Supply shortage forces trade to take (old) stock

Date: Tuesday, December 10, 2013   |   Author: James Dallas





Retail demand is pushing used values up to record highs, but younger light commercial vehicles are thin on the ground thanks to reduced new van sales in recent times. James Dallas reports





The prevailing story in the used van market over the past three years has been one of demand outstripping supply, and this has continued throughout 2013.

The economic crash in 2008 triggered a slump in new van sales followed by a hangover in the used sector as there was a dearth of good-quality stock filtering through to the auction halls.

Despite the occasional dip in monthly values, year-on-year values have continued to rise as buyers struggle to secure the few available good-quality vans.

With the economy on the mend at last and retail activity picking up, demand for delivery vans has increased further, and in August British Car Auctions reported that the average used van value breached the £5000 mark for the first time (£5013) – a rise of almost 25% year-on-year.

BCA’s general manager Duncan Ward says: “Demand has been right across the board, from older, higher- mileage vans through to younger ex-fleet and lease vehicles, while the few late-plate light commercials on offer can make exceptional values.”

Ward confirms the market trend continued into September with average values rising again, by 2.8% to £5158, and adds: “The key factor driving the market is supply of good retail-quality stock – or rather the lack of it – and this means there is plenty of competition for the best examples reaching the market.

“As always, good condition is the key and vans with a nice specification and in an attractive retail colour are very desirable.

“From the buyers’ perspective, the outlook for the rest of 2013 and into next year is, at best, more of the same and, in fact, supply issues could actually worsen,” says Ward.

“There was a significant drop in new van sales between 2008 and 2009, and that will be reflected in the volume of used vans reaching the wholesale markets in 2014.” BCA has noticed a significant upturn in the number of professional buyers purchasing stock online through its channels Live Online and Bid Now/Buy Now.

Says Ward: “To meet the needs of online buyers BCA has developed a new enhanced online vehicle-appraisal service to provide buyers with detailed condition information on vehicles pre-sale. BCA’s online video appraisals allow buyers to view every aspect of the exterior and interior of each vehicle, clearly showing the condition of the vehicle.”

Manheim likens used panel vans to vintage wines due to their ability to appreciate in value while simultaneously increasing in age.

The average selling price of used vans at Manheim auctions in September rose by £177 month-on-month to £4253. But while this sounds like a positive for vendors, Manheim Remarketing’s CV manager Tim Spencer warns that the level of quality stock is reaching “a critical point”.

“We are likely to see average selling prices continuing to rise over the coming months as supply and demand plays out,” says Spencer, but adds:

“Competition for all vehicles has not been this fierce in a long time. Panel vans remain very popular at auction, yet with a record number being over 60 months old, rising prices can’t continue indefinitely.”

Spencer says 58% of small and light panel vans sold at Manheim auctions in September had an average age of 91 months, 59% of medium vans were 85 months old on average, and 43% of large vans were 81 months old.

Manheim predicts such “artificially high” prices could fall by 10% in the first half of 2014.

Certain trends in the market can be spotted at auction houses across the board, with the enduring strength of the small and light panel van segments suggesting operators are keen to downsize where possible.

The upward swing in used pick-up and 4x4 popularity reflects the buoyant new market for these vehicles and indicates that the seasonal increase in sales of off-roaders has started early.

David Hill, LCV expert at Mycarcheck.com, which monitors the activity of franchised and independent dealers, says the trade is frustrated with stock shortages and rising wholesale prices. He points out that it is difficult for dealers to turn a profit by hiking up retail prices because “customers will shop around to save £50 at present”.

He adds that rising numbers of retail customers are now heading to auction halls to compete with traders to buy stock.

Looking at how LCVs are faring on the forecourt, Hill says well-specced Vauxhall Corsavans and Ford Fiesta Vans continue to appeal to small van buyers.

With Renault Kangoo stock drying up, values are starting to firm up and Hill says the same goes for the PSA light vans the Citroen Berlingo and Peugeot Partner. As for the Volkswagen Caddy, buyers are increasingly favouring the 102hp van over the 75hp version.

Hill says the Mercedes Citan has made a predictably strong start in the used market while the medium-sized Mercedes Vito and Volkswagen Transporter remain rock solid if tidy, and will sell even with very high mileage.

In the large van sector, Hill says short wheelbase Ford Transits are thin on the ground and so attracting higher prices, and Vauxhall Movanos, Renault Masters, Fiat Ducatos and Citroen Relays are still selling well.

As ever, Hill says Mercedes Sprinters readily find homes.

Chassis cab conversions remain in demand, according to Hill, with single cab versions tending to appeal more than double cabs, which may have been tampered with to create more storage space.

According to used value specialist Glass’s , an issue that has caused concern throughout the year is that the strength witnessed in the auction halls is not consistently reflected on dealers’ forecourts.

Echoing the views of Mycarcheck’s Hill, Glass’ CV editor George Alexander argues that a two-speed market has developed where shortages have driven up wholesale prices, yet when trade buyers stock LCVs, they can struggle to generate a healthy profit. The situation was not helped by dealers reporting patchy and inconsistent business over the summer months.

But despite the stop/start trading pattern, Glass’s claims profits were up for a good number of used van dealers by the mid-year point due to the buoyant trading conditions over the previous 18 months. By summer’s end, Alexander says sales conversion rates at auction were holding steady at a commendable 74%.

More worrying is the under-performance of late-year LCVs on the forecourts during 2013 as this is a sector most observers expected to soar. Alexander puts it down to dealers struggling to accurately price late-year models when discounts on new ones can quickly change what looked to be a cheap van last week into overpriced stock today.

Alexander claims fleets extending their leasing contracts during the economic downturn served to illustrate the high standard and durability of the latest generation of LCVs, calling into question the wisdom of always operating LCVs on short cycles.

He predicts the most attractive used stock will remain in short supply at auction over coming months and continue to command prices that often squeeze dealers’ margins to breaking point. This necessitates that older, higher- mileage vans must be remarketed to their full potential if any slippage in overall returns is to be plugged.

Nevertheless, with retail demand strong, he predicts a profitable end to the year for both vendors and dealers.

 



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