Market Report: Van Finance

The van market has been on a high with record sales for the past four years. Last year saw 375,687 vehicles registered as fleets and SMEs kicked Brexit fears into touch and took advantage of the ultra- competitive deals on offer. And behind these sales, finance has played a pivotal role. True, after these record performances the market has taken a hit in 2017 but it is still in good fettle.

Steve Hood, CEO of Trust Ford believes finance packages are playing an increasingly important role in leasing vans to small companies and individuals.

“There is this growth in financing small business so all of our sites have a business manager. It is an education process, putting the case for tax efficiency and a much better way to use company money, leasing vehicles. For many customers it is a new way of thinking about finance,” he said.

We asked some of the leading finance providers for their take on the market and where they are now focusing their efforts to drive sales for dealers.

Whereas the car market is dominated by PCPs in the van sector it is a different matter. According to Jennifer Hitchen, head of new business at Mallard Vehicle Finance, the most popular form of point of sale finance for new and used vans continues to be hire purchase.

“Vans and other vehicles being used for commercial purposes are not well-suited to PCP finance due to the mileage limits that are imposed within PCP agreements. Vans will usually cover significantly more miles than vehicles used for domestic purposes only.  This will affect their minimum guaranteed future value and therefore result in huge additional charges at the end of a PCP agreement,” she said.

“We have seen a gradual increase in the use of vans and other commercial vehicles for social and domestic purposes, as useful vehicles for home improvements and decorating, camper vans and for transportation of sporting equipment for motorcross and watersports. Consumers are increasingly seeing the value of commercial vehicles as they are well-built, designed to endure and highly practical.”

For Julian Rance, director of Paragon Car Finance, the type of finance being sold depends largely on the end user.

“In our experience hire-purchase or leasing is the most popular form as this appeals to our customer base of small, entrepreneurial businesses. Our larger clients however tend towards contract hire. PCP doesn’t generally work well for vans as these are working vehicles and, as a result, can lose value quicker than would a personal car.

“Self-employment has increased the size of the market in recent years and also led towards lower deposits and 0% VAT deferral deals. Again, vans tend to be working vehicles and small business owners will not generally want to invest a great deal of capital into their van over the space of a couple of years. Lower deposits are therefore an important differential for those looking to purchase a new van.”

Karl Werner, motor division CEO at MotoNovo, argued that the market can be split between finance for large fleets and SMEs.

“Fleet is heavily oriented towards the new and nearly-new category and thanks to the improved quality of the product often uses residual value products, most notably leasing. In large part this is linked to taxation issues and cash flow rather than the residual value issues seen in cars. Naturally, residual values lean towards the conservative.

“MotoNovo is very active in the used van market where HP remains the dominant product. This is a large and diverse market and while traditional panel vans dominate, the range, which includes Luton vans, pick-up trucks and even specialist vehicles means that our specialist underwriting skills are often called upon to review what can be unusual case. Inevitably vans will often be subject to high mileage and heavy wear and tear, it means that HP is the dominant finance product in the used sector.”

The van market is not particularly fast moving but Werner identifies some key trends worth watching.

“More specialist van dealers and suppliers have emerged in the used market and these have proved popular with used van buyers who value their expertise. This is true for both the van and the finance.

“Overall, demand has seen a steady increase, reflecting both wider economic growth and the particular growth in delivery services to support the expansion in the online retailing universe. The challenge here is supporting new start businesses and this requires expertise,” he said.

Recent years have seen record sales of vans. Although the market has eased off in 2017, finance providers are upbeat about prospects for business and the types of products they are selling.

Hitchen at Mallard said she antipicated new and used van finance will continue to grow steadily in the next 18 months, with most of this growth coming  from hire purchase.

“We offer van finance on a hire purchase basis. We feel this represents the best value for customers without imposing unreasonable restrictions on how they should use their vehicle.

“We offer flexible repayment terms and no-deposit finance on vans and other commercial vehicles. For customers who have taken out PCP finance but want to keep their vehicle when their PCP deal ends we offer our unique PCP Plus product.

“PCP Plus is a way of financing the cost of the final balloon payment on a PCP product over a 24-, 36-, 48- or 60-month period. This allows customers to keep driving the vehicle they already have and own it outright at the end of their agreement with us.”

Rance at Paragon Car Finance is also confident on the road ahead for van finance business and identifies some key trends driving the market.

“On the consumers side, an increasing amount of the shopping we do is online and, compared to the rest of the EU, the UK has been quickest to embrace online retail, creating a market worth more than £60bn in 2016.

“These goods need vans to get them from where they’re produced and packaged, to the front doors of consumers across the UK. On the other side of the equation we have also seen significant growth in the numbers of self-employed in the UK.”

Paragon pulled out of the finance market after the financial crisis and subsequently re-entered with a new focus. Rance is eyeing up business with dealers with a big emphasis on hire purchase.

“Since launching back into the car finance, and subsequently the van finance market, we have developed a real appreciation for the needs of the market. As such we offer a competitive hire-purchase product which takes into account the needs and circumstances of small businesses and limited companies, for example by considering applications where a business may not yet have two full years of accounts. Small business are the backbone of the British economy and we hope to continue supporting them, and further grow our market share, over the next 12 – 24 months,” he said.

Werner at MotoNovo sees growth coming through small to medium sized businesses. The company is targeting SME business by identifying challenges that faces the majority of companies, keeping the money coming in and avoiding cash flow constraints. Its solution is elegant.

“Traditionally, LCV buyers have had to pay the VAT element of their purchase for both new and used vans up front at the time of purchase, before being able to claim it back up to three months later, through their quarterly VAT return. For small businesses, this can create a potential cash flow issue.

“VAT Assist is a cash flow-deferral finance product that enables buyers to defer the payment of their VAT portion of the finance loan payment for up to four months.”

So, demand for van finance has grown over the past four years with record new van sales and an expanding used van parc. The market has slowed in 2017 but suppliers are confident about business in the months ahead, particularly with SMEs.