I’m starting to see a growing tide of commentators in the trade press speculating that Euro 5 van used values are, or will imminently begin to, suffer from the Q2 launch of the ultra-low emission zone (ULEZ) in London. I totally disagree with this viewpoint and would like to add some balance.
I recently came out saying around 80% of vans on UK roads today are pre-Euro 6. That is perhaps of little surprise considering Euro 6 was only mandated in new vans from September 2016, and Manheim data proves that the average lifecycle of first-life vans is 3 - 5 years.
The size of the London ULEZ, plus some of the initial relief being offered to residents and businesses located in the zone (as well as inside other confirmed LEZs), means we will not see an overnight reaction from the UK’s SME and sole traders - far from it.
Who’ll be hit hardest by LEZ charges?
The key issue is how many non-compliant vans each operator has - large corporate fleets will be hit hardest. Take a business operating 2,000 vans in the ULEZ, that’s £25,000 a day!
And it gets far scarier for truck operators with daily fees up to £100 a day for pre Euro 6. An operator of 50 pre Euro 6 trucks making daily deliveries into the London ULEZ will now pay £5,000 a day in charges on top of the existing congestion charge, which moves to 24/7/365 this year. No doubt these fleets have already started making plans to replace or change their distribution fleet operation.
Under the radar, the van replacement strategy of the majority of daily rental fleets has already seen them cycle out of the majority of their Euro 5 stock, and this Euro 5 volume (against a backdrop of low Euro 6 used supply volumes) has had no negative impact on used values in the wholesale market. If anything, undersupply in the wholesale market for the last two to three years has driven record year on year sale prices.
Now it’s the turn of contract hire and outright purchase fleets, so supply will continue to match demand and I believe there will be no downward pressures on Euro 5 wholesale values due to ULEZ and LEZ rollout.
The national van market
The crux of the matter is that by 2021 Euro 6 vans will have been mandated for five years, and up to half of the vans on UK roads could be Euro 6. At that point, the supply of used Euro 6 vans will match the demand from operators of much older vans looking to upgrade, and it is these older vans that are causing the major issue with emissions.
The SMMT states that 30% of the 4.3m vans on UK roads are over ten years of age – these are low value, trusty workhorses that are largely toolboxes on wheels, but tools to do a job and generate cashflow. That’s why I don’t think we will see a significant drop off in demand and values for Euro 5. Any price differential will be driven by supply, age and mileage. It always has been.
The new and used van market has seen phenomenal growth in recent years; it’s a massive success story and, aside from a major economic event, nothing can destabilise that trajectory.
Will we see a regional impact?
I believe the timing of the subsequent London ULEZ expansion in 2021 (and the LEZ rollout deadline across the UK in the same year) will have a greater influence on regional Euro 5 demand.
The first five cities are mandated to have their LEZ implemented by January 2020. Interestingly two of those cities have told government that they do not need to include a chargeable zone for vehicles as other measures will address the issues.
The reality is that LEZs are not about demonising every car and commercial vehicle, areas with the worst pollution scores will have to implement a broader and deeper action plan that goes beyond vehicles. The majority of local authorities are rightly focusing on public transport and taxi fleets in the first instance.
If one authority penalises all pre Euro 6 diesel vehicles they may move the issue to another non LEZ charging area.
What are the potential pitfalls?
The only real issue I can see is the speed of rollout for zero emission streets and zones (ZEZ).
As I have previously referenced, recent articles suggest that OEM pricing between petrol/diesel and electric drivetrains will reach parity around 2024/2025. This, coupled with availability and charging infrastructure should logically see greater uptake of electric drivetrains.
Both Oxford and City of London have recently deferred their ZEZ rollout dates, and I think this is the right decision and entirely pragmatic with regards to commercial vehicles.
There is no tangible supply of electric trucks and vans on the road (of the 4.1 million about c6500 vans are EV according to the SMMT) and point-scoring local authorities would be well advised not to penalise business when, in reality, they are already dealing with the adoption of Euro 6 as well as all of the usual business, competitive and margin pressures.
All in all the next few years will be more challenging than any I have seen in my career, we have WLTP to factor into this year as well as the post Brexit landscape and shift to alternative fuels.
One thing is for sure. Vans are crucial to UK Plc, to our service and manufacturing sectors and the 5 million small businesses, and I believe that buyer demand will remain high, even as the industry is pushed to develop new, low emission technology.