REMARKETING: Predicting van values
27 November 2015
Author: James Dallas
LCV buyers are beginning to see more choice in the auction halls, but how will the market shape up as we move into 2016? James Dallas investigates
As we head towards the end of 2015 there are indications that used van values are beginning to soften following a prolonged period of growth.
According to remarketing firm BCA, average values at the three-quarter point of the year were £151 down on where they were last year at £5507.
"We commented earlier this year that values were likely to come under pressure during 2015, as a result of rising volumes, an increase in poor-condition vehicles and the strong new van market," remarks Duncan Ward, BCA's head of commercial vehicles. "This was evident with a flattening of values over the summer period and year-on-year value growth slowing."
Ward explains that through 2012 to 2014 average used values climbed steadily, with month-on-month and year-on-year growth becoming the norm, due to both the shortage of good-quality retail stock and rising demand in an improving economy pushing up prices over an extended period.
Ward adds: "That was never going to be sustainable indefinitely, and we are now seeing the return of more typical market conditions, with balanced supply and demand and elements of seasonality taking effect. The good news is that the market has maintained relatively strong average values across the board and there is plenty of interest from buyers for well-presented, good-quality commercial vehicles. Average values improved in September and there was plenty of buyer demand during the month."
With rising volumes of stock as a result of new van sales picking up in the economic recovery over the past three years, the trading climate is likely to become more favourable to buyers going into 2016.
Valuations specialist My Car Check expects used values to taper off, but says the best-quality examples will continue to attract good returns.
"For October, we pulled most van values back very slightly as we head into winter," says head of valuation services Gavin Amos. "As always, the gems will buck the trend."
But Matthew Davock, head of LCVs at Manheim Remarketing, doubts that increased supply will lead to weaker values in the short term. He expects a rise in defleet volumes to hit the market midway through the final quarter of 2015 and admits: "Seasonality and slow retail sales will temper demand." However, he claims: "There is still a chronic shortage of vans."
Jayson Whittington, Glass's Guide's CV manager, takes a different view. He says the knock-on effect of the yearly increases in new registrations has been "double-digit percentage rises annually in auction volumes". While Whittington says this has led to a slight weakening in values, he argues it will be conversion rates that suffer the most pressure as supply begins to balance against demand.
"This trend is likely to continue in 2016, but as long as reasonable retail activity continues then values should not weaken substantially," says Whittington.
He adds that the most desirable vans coming to auction are those that can carry passengers. "Kombi-style units currently attract significant premiums," he claims.
Otherwise, he says the bodystyles commonly found in the construction industry, such as tippers, are becoming increasingly sought after. Despite VW's travails with the diesel emissions scandal, Whittington says the enduringly popular Transporter continues to attract strong values and adds that it is too early to judge whether this will alter over time.
But My Car Check's Amos sees few clouds gathering on the horizon for the model. "The Transporter continues to outperform the market and that isn't set to change," he predicts.
Whittington says volumes of Ford Transit Customs - the UK's best-selling van - on the auction circuit are growing steadily, but still attract a decent following despite the prevalence of basic-specification white vans on offer.
BCA's Ward stresses that an LCV's condition and feature list have more bearing on its value prospects than any buyer prejudice towards particular badges.
"Irrespective of brand, any unusual or well-specified light commercial is likely to make a premium in the current market, and high mileage is no deterrent providing the condition and presentation is good," he says.
Manheim's Davock has a similar view: "High-specification vans with aircon, metallic paint and satnav are in very high demand, and vans in the following segments are generally desirable: 4x4 pick-up, lifestyle, Luton, 15-seater minibus, and CDV vans with the three-seat option in the front."
The most important consideration for dealers, Ward emphasises, is not having to spend time and money in getting vans ready to display on the forecourt, and with supply increasing, this factor is becoming more prevalent.
"Professional buyers will always be interested in ready-to-retail vehicles, and the gap between the best- and worst-condition LCVs is widening when analysing average price performance," he points out.
Although a political bandwagon has started to roll against diesel, and in particular against the harmful health effects of the NOx emissions it produces, Whittington foresees little chance of operators making a wholesale switch to petrol LCVs unless the introduction of legislation forces their hands.
"While petrol is back in favour, it doesn't currently offer the increased mpg performance that diesel does, and fuel economy tends to be a higher priority than environmental concerns," he explains.
Tim Spencer, CV sales manager at Shoreham Vehicle Auctions, agrees that cost considerations will rule out a swing back to petrol.
"This is unlikely to happen due to the miles the average van driver covers in one year," Spencer says. "Put simply, emissions aren't at the forefront of a van driver's mind; rather, how much it will cost at the pumps and fuel economy."
Whittington goes on to say the performance of electric vans in the used market depends upon whether the battery is included in the sale or subject to a separate lease agreement.
"We have seen examples where buyers were expected to sign up to a monthly lease agreement following the hammer falling. This practice confused trade buyers and was reflected in poor performance as a consequence. More recently we have seen vehicles sold with batteries included and they fared much better," he explains.
Looking forward, however, he does not see a rise in demand for plug-in vans because, he argues, consumers remain unconvinced by the business proposition.
Ward shares Whittington's misgivings, particularly with concerns over ownership if the battery is leased. So long as the numbers of EVs coming into the used marketplace remain low, he says it will remain difficult to get an accurate idea of value and predicts: "Buyers will inevitably err on the side of caution when it comes to bidding."
Ward argues that the benefits to the first owners of electric vans as a means to broadcast their environmental credibility do not translate so well into the used market and asks: "What incentives are there for the average self-employed tradesman or small business to choose electric?
"Electric vans are perceived as being 'complicated', with lots of unknowns in terms of servicing, battery life, range and reliability," he claims. "Generally, the used buyer wants a reliable, cost-effective transport solution for their business, not to make statements about their green credentials."
Shoreham's Spencer says EVs have had little impact on the used market but reckons this could change when the sector's frontrunner, the Nissan E-NV200, starts to appear in larger numbers in about 18 months' time.
Manheim's Davock also has a more positive take. While he accepts the initial wave of plug-in vans, which appeared in the first decade of the century and were largely designed by converters with a varying degree of manufacturer backing, were beset with cost and reliability problems, he claims the second generation is a "different proposition" that will make its mark in auction halls.
Finally, following a record number of van launches in 2014, anecdotal evidence suggests lead times have stretched to breaking point, and the knock-on effect could be an overheated nearly new van market, according to Manheim.
Sales remain strong despite increased supply
The number of CVs for sale may be on the rise, but with this comes a number of poor-condition vehicles, which are failing to receive anything other than poor bids, states Jayson Whittington, commercial and leisure vehicle valuations manager for Glass's.
What is more unexpected, however, is that "despite bumper volumes of fresh ex-lease vehicles topping up the existing stock entering auction halls following September's plate change, first-time conversion rates surprised many and sat at a very healthy 78%", Whittington adds.
Although there has been a slight decline in the conversion rate, 28% more units were sold through auctions in September 2015 than the same period last year, implying that the market is in sound health. Furthermore, Whittington continues: "Despite significant year-on-year volume increases it would appear that the trade are currently able to hoover up the additional units coming into the market."
While Whittington points out that there are now an increased number of duplicate vehicles coming up for sale, a large proportion of these were still moved on relatively easily in September. Glass's CV valuations manager adds that it is probable that the trade will continue to buy up plenty of new stock in time for the New Year, which is likely to be backed up with consistent interest from buyers.
"Notwithstanding a major unforeseen financial crash or at the very least a prolonged period of uncertainty, there should be a consistent level of retail demand for used units for the foreseeable future," adds Whittington. This should, in turn, encourage steady demand from within the trade - which is very important considering that used vehicle volumes are set to increase further into 2016 and beyond.