The route to increased efficiency

In the few years before the recession bit, van sales in the UK grew almost explosively – sales rose from around 170,000 a year to 330,000 a year in the last 15 years. And they have been over 230,000 a year since 2001. That growth was driven by a range of factors with internet shopping and home deliveries playing a big part. Also, businesses increasingly used vans to deliver services, from double-glazing to landscape gardening, across ever greater distances. Now, roughly half the nation’s vans carry freight and half are more or less mobile workshops, typically helping tradesmen do their jobs.

Changing attitudes
As van sales started to reach those record numbers, bureaucrats started to reach for the rulebooks. The van fleet had poked a collective head above the parapet and people noticed. Mostly they seemed to notice vans at 90mph in the outside lane on motorways!
    
Then the recession bit and everything changed. And importantly, it isn’t only the numbers that are different. We started to hear people worry about vans, their emissions, safety, driver training and similar. Already we’ve seen draft CO2 limits for vans and can expect more “legislative intrusion” as one pundit put it. That may mean active and passive safety systems, including speed limiters and perhaps axle weight indicators and even tachographs to record van driving hours. New laws will drive some of these changes, but lawyers and insurance firms and their fear of exposure to public and employee liability claims will drive others.
    
From that peak rate of over 330,000 a year in the spring of 2008, van sales dropped 35 per cent to 186,000 by the end of 2009. The scrappage scheme that did so much for car sales did little for vans and, as it wasn’t best suited for fleet, leasing and SME firms, it did nothing for trucks and trailers. But its effect on consumer and business confidence probably has helped, if indirectly.

Better times ahead?
Early figures suggest the UK is technically out of the recession, its economy growing 0.1 per cent in the last quarter of last year. That minimal growth is welcome but uneven; many sectors are still struggling. The general recovery prospects look patchy; some sectors will do well, we’re not likely to stop eating for instance and more people have eaten out than expected. And London’s West End theatres have reported record audiences and revenues for the end of 2009.
    
For others the prospects are still quite poor. The construction industry’s output is 15 per cent down on its peak in 2007. Commentators say that by 2011 it will have fired nearly 400,000 people and may hire only 100,000 over the next five years, as it recovers.
    
In one of his recent and weekly economic reviews for members, Robert Baker, chief economist at the Society of Motor Manufacturers and Traders, says the labour market is disjointed, with a strong contrast between the public and private sectors; job losses and weak wages mean no growth in the private sector contrasting with significant job growth and wage rises of 3.5 per cent the public sector.
    
On jobs, the public sector total at September 2009 was 6.09 million, up five per cent on the previous year. In the private sector it was 22.8 million, down three per cent.
    
“Past experience after such major drops in demand show that both vans and trucks may be becalmed for some time before recovery takes hold,” said Baker. Recovery in demand in large fleets, the leasing sector and large freight transport-dependent businesses demand is vital.
    
“In the construction sector and across the smaller-business sectors too, firms will need to see a sustained rise in activity if they are to be confident enough to reinvest in new vehicles,” he continued.
    
The general recovery prospects look regionally patchy too. The North West, North East and Midlands have been hit hard, while the best recovery prospects seem to be in the East Midlands, Scotland and Wales.

Timely information
For the commercial vehicle market the overall impression is still “the Doldrums”. Typically van registrations ended the year down 35 per cent, and trucks were down 40 per cent. As the UK, almost alone in Europe fails to register trailers, it isn’t so easy to put figures on that market, but most observers think it is down 60 per cent or more. For all three sectors, order intake is still well down and will show as depressed van and truck registration figures for some months.
    
There is a time lag between a vehicle’s sale and its delivery and registration, so monthly registration data are a ‘lagging indicator’. Even for cars, it is unusual for a new vehicle to be delivered and registered within a month of its sale. For vans the lead time is often longer and longer still for trucks; two to six months is a reasonable average.
    
That much-missed fact is important. We need to know when people are sufficiently confident to sign a cheque. That is a sale and significant. Delivery and registration data simply confirm that earlier decision and suggest a confidence weeks or months earlier. The ‘lag’ meant that if we’d relied on registration data alone we wouldn’t have seen the start of the recession until months after it had bitten.
    
One of the complications for the van, truck and trailer industries is the transport industry’s overcapacity, estimated at around 30 per cent. Over the last 50 or so years steadily increasing road transport efficiency has helped the industry keep its truck fleet to virtually the same numbers while moving a great deal more freight.
    
Competition, rising costs and recessions drive efficiency as firms cut costs or face failure. For the transport industry that spare capacity means it could and almost certainly will move more without buying proportionately more vans, trucks and trailers. That has obviously uncomfortable implications for the vehicle makers and their dealers.
    
While road transport delivers the economy, it is also dependant on it and vehicle makers depend on the industry’s willingness to buy new hardware. Expect fewer manufacturers as consolidation bites, more shared production arrangements, fewer dealers and more of the financially engineered deals like leasing, contract hire and repair and maintenance schemes. And expect Chinese and Indian firms to take a steadily increasing role.

Reliable growth
Renewed and reliable growth in GDP and business investment and stable financial conditions are crucial to the stability of the UK van, truck and trailer sector and its expected gradual recovery in 2010. For many small and medium sized firms, new vehicle purchases are likely to be discretionary for some time, as firms grapple with slow and uncertain revenue growth, new markets, volatile cost pressures and no real need or appetite to renew or commit to long leases or buying new hardware.
    
Relatively young and durable van, truck and trailer fleets, the need for ever bigger cost savings and efficiencies and more intensive use of existing vehicles will all dampen demand. But in this process of restructuring there will be opportunities as well as challenges to the established order of vehicle use and supply.
    
The numbers should slowly start to improve in 2010. But as they emerge from this recession, firms will be more cautious about investment, partly because banks are also much more cautious about anything but bonuses. The business landscape is going to look very different through 2010, 2011 and beyond. Those van, truck and trailer sales are going to look different too.