Companies should review their fleet procurement strategies in the wake of falling used car values, according to fleet consultancy Fleet Operations.
The Office of National Statistics (ONS) revealed used car values fell 5.6% year on year in February and Fleet Operations believes this should represent a red flag for any businesses operating vehicles.
A downturn in the residual value of vehicles means companies may be hit by unexpected losses when they come to replace company vehicles, particularly in the case of outright purchase or lease finance agreements.
Fleet Operations warns this may lead to an increase in the cost of contract hire agreements, and believes businesses must ensure their fleet purchasing strategy insulates them from market fluctuations and advocates a multi-supplier model.
Ross Jackson, CEO of Fleet Operations, said: “Leasing providers do take residual value forecasts into account when determining the cost of agreements, but this can only go so far in the face of a continued decline of used-car values.
“It is important to note that residual values are not universally agreed and different leasing providers will apply different values to the same vehicle.
"In some cases we have seen discrepancies of up to £2,000.
“This means leasing costs will rise at different times, so companies can mitigate the effect of market fluctuations by using a multi-bid approach, which means they are not tied into a sole-supply agreement that requires them to buy new vehicles at a price set by a single provider.
"Instead, when adding new vehicles, their specifications can be put out to the market in order to obtain the most competitive price.”
Fleet Operations said multi-bid leasing allows operators to benefit from the lowest possible lease costs by searching for the best price on every vehicle in their fleet from different suppliers.
Each time a new vehicle is specified, the details are provided to a panel of approved and vetted leasers, which will each submit their best and final bid on every order.
It ensures there is a competitive bidding environment on every vehicle over the life of a contract and mitigates the effect of factors such as economic downturn or interest rate fluctuations on leasing costs.
Buckets - 06/05/2016 12:13
With the new financial standards of leases having to go on balance sheet, what effect will these lower prices have on the financial reporting by operators? If specific vehicles (registration numbers) have to be reported, these contracts have to go onto the balance sheet as future commitments, if they are provided as a service (" A 2.0 litre saloon not more than 3 years old"), they are off balance sheet but the leasing company has to bear the losses (or gains) on each of their assets.