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Important factors facing the LCV market in coming years

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James Davis Director of commercial vehiclesThursday last week I presented a van update to the BVRLA Residual Value and Remarketing Forum. It was hosted in VW’s fantastic national training facility in Milton Keynes. Against a backdrop of several examples of new Crafter, bristling with road safety technology as standard, I ran through an update on the new and used LCV marketplaces. 

What is apparent to me right now is just how many influencing factors will come together and impact the new and used commercial vehicle (CV) marketplaces in the next 3 years and beyond. More than any I’ve seen in the 20 years of my career. 

Last year EU members registered just over 2m vans, up 3.9% on 2016. In the UK we posted a decline of 3.4% in new van registrations, equating to 13,500 vans - just over 250 per week. Hardly a crash. Furthermore the most recent SMMT forecasts predict a continued similar year on year softening in 2018 and 2019. All this should be taken in context of a record year of UK van registrations in 2016. 

Ultra-Low Emission Zones

The SMMT recently reported that 30% of vans on British roads today are over 10 years of age. That’s an astonishing growth of 64% in the last 10 years. This is fuelled by the raft of contract extensions triggered by the recession as well as the reliability and durability of ‘modern’ vans. But today that means 1.2m vans on UK roads are older than Euro 3 and therefore will attract fines if they drive into the forthcoming London ULEZ (Ultra-Low Emission Zone). 

And it should be noted that the London ULEZ is the most far reaching emission legislation anywhere in the world right now. Clearly not all these 10 year old vans will drive in and out of the ULEZ in 2019. But in 2020 and 2021 the ULEZ will expand in scope and size; encompassing a population of 9m (within the North and South Circular) in 2021. 

The most interesting fact for me in the Transport for London (TfL) ULEZ consultation document was Table 18 in the appendix. It detailed the estimated number of non-compliant daily journeys by unit type for different years of implementation:

Estimated daily journeys that will be affected by ULEZ by unit type 

So in 2019 TfL estimate 56,000 DAILY van journeys will be in pre-Euro 6 vans; attracting a fine for the owner as a consequence. The numbers begin to look scary when annualised. That’s 20.4m van journeys in 2019 (assuming operators and owners take no action). For trucks in 2019 its 1.8m truck journeys that TfL believe may be made in pre-Euro 6 trucks. The ULEZ launches in the central CCZ (Congestion Charge Zone) in 2019. That’s literally round the corner.

And that’s scary. The launch of the LEZ (Low Emission Zone) back in 2012 saw older vans swapped out of London, part exchanged or sold with large operators choosing brand new vans and the self-employed doing the same. If they couldn’t stretch to a new van they bought a nearly new Euro 5 van to future proof themselves. 

London ULEZ will affect the commercial vehicle market

So will large operators swap out older pre-Euro 6 vans and trucks from London from 2019? Is it as simple as that? No. In 2020 Birmingham, Southampton, Nottingham, Leeds and Derby aim to roll out their Clean Air Zones – or ULEZs – so it’s highly likely (when confirmed with these cities) that only Euro 6 vans and trucks and buses will operate in those cities without penalty. 

Be under no illusion; older high emitting vans and trucks and cars – all diesel – are being legislated out of our cities. Next it will be towns and entire regions. And it will happen relatively quickly. 

Petrol is the loophole, only pre-Euro 4 will be penalised in London’s ULEZ - likely other ULEZs too. No surprise manufacturers are responding to a significant spike of large fleet operator interest; not many saw it coming though and have had to respond quickly with their model line ups. 

Effects of Brexit

And then there is Brexit at the end of March 2019. A terrible ULEZ co-incidence. If operators chose to order new vehicles towards the tail-end of this year/beginning of next then any delay or issue with agreeing tariffs and terms could super inflate the price of imported CVs. Homemade CVs could become an attractive proposition as would nearly-new Euro 6 used vans and trucks. It’s not quite that simple as UK assembled CVs rely on parts suppliers across the EU. It’s a complex picture that the SMMT and other trade bodies are actively lobbying the UK Government on now. 

How Brexit will affect the commercial vehicle market

If remaining EU countries continue to outperform the UK in terms of registrations, manufacturers will logically divert production to these more profitable Eurozone territories. UK lead times for new vans and trucks would extend significantly. Prior to delivery of the new compliant van, ULEZ penalty fines could become the norm for businesses already under tight margin pressure. Ownership models could change and flexi-rent could see significant take-up from operators who find the minefield of “what can drive where” a distraction to their core business and also don’t want to commit to long lease periods due to the economic uncertainty around Brexit.

Either way these vans and trucks need to be ordered this year.

And of course with the recent exchange rate shifts and resultant inflationary RRP increases, lease costs and rental rates have had to reflect this. And all this happens against a backdrop of business uncertainty around the future strength of the UK economy. And GDP growth is inextricably linked to new CV registrations.

Changing Trends

My BVRLA presentation further considered changing trends in the van sector. According to the RAC Foundation, in the last 20 years there has been a 70% growth in van miles travelled – with cars only growing at 12% and trucks 5.5%. 

In May 2017 the RAC Foundation published a new report “The Implications of Internet Shopping on the Van Fleet and Traffic Activity”. The report dispelled the long held media and industry view that historic van registration growth was down to home delivery fleets. According to the report, vans used by ‘package and grocery e-commerce’ operators only represent 4% of all vans on UK roads (around 160,000 vans). They conclude the growth in historic registrations has paralleled the growth of service industries in the UK. 

The nature of UK Plc is that its businesses and business leaders will react to these challenges; they present angles and opportunities. The level of inter EU import and export will likely see us secure a sensible trading deal; there’s too much at stake for the EU as well as us. 

The Used Market

And it’s not all doom and gloom. The used wholesale van market continues to thrive and is in rude and robust health!

When considering all vans sold by Manheim in 2017 and comparing them to those we sold in 2010, vans in 2017 were 8 months older, had 1171 more miles, 63% higher average damage costs (£443 higher) yet average selling price in this seven year period increased by 29%, or £1186 in pound note terms. Older, higher mileage, more damaged yet worth £1200 more on average. Simply staggering. 

Manheim Ford Transit

With 5m businesses operating in the UK, the majority being micro-businesses with a turnover of less than £1m, and somewhere between 600k and 700k new start-ups every year (and 200k-300k winding up) the demand for used CVs is clear to see. The demand for new is driven by business confidence, legislation and operating and funding models. These new vans are tomorrow's used vans, and it’s clear those operators of 1.2m vans over 10 years will increasingly look to update their van, perhaps even to Euro 6, and I predict a superheated used van market in the next 2 years as a result. I’d warn owners and operators of older vans to realign their expectations of the exceptional financial returns they’ve enjoyed in the last decade. I can see demand for these will soften as the ULEZ zones expand in the early 20’s. 

We’ve also enjoyed a fantastic VAN-entines week at Manheim, sharing the love for CV with buyers, vendors and team members alike. If you don’t follow @lovecommercials on Twitter you’re missing out on all the pictures and updates. 

“Share The Love”

James Davis

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