Why used LCV prices will continue to rise into 2022
The past 12 months have seen the most significant upward realignment of used van values in living memory. Across Manheim Auctions, used van demand is continuing to increase and auctioneers are having to react pro-actively to value vehicles in an attempt to move damaged and high mileage stock at first time of asking – in order to maximise wholesale availability.
THE used van market is facing a quandary: with demand for used vehicles growing at rapid rate, while auction houses face increasing stock shortages, there is a supply and demand crisis.
The past 12 months have seen the most significant upward realignment of used van values in living memory. Across Manheim Auctions, used van demand is continuing to increase and auctioneers are having to react pro-actively to value vehicles in an attempt to move damaged and high mileage stock at first time of asking – in order to maximise wholesale availability.
In fact, there have never been so many compounding factors impacting the used van market; raw material and component sourcing challenges are impacting new van production; the demand for used Euro 6 stock has been accelerated by the implementation of new and expanded Clean Air Zones, and a delay in de-fleeting schedules are all adding to market uncertainty.
Early estimates indicate that it will not be until we get well into 2022 that some of these challenges begin to be eliminated and we can really start to talk confidently about a market recovery – but that’s assuming the market and global supply chain is not impacted any further by the pandemic.
Wholesale van market challenges
In pre-Covid times, the automotive industry was most concerned by the transition to electrification and the effects of Brexit. No one could have foreseen what 2020 would turn into and the wholesale market first began to destabilise during the first nationwide lockdown in March of that year. The pandemic led to a major change in buying habits, largely forced by factory closures, delayed lead times for new van deliveries and a reduction in the availability of de-fleeted vans.
These challenges continued into 2021, with well-publicised semiconductor shortages affecting new vehicle production. This has given OEMs a predicament to choose between building LCVs or passenger cars and indeed what specification to build them to. The issue was compounded further by the more recent metal and rubber shortages which have again strained the supply of new vans – all of which has driven demand – and with that, higher prices for used vans – not just in the UK but across the world.
Manheim data for the past 12 months shows that the wholesale van market has been seeing record year-on-year average selling price increases, with previous record months of £8,936 in October 2020 – beaten in January 2021 at £9,477 and in March at £9,903.
March 2021 in particular saw a hattrick of records for Manheim, with new records set in the increased average selling price at 3.2%, the number of days spent at Manheim auction centres reducing to 8.9 days to sell and record sales of 15% going to franchised retailers – a figure that was once 5% before the pandemic.
I’ve certainly experienced increased buyer engagement at our auctions since January 2021, along with a continuation of a trend seen in used Euro 5 and Euro 6 van sales. Younger and lower mileage Euro 6 vans are attracting higher average prices over their pre-Euro 6 counterparts, because these newer vans comply with the latest government environmental legislation and are compliant with low emissions zones, the number of which will only increase over the next few years.
Forecasting ahead to the next six months
May 2021 offered a small period of respite for the wholesale van market, bucking the trend with a slight two per cent decrease in used van prices, but this was largely down to an influx in older stock reaching the market, prompted by a number of fleets choosing to right-size and balance van fleets with current business requirements. It’s not a trend we expect to continue. Instead, it is likely that we will return to the month-on-month increases witnessed in the four months prior and on the back of 2020.
Data collected to date would indicate that used vans will achieve higher average selling prices month-on-month for the remainder of the year. We’re also likely to see an increase in the availability of older, damaged and higher mileage pre-Euro 6 vans, along with a reduced number of days from arrival to auction day sale. Understanding this stock profile and mix will be crucial when looking beneath any headline price movements.
Until the new LCV market recovers and manufacturers can meet demand, the focus is likely to remain on the used market, which means competition for vans will remain fierce.
Dealers are desperate for used Euro 6 van stock because new vans are becoming increasingly harder to source. This was demonstrated in May 2021 when Manheim saw a record-breaking Euro 6 van sold volume share of 58.5%, 34% of which were bought by franchised dealers. The demand for cleaner vans due to growing Clean Air Zones in Birmingham, Bath and the expansion of ULEZ in London, as well as the supply shortages of new vans – means used van selling prices are highly likely to rally throughout 2021.
We’ve all seen the challenges the automotive industry is experiencing due to raw material and component shortages. This is having a profound effect on the used LCV market, delaying de-fleet programmes and affecting the flow of used stock to wholesale. Supply and demand of new and therefore used vans will remain in flux until new lead times and supply levels return to pre-pandemic times.
Advice for fleets and leasing companies
To all those involved in selling LCVs, this is a time to remain cautious. Whilst a sellers’ market this does not mean everything will sell readily at first time of asking. Condition, mileage and provenance remain key. Buyers will continually reassess their needs as there are essentially two choices: pay a higher price now before prices rise further, or reconsider requirements and perhaps opt for higher mileage, older vans which carry less of a price inflation and would see cashflow turned faster.
Many late plate buyers will choose to bid and pay the premium for vans that they have pre-sold and for which their retail margin is known and baked in. Franchise retailers are shifting focus from new to used and we are seeing record engagement levels at auction events. The majority acknowledge their retail stock holding is between 40 and 60 percent lower year-on-year.
There’s a growing trend for vendors to sell their stock using several different channels and shop windows. But I’d challenge – how do you know you’re getting the best market leading results for your stock? For maximum results, it is important to remarket in front of the largest possible audience to allow for strong competition among buyers and greater revenue from fleet disposals. As a vendor, tapping into the largest active buyer base will protect residual values and conversion rates and optimise returns.
Of course, the influx of Clean Air Zones may force the hand of many fleets, requiring new or rental vans to displace their older pre-Euro 6 vans.
With extended lead times it’s also an uncertain time for fleets and leasing companies, where de-fleet and fleet replacement sees contract extensions; further starving the wholesale market.
Despite all this, I don’t believe the market will experience a downward price realignment. This is due to the fact increased supply in the used van market will not be a consideration until mid-decade at the earliest, against the given of a strong economic performance. Supply and demand will continue, as ever, to be the key drivers of market performance.
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