Fleet News

Why must buy-backs be better than new?

June 2000: Question: When do used car buyers expect the condition of the vehicle they're purchasing to be better than new?
Answer: When it's an ex-rental car sold by a franchised dealer - at least that's the impression I formed over many years of selling ex-rental fleet cars.

Let me explain.

Many of the vehicles purchased by the major rental companies are supplied by manufacturers on buy-back agreements. These programmes should enable rental companies to accurately forecast depreciation costs, and also produce a steady stream of nearly-new cars which can be sold through the franchise network of the manufacturer concerned. In theory it's a win-win situation but, as so often happens in this imperfect world, the reality is some way removed from the original vision.

In order to prevent abuse of the agreement, manufacturers will normally seek to impose a return vehicle condition standard that clearly defines what is, and what is not, acceptable. In principle, this seems reasonable because an efficiently run rental company should be recording damage incurred during operational use and either repairing the damage or reserving for its eventual cost.

However, problems arise because the standards which many suppliers attempt to impose are unrealistic for any used car, let alone one that's been used for rental. This return standard is always a bone of contention. On the one hand, rental operators want to spend as little as possible in end-of-life costs, whereas manufacturers allege that their dealers will not buy the vehicles unless they are virtually perfect.

This conflict of interest is brought to a head when vehicles are defleeted, and have to pass through the manufacturer's condition assessment process. Inevitably, defects will be found that are not recorded on the rental company's records.

This is because there is very little allowance in the agreements for the minor wear and tear that accumulates in day to day use, and in many cases the manufacturers take this process to excessive extremes.

When I was running a rental fleet for a UK company it was a constant struggle to contain costs in this area. Sometimes I would accompany our engineers on random inspections of used cars and this was often a highly fraught experience.

Scanning through the vehicle appraisal reports, it was easy to conclude that the fleet was largely comprised of neglected wrecks, but when it came to physically inspecting the damage many of the items claimed were simply invisible to my untrained eye.

'Panel damage' was often no more than the minor dings that we all suffer in car parks, and minor stone chips allegedly meant repainting panels that were otherwise undamaged. In no time at all, a car you thought of as 'clean', and with no history of unrepaired damage, had generated a bill of several hundred pounds for which there was no provision.

When challenged, manufacturers would normally insist that unless buy-back cars were virtually perfect their dealers would simply not entertain them. Conversely, when selling 'risk' vehicles direct to franchised dealers I found that end-of-life costs were a fraction of those demanded by manufacturers. Strange, that.

But whey should this situation be of interest to readers of Fleet News Europe? Rental companies operate on thin (or non-existent) margins, and of late they have been forced to try to cover their reconditioning costs by charging customers for minor blemishes that would previously have been absorbed.

This means extended check-in procedures and/or disputes with customers or their insurers, and flies in the face of an industry which is constantly seeking ways of reducing the time spent by the customers at the front desk.

Many of the surveys conducted on the rental industry have identified poor administration as one of the key causes of customer dissatisfaction and any attempt to increase the level of damage costs recharged to customers is certain to aggravate the problem.

The best way of avoiding disputes is for your drivers to ensure that they get written confirmation from the rental operator of the vehicle's condition at check-in. Rental companies fight hard to win and protect corporate business and certainly do not wish to lose it through disputed damage claims.

Equally, this issue is now too big to be ignored and must be addressed. Ultimately, the answer must be for manufacturers to build a realistic allowance for reconditioning into the agreed repurchase price, and to recognise that the value added by over-preparing used cars is highly debatable.

They should also take a closer look at the profits being generated by their dealerships on rental buy-backs. Why don't they do it? I've got my own thoughts on that subject, but recognising the laws of libel they are probably not printable.

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