Companies who agonise over total cost of ownership calculations when formulating fleet policies are missing a major expense: cost of disposal.
Total cost of disposal (TCD) is the hidden de-fleet overhead, says online remarketing specialist Adesa. It factors in everything between end of contract and re-sell, including transportation, storage, inspection, refurbishment and depreciation. Make savings here, and they all go to the bottom line.
Of obvious relevance to fleets which buy their vehicles, it also has implications for companies that lease their vehicles if their funding provider is not integrating the potential savings from minimising TCD into the leasing calculations.
Significant savings can be made, claims Adesa, by moving the remarketing process upstream. This means putting stock online to sell the moment it has been de-fleeted. Reduce the days to sell, reduce your costs.
Part of New York Stock Exchange-listed Kar Global, Adesa launched in the UK four years ago with the acquisition of GRS Remarketing. Online remarketing is its calling card: globally, the business sells 3.8 million vehicles, of which 60% are via the internet.
In the UK, it took the decision to go 100% online, although Adesa is reluctant to reveal the number of vehicles that pass through its business – like many of its remarketing competitors, those particular cards are kept close to the chest.
“We’ve been at the forefront of moving from the downstream physical environment to the upstream online market,” says UK managing director Jonathan Holland.
“Our strategy for the UK is to be entirely online to disrupt the marketplace. We felt it best to go into the UK with this play rather than do what everyone else is doing.”
Two de-fleet centres
Adesa’s physical presence is restricted to two de-fleet centres, a 14-acre site in Newbury and a 21-acre site in Doncaster, which offer storage, vehicle inspection and refurbishment services.
The remarketing service is called Upstream. It lists vehicles for sale the moment they become available, with 24/7 buying at the reserve price or bidding at the daily e-auctions.
Upstream is supported by Adesa IVI, an artificial intelligence (AI)-based appraisal tool, which is key to stripping out inspection costs. The conventional approach is to send a trained assessor to inspect a vehicle and then move it to a storage compound ahead of auction. Adesa places the job in the hands of the driver: they self-inspect using a smartphone or tablet. AI identifies any damage and removes the potential for human error. The process takes 10 minutes and means Adesa can list a vehicle online within half an hour.
“They walk around the car taking images and we annotate the damage either remotely or using our machine-learning algorithms,” says Holland. “The process is already used by the insurance industry. It’s consistent, accurate, cheaper and faster.”
Consequently, on average, a car takes three days from allocation to sell through Adesa. “The industry average is around 21 days,” claims Holland.
He adds: “Everyone measures on Cap, but for us that is Cap at the point of availability, not at the point of sale.”
Adesa’s own calculations put the potential savings in terms of days to sell, average vehicle value, depreciation and stocking interest costs at between £50 and £300 per vehicle dependent on the model.
“Our approach enables us to expose the true costs of remarketing a vehicle that are too often not taken into account when an asset is disposed of,” says Holland.
“While a vehicle is waiting for an auction, it is depreciating and there are stocking costs – there might even be a book drop. Then there’s the inspection, refurbishment and logistics costs that have to be identified and tracked to get the true performance.”
The ultimate goal is to sell the vehicle prior to the end of the contract, potentially up to two weeks before, so it can be taken from the seller to the buyer, pausing only to undertake any refurbishment work (although even this could be carried out prior to the car coming off lease).
The challenges presented by the recent lockdown due to the coronavirus pandemic have created the ideal circumstances to begin trialling this service.
“Our conversations with vendors show there is a real desire to review and challenge the status quo; for them, digital remarketing now makes more sense than ever before,” Holland says.
“As a result, we have started to transact a small, but growing, number of end-of-contract vehicles still in their driver’s possession, addressing the issue of vehicles stuck in limbo on driveways during the lockdown.”
Result of social distancing
He believes one outcome of the social distancing and sanitisation measures which have quickly become an accepted part of daily life is to accelerate a move towards remote appraisals and online remarketing.
“Each time a vehicle is touched or moved, it’s a potential issue,” he says. “Our AI inspection service is a valid solution. And for disposals, there is an opportunity for a paradigm shift to online digital transactions.
“We’ve been approached by a number of fleets, leasing and rental companies to discuss these types of opportunities.”
He takes a typically bullish view of the future for vehicle remarketing in the UK. “Our model is potentially the dominant one going forward, especially with the current situation,” he says.
“Before coronavirus, we had a niche; now there are far more opportunities for us. Some of the changes we have seen will be with us forever.”