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“There must be practically zero profit on many retail [used van] sales.”

Those are the words of David Hill, who is My Car Check Trade’s LCV expert. Mr Hill’s latest report on the state of the used van market arrived on my desk this morning and makes interesting reading.

He comments that the prices currently being paid at auction must mean profit margins for used van dealers are extremely limited — noting that “dealers are now telling us they’ve got all the stock they need, so they’ve got very short shopping lists”.

I’ll take a look at some detail in a moment, but it’s clear the overriding message is that most parts of the used van market are well supplied. The pressure we’ve seen recently on auction prices is thus very likely to continue. This is a message I’ve been hammering home for some time now.

However, as with any market, supply and demand does vary according to van type. There are some niches of strong demand and others where prices are slipping.

In demand

According to Mr Hill, one area where good quality retail stock is short is the large panel van sector. Generally speaking that means long wheelbase panel vans with a gross weight 3.5t:

As a result, any long wheelbase van in good condition with sensible miles will be highly desirable.

There’s also healthy demand for other larger models. Mr Hill singles out Renault Master-based low floor lutons, which he says are “currently making all the money”. Elsewhere, Ford Fiesta Van and Vauxhall Corsavan models are solid performers, wiping the floor with the unloved Peugeot 206 Van.

Electric vans are starting to trickle onto the used market, and here vanrental.co.uk’s favourite model, the Nissan E-NV200, has proved to be a top performer, as it includes batteries. With many other models, a seperate battery leasing agreement with the manufacturer is required. That might be acceptable in the new market, but was always likely to be unpopular in the used market.

Finally, the volume of used Volkswagen Caddy vans entering the market has eased, meaning prices have firmed up somewhat. However, buyers should “think carefully” before buying low horsepower models, says Mr Hill.

Not so hot

The Ford Transit Custom is, in my view, one of the very best vans on the market today. However, now that it’s starting to appear in “small pockets of volume”, used prices of entry-level models are being weakened by Ford’s competitive pricing for new models, according to Mr Hill.

In the current market, used buyers of Transit Custom are focusing on Trend and Limited models, says Mr Hill, with many requiring air-conditioning in order to consider a purchase.

Elsewhere, the Fiat Doblo is in ample supply and prices are suffering due to high volumes of similar  models. Be very choosy. While Renault Kangoo Maxi vans are in demand, the more common standard Kangoo is plentiful so don’t overpay.

Tipper models, which have often done duty in the construction sector, must not be battered into submission. Tidy bodywork and interior are required for a strong sale. Crew cabs are useful.

What’s next?

In my view, the situation described by Mr Hill will require something of a shake-out in the auction and part-exchange markets. This is likely to result in further price weakness at van auctions, something we’ve started to see over the last few months and which I believe will continue.

For businesses operating vans who are tempted to buy used but would like to see prices come down a little first, now could be a good time to rent. Many companies now offer rolling 28-day contracts. Some even offer zero notice period long-term hire, where you can simply keep a van for as long as you want and then return it with no notice required.

Alternatively, if you’re confident about your firm’s order book and believe you can keep a van busy, then buying new could be a smart move. Manufacturers are hell-bent on driving up sales volumes and are offering attractive prices and financing packages on new vans. Note David Hill’s comments above regarding Ford and Transit Custom prices.

The average value achieved at auction for a used van fell by 2% in April, according to the latest figures from British Car Auctions (BCA).

Used vans passing through BCA’s auction halls fetched an average of £5,508 last month, down 2% from £5,616 in March:

Graph courtesy of BCA (www.british-car-auctions.co.uk)

The fall means that prices have remained below the record peak seen in December for four consecutive months, suggesting that the market is genuinely starting to cool. Although prices were still slightly higher than in April 2014, this difference was just 2%, which can easily be accounted for by a slight reduction in average age and mileage:

Data courtesy of BCA (www.british-car-auctions.co.uk)

Duncan Ward, BCA’s head of commercial vehicles, puts a positive spin on the figures:

“Although we are reporting some price pressure as a result of rising supply and the typical seasonal issues we experience post-Easter, there is still plenty of demand from professional buyers and end-users.  Average values for light commercial vehicles have risen significantly over time.”

Interestingly, Mr Ward doesn’t cite a change in age or vehicle mix as a key factor in depressing prices, unlike his opposite number at Manheim. Perhaps the two firms’ stock mix is not quite the same.

Which vans are getting cheaper?

Average used van prices fell in April, according to BCA (image courtesy of BCA).

A closer look at the breakdown of BCA’s sales figures shows that prices are only falling in one category, Fleet & Lease vans.

These are vans, averaging less than four years old, coming straight off fleet from major lease and fleet companies. They are almost always well maintained and attractive used buys for buyers who don’t want to or can’t buy new.

Ex-fleet and lease van prices fell by 2.3% from March to April and are 8.4% lower than when they peaked in March 2014.

In my view, the reason for this is simple: rising new van registrations. Small business owners who were economising by buying used are now buying new, sapping the strength from this market, which accounts for a large part of used volumes.

At the bottom end of the market, prices for cheap part-exchange vans (average age 7 years) are holding firm and rose slightly last month. Buyers of these vans don’t consider new as an alternative, although they might trade up to an ex-fleet van if times are good.

Price outlook

In my view, the market is only just beginning to adjust to the strong growth in new van registrations. The effects of these new vans purchases and, later, their entry into the used market, are likely to be felt for some years. Manheim’s James Davis believes it could be 2020 before the market has returned to balance.

I’m not sure that the market will return so precisely to a historic balance, but I agree that the adjustment is likely to take several more years.

Never mind my predictions that used van prices might start to stagnate and perhaps even soften in 2015, James Davis, head of commercial vehicles at Manheim, believes that the used van market will not return to “pre-recessionary normality” until 2020.

Things certainly aren’t completely normal now: average used van selling prices last year were 45% (£1,500) higher than they were in 2006, despite the vans being older and having higher mileages.

The logic behind Mr Davis’ thinking is simple enough: new van sales have now returned to pre-recessionary levels of more than 300,000 units per year, but most of these new vans won’t be de-fleeted by their corporate, lease and utility owners until 2019/20. At this point, the age and mileage profile of vans entering the used market will be the same as it was in 2006, before the financial crisis reared its head.

However, I reckon there are some factors that could enable the market to find a new balance a little sooner than 2020.

Average used van age, selling price and mileage at Manheim sales, Dec ’13 – ’14. (Click to enlarge)

1. The UK CV market won’t be the same in 2020 as it was in 2006, and the age and mileage profile of used van stock may not be either. Mr Davis alluded to this in his comments today, noting that daily rental and flexirent fleets have recently injected a welcome does of late model vans into the market.

Flexible long-term rental is increasingly popular in the UK van market, and part of the attraction is that you are guaranteed to always have a nearly-new vehicle without having to commit to finance or long-term ownership. The rising popularity of this type of offering could mean that a proportion of last year’s new vans will be returned to the secondary market much sooner than historical trends suggest.

2. On a similar note, fleet operators are heavily focused on minimising the total cost of ownership of their vehicles. This means maximising resale values — if above-average prices remain available in the secondary market, some fleet operators may choose to de-fleet vans slightly earlier than they have done historically. Again, this could help to bring the market back into balance sooner than expected.

3. If the UK economy does continue to recover, a greater proportion of van buyers will want — and be able to afford — new vans. After all, new car sales are now ahead of levels seen before the recession. Van sales might also continue to rise, depressing demand for used vans. This may even be happening already.

Although used van prices rose by 5.5% in December 2014, compared to December 2013, Manheim’s used van prices are below the all-time peak seen in October 2014. December’s average of £4,715 is in-line with the average seen over the last six months.

The age and mileage profile of used vans is also improving — average age at Manheim in December was 62 months, down from 63 months in December 2013. Similarly, average mileage was down by 4,000 from 84,275 in December 2013 to 80,217 last month.

This suggest to me that buyers aren’t reliably paying more for older vans, as they were doing a year or so ago.

4. There’s also another possibility: suppose the UK’s economic recovery proves short-lived and demand for new vans falls again. That could boost used van demand beyond even Mr Davis’ wildest expectations. I don’t expect this to happen, but it’s certainly not impossible.

As always, we’ll just have to wait and see.