An acute shortage of new and used light commercial vehicles means supply is failing to meet demand, driving up prices sharply, reports Jonathan Manning
Never has the used light commercial vehicle (LCV) market been stacked so heavily in favour of vendors as it has been since lockdown, with forecasters seeing no change in demand outstripping supply for the foreseeable future.
The reduced availability of both new and secondhand LCVs has coincided with a sharp rise in demand for vans as a direct consequence of coronavirus.
It’s a perfect combination. The seismic shift in retail from ‘bricks to clicks’ has seen an exponential expansion of delivery services that require ever-more vans, while the need for social distancing has forced responsible employers to provide a vehicle to each employee, rather than have two or three workers share the same LCV.
The result is significant delays in defleet cycles and booming demand for new LCVs, creating an acute shortage of stock for a pool of eager buyers that are now nationwide.
The transition to online sales, after coronavirus lockdown closed auction halls, appears to have fuelled used price inflation even further by introducing more buyers to the limited stock available.
Jon Lawes, managing director, Hitachi Capital Vehicle Solutions, says the company’s first pre-planned premium online sales event for LCVs in July resulted in “a 26% increase in combined sales value from 2019 with 93% conversion rate”.
Nor is there any indication of this supply/demand imbalance changing any time soon.
In August, Glass’s tracked used van prices at an average of 25% to 30% higher than the same month in 2019, says Andy Picton, Glass’s chief commercial vehicle editor.
So extreme is the shortfall that even prices of Euro 5 emission vans, which accounted for 60% of sales in August, have risen by 40% since lockdown as buyers have competed at every level of the market for available stock.
Picton says regular fleet defleet cycles have been torn up by the pandemic as companies have deferred replacing vans until their corporate plans are clearer, while delays in the supply of new vans due to assembly line closures during the worst of the coronavirus have obliged fleets to hang on to vehicles until replacements become available.
Large numbers returned late
Almost half (47%) of leased vans are being returned late, compared with 34% in 2019, and only 7.2% are being returned early, according to FN50 companies.
In the new vehicle sector, the Society of Motor Manufacturers and Traders (SMMT) now forecasts full year LCV sales of 269,000 units, 26.3% down on 2019, and while it predicts sales picking up next year to 318,000 registrations, this tally is still well down on the 366,000 sales of 2019 and the 376,000 sales of 2016.
Such is the shortage of supply of new vehicles that Manheim sold 13% of its LCV stock in September to franchised dealers, while LCV rental companies are reissuing vans on new contracts, rather than sending them to market, exacerbating the shortages of nearly new stock.
Stuart Peak, national LCV manager, Manheim UK, says: “All large corporate rental companies are seeing a real shortage of supply at the moment as rental demand is so high, clearly driven by a rise in home delivery services we’ve seen this year.
In fact, we are seeing some vans from suchcompanies being pulled out of our auctions to be re-fleeted to meet the demand.”
One industry source says some logistics and delivery companies had started hiring vehicles for their Christmas rush as early as September, anticipating increased seasonal demand from localised lockdowns and a huge increase in online Christmas shopping.
In normal times, the bumper sales from four years ago ought to have been hitting the used market this year and next, creating a potentially deflationary over-supply situation, but, in this pandemic, the opposite is true.
“There will be many fewer new vehicles sold this year, which will increase demand for nearly new vehicles,” says Steve Botfield, senior editor commercial vehicles, Cap hpi.
“Those fleets whose contracts for three- and four-year-old vans are coming to fruition cannot source new replacements, so those vehicles are being extended and not coming back to market.
Plus rental utilisation is really high, so the rental companies cannot sell their vehicles.
This is pushing up the prices of nearly new LCVs and that will drag up the prices of all ages of vans.”
FN50 leasing companies have not reported the same level of optimism, with just more than a quarter (26%) forecasting a rise in used LCV values, while 37% anticipate no change in prices, and the same percentage predicting a fall in values.
Historically, the values of typical ex-lease (rather than ex-rental) commercial vehicles have proved reassuringly resilient even in difficult economic times, including the financial crash of 2008-09, says Grosvenor Group chief executive officer Shaun Barritt.
“It’s a very stable market compared with cars, which tend to be more up and down and more fashion-driven, whereas a van is a van; it’s what is practical that counts,” he says.
Barritt sees the current strength in used commercial vehicle prices continuing for the foreseeable future. With LCVs critical to business function, companies have no option but to stick to efficient replacement cycles.
“Fleets are replacing and ordering new commercial vehicles, and although the lead times are long they seem to be planning ahead and dealing with it.
"We have not seen a huge number of lease extensions.
"If commercial vehicles need replacing they need replacing – a lot of these are very high mileage, 120,000 to 130,000 miles, so we would be reluctant if to be extending them on any maintenance arrangement,” he says.
Grosvenor has started to develop a used van centre at its Vauxhall dealership, although the strength of auction prices has undermined the financial arguments in favour of retailing them.
“Commercial vehicle prices will remain buoyant for the right product.
"The more specialised a vehicle, the better, and the larger vehicles, those with a high roof, long wheelbase and automatic transmission will make lots of money.
"Bigger vans have an easier route to market, whereas small vans never quite have the same margin in them,” says Barritt.
Minibuses out of favour
The only residual value blip in this upward trend is for minibuses, which have suffered from a lack of demand during the social distancing restrictions of coronavirus.
Other LCV conversions, however, such as dropsides, tippers and Lutons, are enjoying sustained high prices with no sign of demand abating.
“OEMs have not got back to full manufacturing capacity yet, and for them panel vans are quick to build and quick to sell compared with a chassis-derived unit that they then send to a bodybuilder, so there is strong demand for used vehicles that are difficult to source,” says Botfield at Cap hpi.
The retail readiness of vans is, however, important to maximise values.
With repairers both catching up on backlogs of jobs from lockdown and grappling with productivity in socially-distanced bodyshops, traders do not want to be bidding for vehicles that may take a few weeks to return to retail condition.
Overall Botfield sees no change in today’s positive market “until we return to some sort of normality in new registration figures.
But, with an estimated 97,000 fewer new vehicles registered this year, in one-to-three years’ time it will still be a fight to get stock”.