Fleet News

Options – the good, the bad and the ugly

THE options that employers allow drivers to choose for their company cars are having a major impact on fleet running costs, according to a leading contract hire company.

Godfrey Davis (Contract Hire) claims that certain specification enhancements retain their value, thereby boosting residual values at disposal time, while others offer no perceived value to used car buyers and therefore end up as costly additions.

The company says metallic paint and air conditioning can increase the resale value of a car, but costly extras such as satellite navigation and body kits can be 'stay-away' items.

The growth in user-chooser fleet policies, based on monthly lease rates, has afforded company car drivers greater ability to add optional features or extras to take the lease payment right up to the limit of their monthly allowances, according to GDCH.

Moreover, the downsizing trend spurred on by the new carbon dioxide emission-based company tax system will intensify the proliferation of high-cost options as some drivers downsize their vehicle but build up to their cost ceiling by specifying extra features.

Nigel Underdown, director of marketing for GDCH, said fleets should use more objectivity when it comes to deciding which features or optional extras to allow. He said while some features may actually have a positive effect on resale prices – a major factor in deciding lease costs – other specification enhancements will not recover any part of their original cost and, worse still, may actually have a negative effect.

Underdown said: 'Obviously, leasing companies cost the affect of these extras into the residual price which, in turn, helps determine the lease rental cost. The features or extras specified, or not specified, can significantly impact on this.'

He added that over-supply in the used car market means base spec cars no longer attract the prices they did even a few years ago and that fleets must become smarter when deciding which features should be allowed, even encouraged, and which should not.

GDCH cites metallic paint as a positive addition and adds that air-conditioning is also worth having.

'On some models the inclusion of metallic paint can actually result in lower rentals, because the aftermarket buyer expects that model to have it,' said Underdown.

'Although air conditioning is increasingly becoming standard fit, there are still some models in the lower-medium and supermini sectors where it remains on the extras list. When these cars come on to the aftermarket they stand out as lower spec and are spurned by the secondhand buyer who will have a plethora of air con vehicles to choose from. Although the initial cost involved may not be fully recovered, much of it will.'

GDCH says that at the other end of the value scale are bodykits and navigation systems.

'A car sprouting a non-standard wing or other add-on body parts rings alarm bells to a second-hand buyer,' said Underdown.

'It immediately signals that the car has been driven hard. In fact a car with a body kit will generally achieve a lower residual than one without. In fact it's a real stay-away from item.

'With satellite navigation, while it may be viewed as an aspirational toy, the buyer's mindset will question the cost of repair if it goes down and so adds little to the secondhand market.'

Underdown suggests that fleets uncertain as to which features or extras should be specified should consult their leasing company. Companies which finance and source their own cars are most likely to get specification and features wrong, he said.

And he added: 'Private buyers, including those purchasing in-house for companies, do not have access to the trend data available to professional purchasers when it comes to specifying what should, and what should not, be fitted to a car to achieve maximum resale value.'

Excellent value

  • Metallic paint: A must for luxury and executive cars. Good value on others.
  • Automatic transmission (right): Don't even think about manual transmission for a top end car. For other models the differential is factored into the residual value and thus the leasing cost.

    Good value

  • Air conditioning: It is becoming increasingly difficult to sell non air-conditioned cars on the used market.
  • Leather seats: Again, a must at the top end, but of negligible benefit on lower segment cars and most 4x4s.
  • Sunroof: Even with air conditioning many drivers like fresh air.
  • Seven seats (MPVs): Although they never use the additional two seats, second-hand buyers want the full package.
  • Alloy wheels: Specifying alloy wheels instead of standard steel ones represents good value – much more striking on the used-car forecourt.

    Poor value

  • Upgraded alloy wheels: To the second-hand buyer an alloy wheel is an alloy wheel. Few will be able to spot the difference between standard alloys and a more expensive set – or care.
  • CD players: The low cost of fitting a CD changer means a low premium.
  • Satellite navigation: The high front-end cost will never be recovered as private buyers fail to see the need for it

    Negative value

  • Body kits and add-on wings. Okay for the BMW M series and true sports car, but for everything else it shouts 'I've been driven hard'
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