Vendors need to be more confident in their residual values,
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says BCA's Duncan Ward, as vehicle shortages go hand-in-hand with price recovery.
Words: Kevin Swallow / Images: Michael Thomas Asset management companies need to be braver, more bullish, and more confident in recovering residual values (RVs) if they are going to make the most of the used van market.
Duncan Ward. HCA's UK business development manager. commercial vehicles, and auctioneer, explains: "I spoke to the British Vehicle Rental and Leasing Association recently about prices. I imished up by saying 'you guys have to be a bit braver and more confident about RVs; because the numbers from the Society of Motor Manufacturers and Traders (SMMT) don't lie."
Figures for the first six months of 2009 from the SMMT show 92,621 new vans registered, which is down 45.4% on the same period in 2008. This year the market is on course to register 180,000 units.
"That compares to nearly double that figure two years ago — so what will it be in four years' time? There aren't going to be many vehicles about.
"Contract hire and leasing companies are a bit nervous — we are in a recession, what are we going to do? Now is the time to be cautious, but they can be a bit more bullish because there won't be many vehicles in the market in the future."
Extended contracts
Ward suggests that some contract hire and leasing companies created the shortage. In an attempt to counter falling RVs at the end of 2008 companies negotiated favourable contract extensions with their customers.
"What I think happened last year was some of the contract hire and leasing companies were taking some pain, prices were falling at an unprecedented level, and they couldn't carry on like that. They asked: 'What is the best cause of action?'
"If RVs are turning into serious losses, how can they stem those losses? Some of them actively tried to encourage customers into contract extensions at favourable rates," says Ward.
What this course of action has done, he says, is to create a shortage in the market. "I don't think anyone would have predicted that come 2 January, the activity and demand would bounce back like it has," he adds.
By mid-February and into March prices were already on the way up. The reason for the recovery is multi-faceted. To start with, Ward says, it was a new year, and people always start more positive, as they are eager to put the previous 12 months behind them.
"There was a lot of suspended purchases. Customers would have been in the market for new and used, but suspended that purchase. Fuel prices were sky high, and [customers said] 'let's get to the year's end and see what it brings "Plus a lot of businesses budgeted for a tougher year in 2009. And, I've said it before, a lot of people had a bit of cash in their pockets, from redundancy packages, to set out on their own," he adds. •