The coming of the white van
2017 is set to be a strong year for commercial vehicle sales.
Sales of commercial and fleet vehicles were up dramatically in 2016, and most signs indicate that the market will continue to be strong in 2017. The sales momentum is largely due to a recovering economy and substantial automaker and government incentives on commercial vehicles.
Commercial vehicle sales include new European-style van designs in both full-size and compact formats, such as Ford's Transit and Transit Connect. Ford Transit saw 22 percent sales growth in 2016, amid 10 percent growth for the commercial van market as a whole. More than 50 percent of commercial vans sold in America in 2016 were Fords. However, Ram, Chevrolet, Nissan and Mercedes all offer similar large and small commercial van options.
"December was absolutely hair-on-fire for selling commercial vehicles, mostly for tax purposes," says Chris Babcock, Fleet Manager at Landmark Ford in Tigard. "January has been OK, but we had the weather issue."
The traditional body-on-frame commercial van is being phased out in favor of more fuel-efficient unibody models. Ford still makes the E-series van, but only in cutaway and stripped chassis models. Only GMC is still making the full-size Savana in the traditional passenger and cargo van formats.
"We have 48 different varieties of cargo vans in stock right now," says Vinnie Curletto, a commercial and fleet sales specialist at DSU Peterbilt & GMC. "The economy is at its peak and the market is growing for all vocations. So obviously, contractors and construction folks have to have equipment to get the job done. Our GMC store is a sea of white."
In 2016, commercial van sales in America totaled 463,387 units, up from 421,455 in 2015. That figure does not include sales of pickup trucks for business purposes. Pickup sales are grouped into the larger picture of almost 2.7 million trucks sold in 2016. Also missing are SUVs sold for business use, which is a smaller share but still part of the 6.3 million-unit SUV market. The story is the same with fleet passenger cars, which sold over 6 million vehicles in 2016.
Tax benefits for commercial vehicles
There are good reasons for strong commercial vehicle sales beyond a growing economy. Section 179 deductions are allowed on Federal tax returns for 2016 and 2017. The rules are a little complicated, but allow for businesses to write off amounts up to the entire purchase price of a new van or pickup truck in the year the vehicle is purchased, provided that the vehicle is used at least 50 percent of the time for business. Section 179 is a little tougher on SUVs and cars, but for many business owners, the deduction is enough to prompt a purchase.
"Section 179 comes and goes, but it's good for this year," Curletto says, adding, "I always refer them back to their accountant."
Depending on the nature of a business, it may make more sense to lease a commercial vehicle and write the cost off as an expense rather than to purchase the vehicle outright and depreciate the entire amount under Section 179.
"There are different ways to go about it," Curletto notes. "If the business is personal, an LLC, or a corporation, it makes a difference. The downside is that in commercial lending, the interest rate is a little higher. People who are based outside of Oregon often prefer to lease vehicles and pay month-to-month because of taxes. If they lease for two years, they'll only be taxed for two years, rather than for the whole balance. That's another good question for your tax guy."
For those determined enough to go out in the January weather, dealers have been offering some attractive prices on commercial deals.
"Right now's a real good time to buy because we're in the middle of the model year changeover," Babcock says. "There are a lot of 2016 vehicles and a lot of 2017s. The manufacturers have given us some pretty good incentives and discounts on the 2016 models in order to sell what's on the lot, and the 2017s have a lot of cool new technology."
Curletto agrees, saying, "Our 2017 models just arrived last week. GMC's foundation is the Duramax diesel. The Duramax has been out for several years, and our resale value is huge because people don't want to get rid of them. It's a great long-term investment."
A strong used vehicle market
If buying a new van, pickup or SUV isn't in the cards, signs show that the pre-owned market is likely to have a steady supply of older models. According to the National Truck Equipment Association, state and local governments are likely to replace aging fleets in an era of tax revenue growth, and many municipalities have put off replacement vehicle purchases in recent years. Corporate fleet purchases are also expected to stay on pace from recent years, creating a sizable stock of surplus vehicles.