and congestion over recent years. The 70% growth in UK van mileage travelled over the last two decades is claimed to parallel the expansion of the UK service sector.
The report dispels the media’s long-held view that the increase in van registrations and congestion are solely due to home delivery traffic. It states that the UK has seen a 70% growth in van road miles since 1997, compared to a 12% growth in car road miles, and a 5.5% increase for trucks. The RAC states that vans used by ‘package and grocery e-commerce’ operators only represent 4% of all vans on the road – around 160,000 of the UK’s four million active vans. True, these vans are considerably busier and travel many more miles than average, but they are not responsible for the growth in historic registrations.
In May, the Society of Motor Manufacturers and Traders (SMMT), commented on the ‘stabilising’ of LCV registrations following 2016’s record sales of new vans. Considering the recent recovery and then subsequent growth spurt, a ceiling was inevitable. SMMT forecasts for the next two years do not currently report a significant fluctuation in LCV registrations. The UK’s new van market has outperformed many of its EU stablemates in recent years. Manufacturer activity has focused new vans into the UK, with transaction prices and manufacturer support seeing new volumes grow in corporate fleets – the lion’s share of annual new van registrations. The position of the pound against the euro will drive manufacturer pricing and supply strategies, as will new van growth in other EU and worldwide markets, where manufacturers can switch supply to meet demand away from quieter or less profitable markets. That could lead to price rises, volume diverted away from the UK, and extended lead times from manufacturers. If Brexit trade tariffs are not agreed by 2019, we could find the parallel timing of Brexit and the London Ultra Low Emisson Zone (ULEZ) drives demand for new vans and used Euro 6 vans. Never before have we seen so many influencing factors.
I believe the impending roll out of the ULEZ in London, swiftly followed by a number of towns and cities, means that used Euro 6 vans will be in fierce demand.
As ULEZ rolls out in the coming years, demand for older vans – bought on a budget, predominantly by sole traders and micro businesses – will soften, as owners are forced to sell and upgrade to futureproofed, younger models. This was seen with the Low Emission Zone rollout around London, when older vans were priced out. Businesses that run vans in affected towns and cities should already be factoring this into their procurement strategy, and keeping a close eye on hybrid and electric vans in the medium to long term, as an increased number of new viable models begin to hit the market. Large fleets could re-shuffle their vans geographically, but with Birmingham, Leeds, Nottingham, Derby and Southampton planning to implement their ULEZ the year following London, this is only a short term solution. Any local authority can introduce a ULEZ, and today over 40 towns, cities and regions are actively reviewing implementation. In 10 years’ time, there may be no built up areas that don’t charge road users according to emissions of their vehicles. And by that time, legislation – specifically road fund licensing – will no doubt be clamping down on these.
I have never seen so many potential compounding market influences ‘in the wings’ and set to impact future supply and demand for new and used vans. It is unprecedented. That’s why I want to continue to raise the level of awareness and debate in our industry to ensure we consider and monitor all these relative factors in order to meet the challenges head on.
Please get involved, let us know what you’re thinking and hearing. I want to open this up as a longer term regular discussion thread that focuses on current and future trends impacting the UK van parc.
You know that the Manheim CV team and I “Share The Love” for all things CV so please get involved by sharing your opinion today!
*RAC Foundation report: ‘The Implications of Internet Shopping Growth on the Van Fleet and Traffic Activity’ May 2017