Why now is the time to buy a Euro-5 used truck
The threat of multiple low emission zones (LEZs) across the country is leading to a shortage of Euro-6 stock in the second-hand truck market. But for those unlikely to be affected it is now possible to pick up a Euro-5 truck at a very attractive price.
London has set the benchmark for LEZs having introduced an emission controlled area in late 2008. It covers much of Greater London, operates 24 hours a day, and includes key transport routes such as the M4 and M1. Any vehicle over 3.5 tonnes registered as new before 1 October 2006 entering the zone must pay a fee of £200 a day. It covers all types of commercial vehicles and is – for now – a phenomenon unique to London. That doesn’t mean other areas aren’t exploring their own zones.
Glasgow has, this year, introduced a new low emission zone for buses which will be rolled out to all vehicles by 2022. Edinburgh is also exploring similar clean air zone plans. Brighton has had a bus-only LEZ in place since 2015, and other cities including Norwich (2008) and Oxford (2014) have similar exclusion zones for older buses, with Oxford now proposing a complete zero emission zone for six central streets by 2020.
The capital conundrum is complicated further still by the introduction of a new Ultra Low Emission Zone (ULEZ) from 8 April in central London. This area, initially covering the existing congestion charge zone, requires a minimum of Euro-6 emission standards to enter penalty free. The zone will be expanded to include all areas within the North and South Circular roads on 25 October 2020, at which point the LEZ will also toughen up its requirements for large vehicles. All vehicles will need to meet Euro-6 regulations to enter Greater London without penalty.
It is this impending increase to the size of the ULEZ and tighter controls, as well as the speed at which the changes are being both discussed and implemented, which has got a lot of businesses worried.
Five cities have been required by government to introduce a Clean Air Zone by 2020. These include Birmingham, Derby, Leeds, Nottingham and Southampton, with each free to decide their own emissions policy. Proposals for each city were required by March 2018 and did not have to follow the policies adopted in the capital. In addition to the five cities, areas with extreme traffic problems, or disproportionately high emissions levels, are free to introduce their own Clean Air Zones. Bristol, Cardiff, Coventry, Hull, Leicester, Liverpool, Manchester, Newcastle, Sheffield and Stoke have expressed an interest or explored the possibility.
With government threatening funding cuts to councils that don’t meet emissions criteria by 2020, changes are not only expected to be rolled out quickly, but to be draconian. It is this fear, as cities including Southampton and Leeds consult over introducing charges to their LEZ schemes, that is driving the sales of Euro-6 trucks in the used truck market and hindering sales of Euro-5 units. What was once an issue largely consigned to the South East, is fast becoming a national concern.
But it’s not just fears of numerous LEZs that is stuffing the marketplace with Euro-5 trucks. Economic and legislative factors around the introduction of Euro-6 vehicles back in 2013 led to unprecedented amounts of Euro-5 vehicles entering the market.
The onset of recession in 2008 forced many companies to delay purchasing patterns, keeping vehicles for longer and bringing their inevitable replacements closer to the introduction of Euro-6 in January 2014. Concerns about the fuel efficiency, more complex technology and high upfront purchasing costs of Euro-6 trucks, however, prompted many operators to fill their, by then sometimes ageing, fleets with the very last Euro-5 units. The result was an artificially high number of sales as the cut-off for Euro-5 registrations approached, and far fewer sales in the early stages of Euro-6.
Five years on, most of those vehicles have returned to the second-hand market, but due to the pressures of LEZs, they are no longer as desirable as might first have been predicted.
Scania sales director Andrew Jamieson explains: “The run-out of Euro 5 generated in 2013 the largest market that we have yet seen in the UK, with December alone having more than 8,000 registrations in heavy trucks beyond 16 tonnes; effectively pre-registration and the last of the Euro-5 products. As a result, there are still plenty of late Euro-5 vehicles around, and close to 20,000 tractor units among them. On this basis, these vehicles and some of their older siblings will make up a good proportion of the operating vehicle parc for a number of years to come.”
Market leader DAF also expects the number of late Euro-5 models to be significant as they return to the secondary market.
“The norm for commercial vehicle sales [over 6 tonnes] post-recession was below 40,000 units,” explains DAF marketing manager Phil Moon. “In 2011 there were 37,410 registrations and in 2012 that number was 38,577. But in 2013 sales jumped to 49,430. You have to presume that is people pulling forward their requirements, over concerns of maintenance, reliability and costs. Some of those concerns never really manifested themselves, but of course no one was to know that. As a result, sales in 2014 [the first year for Euro-6 registration only] were lower than the norm at 34,672.”
The wealth of additional stock doesn’t, however, end with the sales peak at the end of 2014. Moon says: “There was a 12-month derogation period, when [Euro-5 vehicles] could still be registered. Looking at the number of vehicles DAF registered under derogation and assuming other manufacturers did likewise, it could mean a lot of Euro-5s made up the 35,000 units sold in 2014. I’m guessing, because we can’t be certain, but I would assume maybe 15,000 derogated vehicles were registered that year, so a fairly high proportion.”
With so many Euro-5 vehicles in the market, prices have begun to be affected, creating a noticeable gulf between later Euro-5 and early Euro-6 trucks. As an example, a well-maintained Euro-5 MAN TGX 6x2 480hp tractor unit with average mileage on a 14-plate is available on commercialmotor.com for around £15,000, but a similar MAN TGX 480 just one year younger as a Euro-6 can command in the region of £38,000. Even accounting for the difference in age and mileage, the gap is considerable between two trucks that are both out of warranty and differentiated by little more than their engine’s emissions standard.
With so many Euro-5 trucks forecast to arrive in the market, it is also hard to see where the value is in the second-hand market. But Paul Young, regional asset manager for PACCAR Financial, believes a good Euro-5 truck could be a wise investment in the short term.
“If you’re buying a Euro-5 tractor at five years old and plan to run it for 12 to 18 months until there are Clean Air Zones in most areas, it could be a good buy. The depreciation has already been taken, and for 12 months it will probably look like a cheap truck. Providing demand remains in the export market, I don’t think it would represent a bad investment, particularly to get you out of a short-term problem,” Young says.
There is undeniably great value to be had in buying a Euro-5 truck at the moment, but operators must be mindful of impending legislation that is likely to affect areas in which they operate. Nevertheless, with five years already under the belt of even the youngest Euro-5 trucks, supply of good low-mileage trucks will eventually dry up, leaving another potential problem.
“If you do go for a Euro-5 in the short term, you’ll eventually have to get into Euro-6. Come April 2020 when a lot of these LEZs will be in place, if all of a sudden there is a shortage of trucks for other reasons, like operators holding onto vehicles because of a hard Brexit, you could find it difficult to get back into the market and have to either buy new or pay a lot more,” Young warns.
“There are a lot of variables, but generally if you bought a Euro-5 now you’ve probably got 12 months before you have to pay any additional levies to get into cities. And assuming a demand remains in export, Euro-5 looks like great value compared with Euro-6.”