Fleet Auction Group (FLAG) believes UK leasing and contract hire companies could be losing millions by being ‘blinded’ by guide percentages at auction.
Chief Executive Officer Andrew Walker claimed that allowing vehicle disposal results to be measured against guides at the time of sale, and not the time of de-fleeting, is affecting ‘real life’ net returns and, consequently, the bottom line profit and stakeholder value.
Too many remarketing managers are chasing percentages of guide price, allowing vehicles to sit in stock for lengthy periods of time waiting for the guides to drop their values and thereby achieve a slightly higher percentage at the time of sale, Walker claimed. He cited the example of a £10,000 vehicle’s resale, delayed for three weeks. In that time, the guide price dropped 3% and the vehicle achieved a higher percentage against that, now lower, guide price.
Although the result is a percentage improvement of 2%, the delay means that the vehicle had actually lost a further £100, not including additional costs relating to longer stock holding.
Daren Wiseman, managing editor of CAP Black Book, said: ‘Used correctly, valuation guides are a powerful tool for understanding the current market. We would never recommend attempts to anticipate book movements. For the same reason, holding on to vehicles in the expectation of favourable price changes carries risks that can only be assessed by the disposer.’
Walker added: ‘To maximise returns, a fine balance needs to be reached between percentage actually achieved and days in stock.’
FLAG GUIDE TO PERCENTAGE PITFALLS
Obviously the most important factor – this is profit or loss time. Remember colour, specification, fuel derivative etc all make a difference to the vehicle’s appeal when it has to be remarketed and, as such, should be taken into proper account when setting residual values
You are not in the profession of storing vehicles – the longer the vehicle remains with you, the worse your chances of realising residual value are going to get. Time for the financial director’s input and his expertise
The guide prices very rarely increase in value – chasing percentages is a very costly game to play. Remember, CAP Clean means just that, clean and with all documentation, including service history
You don’t always recharge your best customers so, if required, sensitively and cost-effectively refurbish your vehicles. The condition of every vehicle will be different, and ‘blanket’ refurbishment may well mean that you end up spending more than need be
All major auction companies offer a multi-route solution. They are experts on remarketing so listen to their advice