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Stock shortage to keep prices at record levels

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Vehicle contract hire and leasing companies continue to enjoy a residual value windfall worth hundreds of pounds per van as sale prices show little sign of dropping from record levels.

Figures from auction giant BCA show that average values paid at auction for ex-fleet and lease vans are at a record £6,171 - more than £1,000 or 20.8% up on 12 months ago (£5,108) – partly due to average age (43.39 months) and average mileage (66,805) falling over the year.

However, as leasing companies write new LCV contracts on a daily basis will residual value buoyancy still be in situ when those vehicles are defleeted in three, four or five years or will they return to the levels of yesteryear?

BCA says that the ‘continued shortage of stock is helping to drive demand and keep prices firm’, although some experts believe that residual value slippage from current levels is inevitable with the Society of Motor Manufacturers and Traders forecasting an increase in new van sales in 2013 and 2014 - up 5.7% and 2.1% respectively.

James Davis, director of commercial vehicles at Manheim, was the most pessimistic among experts forecasting a residual value reduction of up to 10% by the mid to end of 2014 as more vans return to the used market as new LCV sales rise.

He said: “Van vehicle registrations are linked to GDP (gross domestic product) and economic growth so a steady rise in registrations means more product returning to the market and values will suffer. The market will absorb additional stock, but not at premium prices.”

Van sales in 2007 reached an all-time high of 337,741 units and this year, the Society of Motor Manufacturers and Traders (SMMT) is forecasting registrations to total around 253,000 units rising to 259,000 units in 2014.

BCA points to what it calls the ‘supply gap’ (see chart) and longer replacement cycles being adopted by major fleets as evidence for its view.

Duncan Ward BCA’s UK business development manager - commercial vehicles, said: “BCA has been highlighting for some time that the availability of used LCVs will decline over the next few years, because of the double whammy of lower new van sales since the recession and large corporate fleets keeping vans in service longer before selling them.

“There are fewer ‘first time’ used vans coming to market for buyers to choose from, which is affecting price and impacting used LCV supplies further down the supply chain.

“The recession-driven slump in new LCV registrations between 2008 and 2010 and the slow recovery thereafter will continue to have a big effect on the shape of the country’s LCV supply. Clearly, when new LCV sales plummet and remain low for such a prolonged period it has a powerful and lasting impact on the availability of used LCV stock.

“We know from experience that in the majority of previous years values have typically softened over the late spring and summer months. However, we saw little sign of that in 2012 as values remained relatively steady until the autumn when they rose quite sharply. So, second-guessing what trends might emerge this year is less straightforward.

“Anecdotal evidence from a number of sources suggests retail used van activity remains slow, yet the wholesale remarketing sector is relatively strong. BCA believe the continued shortage of stock is helping to drive demand and keep prices firm.”

But, even if average ex-fleet values fall by £600 (10%) it would still mean they remain well above average hammer prices that have been achieved in years gone by.

Currently average used LCV prices are perhaps as much as 15% above the long term average due to the low number of vehicles entering the remarketing arena.

Residual value experts at both CAP and Glass’s believe that there will be an easing of residual values from the current strong levels.

Nevertheless, said Tim Cattlin, Monitor Editor - CVs at CAP: “We are currently forecasting residual values to remain above average well into 2014. We predict that the balance of supply and demand will be restored in late 2014-early 2015 and that average values will then return to normality.”

However, that forecasted easing of residual values must be balanced against a number of factors that importantly include:

  • Rising new van prices which means that in actual cash terms prices paid for a defleeted van may remain buoyant, but as a percentage of manufacturers’ recommended retail price will more closely reflect the average
  • Van replacement cycles that during recession extended beyond the standard three-year turnaround.
  • Potential demand from businesses for vans on flexi-rent terms from both leasing and daily rental companies.

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