THE Market: Forecasts and PROJECTIONS

Commercial vehicle forecast

A new landscape for the new and used LCV markets

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The CV market in 2020

Just four years ago, in 2016, new UK LCV registrations hit a record high of 376,000 units. Last year the sector was not far off that figure, registering 366,000 new LCVs. Interestingly, SMMT data shows the average annual registration figure for 2007-2016 was around 288,000 new vans. As such, while 2020 is certainly a sharp realignment from the previous three years, it falls in line with the average of the prior decade.

Looking to the end of what has been a uniquely turbulent and unpredictable year in 2020, the industry expects to finish almost 80,000 vehicles lower than 2019, in the region of 288,000 new LCV registrations. That represents a -21.3% decline on the 2019 market; noting a positive improvement versus the July SMMT forecast position of -36.4%. (SMMT, 2020) 

The primary reason for such a dramatic stagnation of new registrations this year is obvious, with manufacturers and fleets acting to protect their businesses and cash reserves in a time of global economic uncertainty. In the case of OEMs, staggered lockdowns halted and then interrupted supply chains and production globally for several weeks. 

Although new van supply constraints are currently an issue, the reality is that constricted wholesale supply volumes are not driving this demand explosion. De-fleet volumes are tracking close to 2019 with only single digit declines year-on-year. First time conversion rates are also at record levels, at around 85 to 90%, while demand continues for both Euro 5 and Euro 6 models at auction.

A societal shift to home delivery 

Current used market performances have been fuelled in the main by the societal swing towards online home delivery, home working and shopping from local independent retailers. It will be interesting to see whether this movement is temporary or lays foundations for a more permanent paradigm shift in consumer behaviour. 

As positive demand continues for used stock, values are likely to remain high. Indeed, the market has seen some exceptional results in recent months, with sale prices up between +30% to 40% year-on-year. In some cases, the wholesale sector has even seen sale prices tracking £3,000 to £4,000 ahead of the guides, around a third higher than expected.  

With an ongoing investment in the UK’s service economy, albeit dictated by trends related to COVID-19 and Brexit, LCVs remain the backbone of business. With the likely Government infrastructure investment ‘bounce-back’ programmes this will further fuel demand for new commercial vehicles of all types. No doubt we will also see a surge in start-up small businesses; many of whom will need LCVs.

"There remains uncertainty in a number of sectors where businesses are holding back... Going forward, dealers are optimistic that the LCV market will recover, and business confidence as well as supply issues will improve."

Sue Robinson - Chief Executive of the NFDA

Van ownership and usage:
insight from the Department for Transport

In the first research of its type since 2008/9, the Department for Transport recently shared a Statistical Release: Provisional Van Statistics 2019-2020 report. Reviewing van ownership, usage, mileage and environmental factors, the data provides an interesting foundation on which to plan business models, albeit the information was collected pre-COVID so societal changes will also need to be considered.

Two fifths (41%) of Great Britain’s 4.1 million licensed vans were primarily used for carrying equipment, tools, and materials, while just over one in six (16%) were primarily used for delivery or collection of goods. Those percentages were slightly higher for ultra-low emission vans, at 50% and 26% respectively.

At the time of the study, more than half (55%) of business owned vans were new; a third (34%) owned outright; and a fifth (21%) through hire purchase.

Most privately owned vans were second-hand (81%). Over half of vans driven by private owners (54%) were more than 10 years old.

Half of vans (50%) in Great Britain stayed local, within 15 miles of their base, on a typical day, suggesting significant opportunity for electric and other alternatively fuelled powertrains.

Overall, Great Britain’s vans covered 55.5 billion miles in 2019, representing 16% of all motor vehicle miles.

Read the full report here (opens as web page).

The commercial vehicle forecast

The SMMT’s latest forecast for year-end 2020 sits at 288,000 new LCV registrations. For 2021, it sits at 328,000. In 2022, the SMMT forecast is for 338,000 LCV registrations. With COVID-19 compliant working practices through the supply chain currently impacting lead times and build slots, we believe this annual total is entirely dependent on the global control of the virus, including the development and cascade of a vaccine. Until we reach a point of managing the virus and returning to a more normal state of living, the status quo of demand and supply constraints will continue.  

At the 2020 medium Cox Automotive forecast position, we would finish the year -26.2% vs 2019 actual registrations of 366,000 and -25% from 2019’s medium Cox Automotive forecast position of 360,000.

Accordingly, we see 2021 new registrations tracking similarly to 2020: 

High 285,000
Medium 270,000
Low 255,000

Used supply of sub-24-month-old vans from the rental sector will diminish significantly due to the pipeline restriction from the 2020/2021 registration declines. With continued constraints on new vehicle supply due to COVID-19 compliant ways of working, franchised networks are likely to continue to focus on the used sector.

The commercial EV opportunity 

Given confidence from a global immunisation programme and consumer spending recovery, we see new van registrations for the period 2022 to 2025 averaging around 320,000 per annum. Over this time there will be a steady growth in battery electric vans, but from a low base and confined largely to the car derived and small panel van segments and off the shelf usages.

The biggest issue for electric van operators at all weight ranges is mapping charging infrastructure to van usage patterns. Once this, coupled to battery range, price parity and availability of models, is resolved, this sector should accelerate faster than passenger car with corporate funding and clean air ambitions driving volume fleet registrations.  

That said there are still many unposed as well as unanswered questions surrounding a 100% OEM production shift from diesel to electric powertrains in the next decade. Taking Manheim’s long-standing average age of vans sold at 60 months, this is only two replacement cycles from now.   

Future EV registration share scenarios depend on whole life costing models. Whether the market favours a three, four or more-year lifecycle, this will likely be further impacted by availability of product and overall business confidence. For electric vans registered prior to price parity with diesel, we suspect the whole life costing model will see first life corporate fleets extend them beyond traditional diesel life cycles, further starving the used van market of volume.

In any case, new van registrations for 2025-2027 are expected to remain relatively strong, exceptional world and demand-led economic events notwithstanding. We do not see the LCV market recovering to previous record levels until the end of the decade when the EV legislative hard stop demands it.

"Emerging from lockdown, Manheim has witnessed six successive months of record-breaking conversion rates and average selling prices. Due to underlying demand factors, we believe the used van market has realigned upward to a new price ceiling. I believe that the next 12 months will continue to be a robust record-breaking period for LCV market activity in the used sector."

Matthew Davock, Director of CV, Manheim

"Commercial vehicles are the lifeblood of business. Government support packages appear to have stimulated investment in used CVs, for example through business rate relief, deferred HMRC VAT payments and furlough. These cashflow reserves have given companies the confidence to upgrade and invest in brand new or newer used van fleets."

James Davis, Customer Insight Director, Cox Automotive

The commercial vehicle big picture

There is no argument that commercial vehicles are business critical tools. However, there are winners and losers in the current environment. The growth of home delivery and the gig economy have led to increased demand, with traditional bricks and mortar stores investing in the infrastructure to get their goods to customers during the spring 2020 lockdown and beyond. 

However, several sectors have been hit hard by redundancy and consolidation, leading to early termination on vehicle contracts. Demand is inevitably underpinned by economic stimulus and investment, meaning LCV transactions are linked to the continuation of high-profile projects such as High Speed 2 rail, roadbuilding, house building, infrastructure construction and more. 

While responding to COVID-19 offers a unique set of challenges, the market already had several legislative and economic pressures to contend with. Brexit looms large, with businesses still waiting on clarity to support future investment and decision-making as well as the impact of tariffs on list prices and transaction values. In addition, the environmental road map is pushing for organisations to switch to cleaner vehicles within the next two or three change cycles; although the temporary deferral of Clean Air Zones in many locations has provided limited space to review options and futureproof fleet decisions.  

Specific issues such as the need for social distancing in cabs or reducing to single-crewed delivery is likely to have an impact on the make and model derivations which are in demand, at least in the short term. Supply remains a challenge, with some manufacturers unable or unwilling to commit to bulk orders and significant lead times pushing businesses with an immediate need into the used sector.  

The markets are in the throes of a supply-led rather than demand-led recession, and the key issues surround societal change in response to public health rather than necessarily liquidity or financial drivers. However, an overall air of uncertainty continues to impact on decision-making, while Brexit is likely to compound supply issues. For example, new tariff structures and pre-existing scrappage and support incentives across the major EU markets favour Left Hand Drive production. The UK may not have access to as many new vehicles as required, despite it being one of the top three LCV markets by volume in the European zone. 

"In the absence of wholesale supply, demand dynamics have created an environment in which used demand and values have grown exceptionally. That said, in my career, I have never experienced such sector wide used van inflation. While new LCV supply constraints continue, I believe it is highly likely the premiums paid for used Euro 6 will continue upwards while Euro 5 (and pre-Euro 5) LCVs will stabilise and plateau in value terms; today at a level still over a third higher than before the first national lockdown. It is only a marked increase in new supply - or a significant prolonged demand-led recession - that can soften or reverse this price trend in the used market."

James Davis, Customer Insight Director, Cox Automotive