Volatility in the CV market with ULEZ on the way

Volatility in the CV market with ULEZ on the way

Glass's

01 Mar 2018, Blog Post

Volatility in the CV market with ULEZ on the way

Last year registrations of new light commercial vehicles (LCVs) fell by 3.6%, the first decline in five years. Last month, registrations rose by 6.4% on the same period last year, the best February performance in a decade.

In the truck world, a number of mergers among the major players in the haulage industry has supressed demand for new vehicles. Total registrations of new trucks fell by 2.6% in 2017 after two years of steady growth.

  • Rigids down by 12.5% 2017 vs. 2016
  • Artics down by 6.3%   2017 vs. 2016

Driven by Brexit uncertainty, the current dose of economic jitters are affecting all parts of the market and businesses remain cautious in regards to replacing their CV fleets.

So why consider replacing your commercial vehicle fleet now?

Driving a pre-Euro 6 commercial vehicle into the London ULEZ will incur the so-called T-charge, adding £12.50 a day to the existing £11.50 congestion charge for vans and £100 for trucks, with owners who fail to pay liable to a fine of £130 for vans and £1,000 for trucks. The ULEZ will operate 24 hours a day, 7 days a week initially within the same area as the current Congestion Charging Zone (CCZ), and comes into force on 8 April 2019.

Andy Picton, Chief Commercial Vehicle Editor at automotive intelligence provider Glass’s, predicts that as more cities follow London’s lead and create low emission zones in the next two to three years, commercial operators who need to send vehicles into the affected areas will face a hard but simple choice – pay up or buy new vehicles.

How big is the problem?

  • 30% of all light commercial vehicles over 10 years old
  • Equates to approximately 1.2 million vehicles
  • Approximately 56,000 daily London journeys made in pre-Euro 6 commercial vehicles
  • 20.4 million journeys a year in London made in a pre-Euro 6 commercial vehicle

The cost

Small businesses who retain their current vehicle will either pass on any extra charges to their customers or take a hit on their margins. Larger fleets may partially replace their fleets whilst moving some slightly older vehicles to areas not immediately affected by low emission zones.

Used Euro 6 vehicles

Picton says that Euro 6 vans are beginning to appear on the open market with demand for latest technology ensuring that prices remain high, often leaving businesses to bridge a large gap from their current vehicle. Nevertheless, volumes at auction are likely to rise through 2017, giving some hope to struggling businesses that prices may start to fall on all but the very nicest examples.

Others looking at ways to move out of their current vehicle into a Euro 6 compliant vehicle, may look to lease or opt for a PCP type arrangement. However, moving out of a 10-15yr old van into something new of a comparable size may still be out of the reach of some.

For trucks, early model Euro VI tractor units have started to come onto the market and Glass’s Commercial Vehicle Editor David Hill says they are good value at less than £20,000 for 2014/64 plate. However, with fewer owner operators around and those that are left coming under more commercial pressure, Hill says, “an operator who is on an already tight margin only needs to get a puncture on a journey – that’s between £200 and £300 for a new tyre – and his profit is gone”.

Euro 6 commercial vehicle options

Picton believes there will be an increase in short term hire as operators look for ways of avoiding emission’s charges. However, whether the rental companies would be able to cope with a surge in demand is also a concern. Picton also expects to see those small businesses running a Euro 5 van on a PCP to opt for a new Euro 6 compliant vehicle on a similar plan.

However, the increase in interest rates and general squeeze on lending caused by new affordability criteria for all loans is pricing some away from this method of purchase and one of the factors driving economic uncertainty.