FORECASTS of some of the worst falls in car residual values for a decade should prompt organisations to conduct a complete financial overhaul of their fleets to avoid major depreciation losses.

Record levels of new car sales are almost guaranteed to provoke sustained and damaging falls in residual values, Garry Clarke, head of business finance for Interleasing, warned last week.

Speaking at a Leasing Life conference, held in association with the British Vehicle Rental and Leasing Association, Clarke said fleets that do not make every effort to purchase the right cars and investigate new avenues of disposal could face crippling losses when they defleet vehicles in three years' time.

Last month Fleet News revealed that by 2005 leasing companies anticipate the lowest resale values for more than a decade.

Clarke said: 'We are predicting 3% year-on-year falls in residual values over the next few years. Fleets must regularly re-evaluate the future expected value of assets. Do not get a nasty surprise when you come to dispose of your vehicles.'

Detailed research by Interleasing suggests that the optimum level of new car sales is about 1.9 million a year to avoid subsequent oversupply of the used car market. But last year about 2.4 million new cars were sold.

Clarke added: 'Managing and realising residual values is risky. If you own and manage your vehicles, and are uncomfortable with the risk, then you can always outsource it to the leasing or even the insurance industry. The leasing industry has to get it right or manage the consequences.'

He advised fleet executives responsible for selling cars to assess different remarketing routes, and to identify key trends and market indicators of certain models having poor residual values, from being the wrong colour or too many of the same colour (35% of vehicles sold last year were metallic silver) to manufacturers pushing sales of particular models and damaging residual values.

Clarke's comments prompted this response from Stewart Whyte, managing director of Fleet Audits: 'The comments about the collapse of residual values is fair, and every fleet manager should be aware of the implications. But since the used-car market is a continuum, should not the same warnings about a collapse be offered to those drivers who are currently being encouraged to leave the company car/ fleet environment, and take an ECOP/PCP etc.

'But then, silly me - I forgot which industry is currently doing all the selling of ECOPs/ PCPs!

'It may not be so bad for employees who are fully protected by a fixed-price scheme, but employees who are being encouraged to be more adventurous and get the benefit of RV surplus will be in for a big surprise.

There's lots more to think about - not least the industry's ability to manage future RV projections properly, with good risk-management strategies and techniques.'