The factors that influence residual values for vans
Written by: Tim Cattlin
The recent announcement from the PSA group that they are to build a new Vauxhall Combo van in 2018, sharing the Citroen Berlingo / Peugeot Partner platform will probably come as little surprise to most industry analysts.
Sharing the development and production costs of bringing a new vehicle to market is nothing new and this particular development is purely a shift for General Motors as the current Combo is effectively a rebadged 2014MY Fiat Doblo built in Turkey.
Looking at the new LCVs currently on the market it would be easier to list those manufacturers who do not share design and production facilities such is the dominance of this strategy. Of the main players the most notable exception is Ford whose LCV range is not shared with a competitor (although their link on the passenger car side with other global players is recognised).
So – the question often asked of us by both manufacturers and customers is why we often predict differing residual values for two vehicles which are essentially the same apart from the badge and cosmetic changes. Why would the trade (and ultimately the used van buyer) pay more for van ‘A’ when he could have pretty much the same vehicle for less money if he went for van ‘B’?
Brand perception. The used trader has to understand the mindset of the man on the street. Such is the strength of historical brand perception it can (unjustifiably) put a vehicle lower down on the buyer’s shopping list.
‘I’d never buy a *****, my mates down the pub would laugh at me’ but he’ll happily pay more for the same van marketed by a manufacturer with a more ‘acceptable’ image despite it being identical in almost every way and built on the same production line.
Negative brand perception is a huge hurdle for manufacturers to surmount and it’s not something that even the most astute and creative marketing / PR departments in isolation can turn around overnight.
Volume and ‘route to market’ Manufacturer ‘A’ may choose to attack the UK market with price led, aggressive fleet deals which ultimately leads to high volumes being returned from the rental and lease sectors. Put simply, the higher the volume the more choice on the used market, with the resultant downward pressure on residual values being achieved.
Manufacturer ‘B’ however may take a more carefully crafted approach ensuring that deals are financially viable. Preferring profit over loss-leading volume, they may concentrate marketing activity on the SME and smaller fleet sector at the expense of market share. This strategy alone may have a positive effect on demand as the second user will also have been exposed to this marketing activity. Coupled with the fewer numbers appearing on the traders’ forecourts there is a strong potential for values achieved to be higher.
There is however a twist on this – manufacturers will often ‘buy’ potentially loss leading national fleet business.
The obvious reason is of course the all-important market share aspirations – the need to pay the overheads back at the plant. The tactical side to this is the high profile nature of the customer. BT, Royal Mail, British Gas, Sky etc are all respected household names and the subliminal input of this exposure may well lead the used (and new) buyer to subconsciously think ‘if it’s good enough for them I’ll have one’.
Dealer network. Most van brands which are also linked to volume car dealerships have at some point announced a strategy of appointing ‘van centres’ – this can range from training one salesman to sell new vans to retail / SME customers (and a technician or two sent on a couple of training courses) all the way to solus sales and service operations, sometimes on a different site.
One manufacturer in particular who hasn’t had the best brand perception in the UK is particularly active in developing its dealer network in the long term and is undoubtedly starting to benefit from its strategy.
Many of the dealerships are historically commercial vehicle outlets and recognise the needs of customers, both from a sales and aftersales perspective. Word of mouth spreads quickly in the local area and the brand should soon gain an advantage from its ‘badge engineered’ peers who have not followed the same direction.
So – there are some examples of factors we consider. We meet regularly with manufacturers at senior level who are on the whole very transparent regarding their future plans and strategy. Whilst we take this into account (and monitor that promises are being fulfilled) they are balanced with our own market intelligence from a plethora of sources prior to forecasts being issued.
The complexity of ever changing product plans and industry partnerships makes the task an interesting one to say the least!
Tim Cattlin - Editor, Commercial Vehicle Monitor