Euro 6 diesel demand rises as CAZ proposals affect choice

Air quality zones start to influence used van demand as rising rental stock boosts prices. By Dean Bowkett

The UK saw a second successive month of new LCV sales growth in May, up 2.4%. That makes three months of growth and two of falls as the midpoint of the year approached.  

Overall LCV sales for the first five months remain 1.4% down at 145,514 vehicles due to the 5.6% collapse in the peak month of March making this the worst start to a year for five years.

A quick look around Europe shows the whole EU28 and EFTA 3 region up 4.3% for the first five months of 2018. A total of 886,276 LCVs have been sold in the region which is just over 23% more than for the same period in 2015.

Back in the UK there is little sign of anything out of the ordinary happening at a make level as the top spots continue to be held by Ford and Volkswagen.

Residual value setters should find comfort that there is not going to be an excessive amount of any particular brand coming back into the used van market in the next few years based on current new sales.

Demand for used LCVs continues apace with all of the auction houses and trade guides reporting strong sales through May and June.

Tim Spencer, Shoreham Vehicle Auctions (SVA) commercial vehicle sales manager, reported sales of LCVs close to a 100% conversion rate saying that “everything has been selling, even the damaged stock, provided the vendor is setting the reserve figure correctly”.

Stuart Pearson, BCA chief operating officer UK Remarketing, said “trading levels remain good and professional buyers remain active”, adding: “Demand for quality LCV stock in ready-to-retail condition continues to outstrip supply.”

Matthew Davock, head of LCV at Manheim, was equally upbeat highlighting that “vehicles continued to sell quickly, at an average of 15.7 days (down 7.1 on 2017)”. He also reported first-time conversion rates remaining healthy at 80.6% which is a 7.3% increase on 2017.

Among the trade guides, Andy Picton, the chief commercial vehicle editor at Glass’s, reported a strong, but slightly weakening, picture with first time conversion rates down by 2.7% to 83.3% over the previous month but still better than the 71.3% seen in May 2017.

But Cap HPI red book editor – light commercial vehicles and motorhomes Ken Brown provided a timely reminder about why the used LCV demand and strong used prices should be considered as remarkable.

Brown highlighted that the market boom is happening against a “backdrop of an economy expanding by only 0.1% in the first quarter of 2018, which is the lowest rate of gross domestic product (GDP) growth we’ve seen since the fourth quarter of 2012”.

While the Bank of England has held its nerve and not increased the base rate at the time of writing it will be interesting to see the impact when it finally pushes the rate up by a probable 0.25% later this year.

BCA reported nearly-new LCV values as rising for the fourth consecutive month in May as values jumped 5.5% over April with relatively minimal impact from mileage.

Meanwhile, Picton noted a plentiful supply of ex-rental vehicles appearing.

One area in particular where demand is strong is for Euro 6 diesel vans as buyers look to meet the increasing demand to have vehicles which meet the requirements for the increasing number of clean air zones (CAZs) being proposed across the UK.

There is a degree of inconsistency in what will or will not accepted in local authority CAZs. This means it really is a case of buyer beware.

It is worth checking with the council in the regions your vans will be operating in to ensure they comply with all of the schemes before you raise your hand in the auction halls.

The increase in ex-rental vehicles coming to market goes some way to explaining why average LCV ages and mileages are falling. This is then having the knock-on effect of seeing the average price rising with what almost feels like an inexorable inevitability.

BCA reported the average age dropping just more than one month to 49.27 months and mileage falling 1% to 65,629. Cap HPI also noted a one month fall in average age and a 2.6% drop in average mileage to 74,631.

While Manheim reported a three month drop in the average age to 58 months in May over April with average mileage dropping 2.5%.

However, though the average age and mileage falls are enough to explain some of the increase in used van values, there remains an underlying inflationary factor as supply fails to fully meet demand.

But supply is on the increase with Manheim reporting a 14% month-on-month increase in the volume of LCVs offered for sale, an 8% rise over the same period last year.

Even though Manheim reported an increase in supply, Picton noted a continuing “lack of quality stock” adding that “many buyers are still looking for vehicles that can be placed straight on their forecourt with a minimum of preparation”.

Picton also saw the average price of stock sold at auction during May increase by 1.4% over April, a fifth consecutive monthly rise adding that this “means prices now sit an incredible £1,000 higher than at the end of May 2017”.

Davock reported even better results with “a 3% increase in the average selling price for May (£6,125), up 18% year on year, and a new Manheim record”.

He pointed out that this is an average of “£1,080 more than this period last year, with age and mileage being almost identical”.

Although BCA reported average values falling against April 2018 (down £70 or 0.9%) to £7,502, it is still the BCA’s second highest figure on record, representing a 16.2% increase compared with May 2017.

Take a quick look at the heavier commercial vehicles and we see a similar story with little top quality stock available.

Picton noted that “the flexibility of curtain-siders means they are currently more desirable than box vans on the open market” which is something you may want to consider if you are buying a new truck.

Unsurprisingly, Picton also said Euro 6 vehicles and, in particular, construction lorries for “operation in and around London” remain in strong demand with a knock-on effect of falling demand for Euro 5 and older stock.

Cap HPI’s Brown reported a slightly different view stating that the volume of “Euro 6 vehicles appearing in the open market continue to increase and this is starting to have a detrimental effect on values”.

By contrast Manheim’s Davock reported the HGV market as remaining “healthy with 83% conversion rates throughout May and a record-breaking average selling price of £14,803.”

Returning to used LCVs and as we continue to enjoy the summer sun and celebrate/commiserate the World Cup results, the big question according to Davock is how much longer can this “super-heated van market”continue?

We are seeing the odd shower of gloom in certain areas but, overall, the forecast remains bright and summery for the right condition van.