Van residual values set to ‘plateau’ in 2014

The New Year could be the best that anyone can remember in terms of light commercial vehicle residual values, according to George Alexander, chief editor, Glass’s Commercial Vehicle Guide.

He, like many experts, believes the used van price ceiling will be reached in 2014 - and while there will be no meltdown in values - increases in new light commercial vehicle sales will start to release the pressure on ex-fleet and lease vehicle prices in mid-year.

CAP is also forecasting a “plateauing” of values on the strength of the green shoots of economic recovery triggering rising demand for new vans that in turn will mean more used models returning to market.

The National Association of Motor Auction says that in the first quarter of 2014 there is “little to delay further price rises being posted for the most desireable used lots”, while for “harder used LCVs it would seem that price levels are most likely to simply tread water which in itself would be a good result”.

Indeed, experts say that demand for well-specced and higher mileage vehicles in good condition will be high as traders and their customers struggle to justify the financial outlay required to fund the few late, low mileage vans available.

But, as demand for new vans closely tracks the UK’s GDP (gross domestic product) curve, Tim Cattlin, CAP Monitor editor (CVs), said: “Demand will go up; used van supply will increase; therefore stability will return to the market in the latter half of 2014 and there will be a slight fall off in prices.”

GDP is also the key determinant for Ben Newton, head of pricing at Lex Autolease. But he takes an opposing view on its impact on LCV residuals arguing: “As GDP rises so demand for new vehicles from corporates will rise and demand for used vehicles from SMEs will also increase. As a result with the UK economy continuing to emerge from recession there will be a positive impact on residual values. Increasing GDP and a continuing shortage of used vehicles will cause prices to rise.”

The most pessimistic outlook for 2014 came from James Davis, director of commercial vehicles at Manheim Remarketing, who believes that during the course of the year values could dip by up to 10%.

He said: “Competition for all used LCVs has not been this fierce in a long time. Panel vans remain very popular at auction, yet with a record number of them being over 60 months old, this analysis needs to be accompanied by a word of warning. Rising van prices can’t continue indefinitely.

“Despite the seasonal bounce back in average selling price during the autumn, we’re seeing a record proportion of older, higher mileage vans coming to auction in recent weeks. Couple this with the fact that stock levels remain low at present, and it’s easy to see why prices are strong right now. Putting into context, the average price of a van at auction in September was £4,253, an increase of around 5% from the previous month, which is remarkable.

“However, this artificial high cannot continue and I expect that values to realign by as much as 10% in the first half 2014. Market forces can’t be ignored and these strong values will not continue indefinitely, as we will inevitably reach a natural tipping point.”

Auction giant BCA believes that the outlook into 2014 is “at best more of the same” with Duncan Ward, general manager - commercial vehicles, forecasting that supply into the used market could worsen.

He said: “There was a significant drop in new van sales between 2008 and 2009, and that will be reflected in the volume of used vans reaching the wholesale markets in 2014.”

In fact the used LCV stock shortage could remain for some time, according to Professor Peter Cooke, writing in the recently published 2013 BCA Used Car Market Report.

He highlighted that a ‘used LCV supply gap’ had opened up over the past few years (see chart below) and, assuming that historically supply and demand were in broad equilibrium, there was a potential shortage of younger used LCVs in the region of 300,000 units, which would take several years to flush through the system.

Professor Cooke said: “While the exact size of the LCV used supply gap may be open to discussion, the fact it exists and cannot be filled quickly is significant. There is no way used vehicles can be conjured up overnight.”

Mr Ward continued: “With stock remaining in very short supply and with the prospect of retail demand for used LCVs increasing alongside the generally improving broader economic picture, the market could experience a double whammy of rising demand and falling supplies.”

Against that background, Mr Ward concluded: “Our view is that the overall shortage of used product and the issues of supply versus demand will see a continuation of high conversions and higher selling prices in 2014, effectively meaning we are going to see more of what is best described as a ‘sellers market’.

“While this sounds like great news for corporate vendors, the situation must be approached rationally and sellers must continue to deliver on all the basics. The usual rules still apply and damage management, pre-sale preparation, appraisal and sensible valuation remain as important as they ever were.”

Alex Wright, managing director of Shoreham Vehicle Auctions, believes a price ceiling may already have been reached saying: “We cannot see them going much higher unless they are on vehicles that are in very short supply. In 2014 there will be a shortage of unique vehicles which could lead to a spike in prices.”

He predicts that niche vehicles such as Lutons and tippers will be in “extremely small supply”, but also in demand as sectors of the UK economy such as construction grow. Consequently, Mr Wright said: “This is where we could start to see the unpredictable result of higher prices,”

James Hopkins, LeasePlan’s head of remarketing, also believes used LCV values will continue to remain strong next year with supply continuing to be tight - the legacy of a steep reduction in van registrations four years ago. He suggests that the vans most in demand will be those with the best internal specification saying: “Items like sat-nav and air conditioning are holding their original value well as LCV drivers seek a more car-like experience.”

Meanwhile, Mr Alexander believes that over the coming months there could be a re-balancing of the age at which some vans are defleeted.

Values for late-plate, low mileage vans should be soaring, but Mr Alexander said: “Many dealers remain reluctant to take on too much of this stock at a time when business confidence is fragile. Through bitter experience, they appreciate it can prove difficult to accurately price such late year models when discounts on new ones can quickly change what looked to be a cheap van last week into overpriced stock today.”

Consequently, he believes that first owners would be well advised to extend ownership periods particularly as the latest generation of vans and pick-ups are built to a high standard and capable of giving reliable service over a prolonged period to a high mileage.

The strength of demand for almost every ‘clean’ LCV - despite an average increase in age and mileage by seven months and 5,120 miles respectively over the last 12 months - has shone a light on previously accepted best-practice and questions the wisdom of always operating vans on short cycle, he says.

Mr Alexander said: “There will always be some fleets that short cycle, but there will be some businesses that have the right vehicle in harness, specced specifically for them that have learned over the last three or four years that there is merit in running a van for longer. The used market will then respond positively and there will not be a glut of late year vehicles that no one wants.”

The view that higher value vehicles are proving tough to sell is shared by CAP which says: “Most makes and models up to the £2,500 mark appear to be selling easily whilst the late plate higher value entries seemed to struggle with many selling provisionally, if at all.

“Close analysis of sales results clearly indicate a strengthening of demand for vehicles in the sub-£3,000 price band whilst those in the higher price bands appear to be weakening. Anecdotal evidence suggests that potential retail buyers are still having difficulty obtaining funding for higher value vehicles.”

Mr Cattlin added: “Dealers are seeing their margins being eroded. They are paying premium values for stock and customers are not prepared to pay that price.”

Mr Alexander concluded: “With lacklustre sales of new LCVs over several years past, there is little hope that plenty of desirable late year lots will be appearing at an auction. Therefore, the most attractive used stock will remain in extremely short supply and continue to command prices that often squeeze dealers’ margins to breaking point. This necessitates that older, higher mileage vans must be re-marketed to their full potential.”

Year-on-year table: All vans sold at BCA

All vans	Avg Age (mnths)	Avg Mileage	Avg Value	Sale vs CAP
Sept 2012	57.93	78,805	£4,224	100.72%
Sept 2013	59.33	80,217	£5,158	105.19%