Low emission zones create volatility in the LCV sector
LEZs creating market volatility reckons Glass’s Andy Picton

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

It’s been a similar performance in the HGV market.

Much of this has been brought about by economic uncertainty created by the Brexit negotiations.

But LCV operators are facing further unpredictability: what action to take on low emission zones that as more cities follow London’s lead and create low emission zones in the next two to three years. It is this that is creating volatility in the LCV sector.

Why replace your van now?

Driving a pre-Euro 4 vehicle into the London ULEZ will incur the so-called T-charge. This adds £10.00 a day to the existing £11.50 congestion charge for vans and £100 for trucks.

But there’s more. From April 08, 2019, London is introducing a ULEZ (Ultra Low Emission Zone). This will operate 24 hours a day, 7 days a week initially within the same area as the current Congestion Charging Zone (CCZ.

Commercial vehicle operators who need to send vehicles into the affected areas will face a hard but simple choice – pay up or buy new vehicles.

What is the scale of the problem?

  • 30% of all light commercial vehicles are over 10 years old
  • This equates to approximately 1.2 million vehicles
  • Some 56,000 journeys a day are made into London in pre-Euro 6 commercial vehicles
  • 20.4 million journeys a year are made in London by a pre-Euro 6 commercial vehicle

The cost equation

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

What about used Euro 6 vehicles?

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 best 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.

What are the other options for a Euro 6 van?

There will be an increase in short term hire as operators look for ways of avoiding emission charges. Rental companies need to be ready for this surge in demand.

I also expect 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.

 

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