A combination of falling residual values across the majority of vehicle segments, extended replacement cycles and more cars of poor quality going through auctions have prompted auction giant BCA to issue the warning that some corporate sellers have ‘taken their eye off the ball’ and are losing money by chasing impossible prices for their vehicles.
BCA’s director of customer affairs Tom Madden said: ‘Trying to achieve over guide prices for average-condition cars is like chasing fools’ gold. When you add the cost of financing or funding over-priced, over-aged, fast-depreciating and slow-churning stock, the financial equation leads one to conclude that this is the economics of the mad house.
‘Any organisation remarketing a volume of vehicles during 2004 should ensure they are benchmarking by a number of criteria – not simply performance against guide values.’
The trend towards extending contracts to four years over recent years has meant that many cars are coming back with high mileages and in poorer condition than last year, when there was less volume and higher quality, which pushed up prices. Many fleets are still sticking to last year’s disposal strategies, which yielded strong prices.
Madden said: ‘The reality is they are chasing unrealistic prices that the stock doesn’t deserve because either the condition is not right or there are too many other similar cars available at a cheaper price.
‘In doing so, they are simply delaying the inevitable. The end result will see them taking less for their cars than if they had been more rational and realistic in their initial appraisal and valuation of their stock.’
He added that vendors are suffering low conversions and slow churn, generating poor cash flow and buyer apathy.
Experts at BCA believe vendors are turning down bids when the car is first offered, only to accept lower prices many weeks – or even months – later, which is costing hundreds and in some cases even thousands of pounds on each vehicle.
Madden continued: ‘Price is not everything in a volume business and buyers and sellers have to be pragmatic and realistic to keep the churn going. This is the basic tenet of trading. It remains to be seen if car sellers embrace the ethos.’
Manheim Auctions warned a month ago fleets they should consider accepting below-CAP Clean prices as the current supply of used vehicles was exceeding demand (Fleet NewsNet, June 24).
It said vendors holding out for more than CAP Clean, as they did in 2003, risked losing thousands of pounds as a result.
Martin Potter, Manheim corporate sales director, said: ‘Holding on to the car is often a false economy, especially at the end of the month, as CAP and Glass’s publish their latest used-value guides and the car’s value could drop by £200.’