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Commercial Vehicle Overview January 2020

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Review of 2019 and our thoughts for 2020

As we begin the New Year it’s perhaps a good time to reflect on how the new LCV sector performed in 2019 and consider the likely impact it may have on the used LCV wholesale market in the coming year and beyond.

Blighted by political instability and uncertainty the UK economy contracted significantly in 2019. Whilst GDP Growth was positive in the first and third quarters, at +0.6% and +0.3% respectively, it dropped into negative growth in the second quarter at -0.2%. Incidentally, this was the first time in 7 years there had been negative GDP growth.

The official forecast for Quarter 4 of 2019  is +0.2% signalling a downward trend for 2020 as the trend line in the chart below shows.

Historic GDP Growth and 2020 Forecast
Com2020

 

GDP Growth in the Service Sector (the biggest user of LCVs)

At face value the outlook for the UK economy looks gloomy for 2020, however, when you delve deeper into the GDP data there is some encouraging news for the both the new and used LCV markets.

According to the Office for National Statistics (ONS), there was positive GDP growth in the Services sector in the three months to October 2019, which were offset by negative GDP growth in the production and construction sectors.

As the services sector is by far the biggest user of LCVs the ONS statement might explain to some degree the year on year growth in new LCV registrations shown in the chart below.

2019 - New LCV Registrations up by 2% year on year despite the economy shrinking

Com20201

Arguably, the 2% growth in registrations of new LCVs registered in 2019 were replacements for existing vehicles given that the economy was contracting and there was only marginal GDP growth.

Contract extensions in 2018 - ("they have to come back some")

A common phrase we heard in 2019 from the auction houses in particular is ‘they have to come back some time’ which sums up the feeling that there are vehicles out there on extended contracts that are long overdue for replacement.

Leasing companies and auction houses we’ve talked to over the past year have said it has been virtually impossible to predict when vehicles are likely to come off contract into the used market.

Growth in new LCV registration in the Rental market segment

LCV sales people who have lived through the ups and downs in the UK economy will know only too well that when there is uncertainty or when we are teetering on the edge of a recession that’s a boom time for the vehicle rental industry.

This is a time when business tends to be sporadic and vehicle operators hedge their bets, choosing to hire rather than commit to replacing or expanding their fleets.

Short term rental and flexi-rental agreements offer none of the financial risks associated with long term leasing contracts that might have to be terminated early if economic conditions worsen.

Clearly there has been a significant shift towards renting vehicles compared to leasing or purchasing them outright over the past 4 years.

  • 24% Growth in just 3 years in the Rental segments
  • 7% Increase 2018 – 2019
  • 19% of all new LCV registrations in 2019 were accredited to the Rental segment

Vehicles manufacturers often turn their attention to the Rental segment as sales to other market segments decline. This often leads to large rental companies expanding their fleets and renewing existing vehicles earlier than originally planned.

Inevitably this often leads to over-supply of certain models in the used market causing a whole new set of problems for some and opportunities for others.

WLTP - upsets the established new LCV supply pattern

Between January 2015 and June 2018 new LCV registrations followed a fairly consistent pattern with peaks in registrations as the new plates came out in March and September.

From September 2018 the pattern of registrations changed compared to previous years, this could be attributed to the political situation regarding when the United Kingdom was envisaged to have left the EU as well as the implementation of WLTP later in 2019.

As supply conditions eased in March 2019 registrations bounced back to the highest level we’ve seen over the past 4 years with a further peak in June which wasn’t far short of the numbers seen for the new plate in September.

New Registrations - LCV
Com20202
Why new LCV registration figures are important to the used LCV market

The balance between supply of used LCVs into the wholesale market and demand is one of the most important factors that affects market prices and ultimately our guide values.

Market prices tend to remain stable when there is a consistent flow of used LCV stock into the market that matches demand. In reality there will always be shortages of some models and over-supply of others which leads to fluctuations in market prices. 

Looking back at the historic new LCV registrations helps us to understand to some extent how many vehicles we are likely to see in the used LCV wholesale market in future years.

Potential 3 year old LCVs entering the used market

There is a direct relationship between the number of new LCVs registered each year and the number of used LCVs that enter the market in future years as they come to the end of their first life.

Naturally the age at which vehicles are replaced varies considerably and is often linked to the type of vehicle operation.  The following illustration is based on 3year old vehicles which remains the most popular replacement cycle.

Year

Year on Year Variation Volume

Year on Year Variation %

2019

3857

1.00%

2020

-13538

-3.60%

2021

-4824

-1.30%

2022

-3325

-0.90%

 

In 2019, according to the historic new LCV registration figures, year on year there were 3,857 or 1% more 3 year old vehicles in the parc that potentially could have come back into the used LCV market.

Looking forward to 2020 there are 13,538 or 3.6% fewer 3 year old vehicles in the parc that potentially could come back into the used market at the end of their first life.

There are of course many other factors to take into account not least the tendency for operators to defer vehicle replacement which would affect these projections.

There is also the prospect of increase in vehicles that should have come back in 2019 making up any shortfalls in stock, albeit older with higher mileages and more damage.

ULEZs drives the increasing demand for Euro 6 LCVs

The demand for Euro 6 standard LCVs is set to continue from operators who regularly drive within London’s Ultra Low Emissions Zone (ULEZ). Further increases in demand for Euro 6 LCVs and Minibuses over 3.5t GVW are likely as tougher rules come into force in October 2020 ahead of the expansion of the ULEZ boundary in October 2021.

As the need for change over climate change and air pollution issues gains momentum it’s expected that there will be further political pressure on towns and cities across the UK to bring forward their plans to introduce similar schemes.

Since 2015 over 60 local authorities have been ordered to address illegal levels of air pollution but to date progress has been slow.  As these schemes are rolled-out over the next few years there will be even further demand for compliant vehicles.

The supply of compliant LCVs to the used market to meet increasing demand will inevitably depend on new LCV demand and supply conditions. With so many ULEZ schemes in the pipeline it does make you wonder where the non-compliant vehicles that enter the used markets will be operated and what will they be worth in the marketplace?

Sales Performance Trend by Sector
 

October

November

December

LCV Sector

Performance

Performance

Performance

City Van

96.0%

101.3%

99.2%

Small Van

98.5%

100.0%

100.4%

Medium Van

101.1%

101.0%

101.2%

Large Van

100.3%

100.8%

100.3%

Over 3.5T

103.9%

98.6%

101.7%

4x4 Pick-up Workhorse

101.6%

100.0%

101.0%

4x4 Pick-up Lifestyle SUV

101.2%

101.0%

101.2%

Forward Control Vehicle

102.3%

98.2%

94.1%

Chassis - Derived

99.2%

99.7%

102.5%

Mini-bus

102.2%

102.9%

94.3%

Vat Qualifying

99.2%

98.9%

97.2%

Total Market

100.0%

100.6%

100.7%

On average the price performance of the whole of the LCV sector remained strong at 100.7% of the guide values.

Since there is an expectation that vehicle values will depreciate slightly as each month progresses, it follows that any sector price performances of around 99% indicates that, on average, market prices have effectively increased month on month.

Between September and October increasing demand for minibuses had steadily forced up market prices. However, in December, despite there being plenty of good quality stock around, prices plummeted by 8.6% against the guide.

Guide Price Adjustment in this Edition

The guide prices of most models across of the LCV sector as a whole have gone down on average by around 0.3% in this edition.

Using 3 years / 60,000 miles as a benchmark, the average percentage and monetary movements shown in the table below give an indication of the extent of the price adjustments that were necessary in order to reflect current market prices for this edition.

Since age is one of the key factors that affects the rate at which a vehicle’s value depreciates we would normally expect market prices to fall slightly month on month as each plate we value is effectively one month older. The amount by which the guide values change in order to track market prices serves as an indication of the strength of market in each sector.

January: LCV Used Guide Price Movements 3 year / 60k

LCV Sector

Average % Movement

Average £ Movement

City Van

-0.8%

-£28

Small Van

-0.1%

-£3

Medium Van

0.8%

£81

Large Van

-1.2%

-£98

Over 3.5T

-0.5%

-£51

4x4 Pick-up Workhorse

-0.9%

-£78

4x4 Pick-up Lifestyle SUV

-0.4%

-£45

Forward Control Vehicle

-0.2%

-£23

Chassis - Derived

-0.2%

-£17

Mini-bus

-1.9%

-£245

Vat Qualifying

-1.3%

-£141

Ken Brown
LCV Valuations Editor

HGV MARKET OVERVIEW

With a few exceptions' auctions in the lead up to Christmas were quite well attended and surprisingly sales were up compared to last month. This is opposite from the usual effect of the Christmas holidays when traditionally trade seems to cease for the duration of the festive period. One can only hope that sales are just as numerous in the New Year as they have been so recently.

Traders report that whilst incoming enquiries are currently less numerous, they are more often for not for vehicles they don’t have in stock and some are being kept occupied seeking vehicles suitable to match such enquiries.

General sentiment currently is that nothing much is expected to happen imminently, possibly remaining quiet until February and that may be dependent on favourable weather. Many are just happy to keep ticking over until the second quarter, when buyers seem to appear in tandem with improving weather.

That said, both dealer views and their businesses may now change now that there is now some certainty in our direction of our departure from the European Union.

Manufacturer sales remain steady and unlike this time last year when in some cases it appeared that there was an emphasis to move stock rather than achieving the highest possible transaction prices, the opposite now appears true.

With the exception of tractor units the lack of three or four year old vehicles continues and such is the current demand for such vehicles, especially low mileage examples, sometimes premium values are paid which bear little relation to their real value or their potential value in a few years’ time.

Records from our auction visits indicate that the average number of auction entries decreased by almost 3.5% but the number of on-the-day truck increased by 6% in relation to total entries whilst trailer sales increased by 13% during the same period. This is based on nine auction visits and a total of 1475 viewed lots and as we always remind you these are ‘hammer sales’ on-the-day and converted provisional sales are not included. One auction reports that the current conversion rates of provisional sales remains at around 60%.

This month’s research indicates that:  

  • 5t to 12t – Most derivatives with a few exceptions have seen values fall, with Euro 5 derivatives bearing the brunt of any decreases, although the values of many DAF and Mercedes-Benz vehicles held steady. Euro 6 fridges and tippers have performed better than other Euro 6 types.
  • 13t to 18t – Values have generally declined a little with Euro 6 suffering most this time. Euro 5 fridges, hook-loaders and tippers have held steady whilst other derivatives have seen just small decreases in values which is a similar situation with most pre-Euro 5 vehicles.
  • Multi-wheel rigids – There has been small decreases in values for 3 axle vehicles whilst values of 4 axle variants have held relatively steady, apart from some hook-loaders and tippers.
  • Tractor units – With a few exception values of most vehicle types have fallen again, the fall in value is dependent on make and model.
  • Trailers – Values across all types have remained steady.
7.5t to 12t Vehicles

Tippers, while still selling, have seen some values weaken a little, but this is to be expected at this time of year and follows a period where there has been plenty available.

Fridges are plentiful and dependent on specification some are finding new homes but with so many to choose from buyers are being selective with their purchases.

The number of older red 7.5t boxes seems to be abating, although there are plenty of similar vehicles in the marketplace and more could be expected following the Christmas rush.

Late boxes and curtains have been few and far between recently and those that do appear generally sell well. Beavertails and other specialist vehicles usually attract additional attention and subject to their condition usually sell with ease.

Dropsides still remain popular but as ever in this sector mileage is king and anything with low mileage will sell much more easily than higher mileage examples.

Several low mileage, tidy Isuzu refuse vehicles found new homes as did a good number of yellow Renault Midlum 12 tonne tilt and slide recovery vehicles from a leading breakdown provider.

13t to 18t Vehicles

There remains plenty of 13 tonne to 18 tonne fridges available at present mainly on DAF and Mercedes-Benz chassis with many from the same source. The best ones are still being picked over, leaving the poorer examples available and these are struggling to muster realistic offers.

Boxes and curtains are selling, not necessarily quickly, especially those with sleeper cabs, however anything substandard and requiring repairs prior to use or re-sale often obtain little more than a notional bids and generally remain unsold.

Several tidy 18 tonne skip loaders have appeared recently, the better examples attracting good interest and often selling on the day. A good selection of well-presented utility vehicles, including sweepers, direct from a council operation also attracted good interest. Low mileage and in a tidy condition helping them on their way to new owners.

As ever anything non-standard or carrying a crane attracts additional interest especially when in good condition and carrying reasonable mileage. Gritters and highway dropsides, remain numerous and continue in their struggle to find buyers, whilst tippers remain popular choices.

Multi-wheelers     

The number of 6x4 and 8x4 tippers has slowed a little, possibly due to the time of year, but those that do appear still attract interest, especially so if cranes are attached.

Refuse trucks remain a problem and most are struggling to find new homes and often attract bids which do not reflect their true value.

Hook-loaders and skips continue to sell but the price usually reflects condition rather than mileage. Draw-bar outfits and car carrier rigs, whilst not so plentiful, are struggling to find buyers.

Tractor Units          

There is little positive to report here as anyone with Euro 5 or Euro 6 fleet specification 6x2 tractor units for sale will verify that obtaining maximum sales revenue has become increasingly difficult. Vehicles sold with warranted mileages will always sell more easily, and sometimes at slightly higher values, but with auction stocks on the increase it’s difficult to see a quick solution to the problem of reducing the quantity available.

Indeed, with both derivatives being less export friendly than their predecessors, coupled with little current export activity at present vehicles are not selling in pace with them becoming available. This makes one ponder what will happen to the market if as traditionally happens, more flow into the market during the next month or so.

There is a large selection of most marques available and for anyone looking to purchase a tractor unit, now is a good time to do so as there are some good deals to be had.

4x2 examples are far less numerous and sales of these vehicles seem to flow far easier than they do for 6x2’s and due to their relative scarcity values can exceed that of an equivalent 6x2 model.

Trailers

Research suggests that the trailer market continues to be steady at present and whilst the best trailers are finding little difficulty in finding new homes the mix and age of the remaining trailers available isn’t to everyone’s taste which is leaving many trailers unsold.

Flats are selling particularly well at present along with quality skeletals and good specification curtains.   providing they are fit and ready for work, In fact it appears that good quality is the order of the day because it is the  ready to run trailers which are easily faring the best at present.

Boxes are now starting to struggle to find new homes and now that the festive period is over more are likely to appear in the market imminently.

Rob Smith
HGV Valuations Editor

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