At a glance
USED vehicle values fluctuate continuously, presenting a budgeting nightmare for companies and fleets keen to make every penny count and get the best prices.
Myriad factors affect what defleeted cars will sell for. Mark Cowling is operations director at CAP, which deals in the business of predicting what cars will be worth when sold on and tracking current market conditions.
Here he looks at what matters at remarketing time.
C is the key
THE C-sector has the best stability in used prices mainly thanks to the huge numbers negating any rapid fluctuations, and the popularity of that size of car with used buyers. Astras, Focuses, Meganes and so on have held their values consistently over the past five years.
One threat to this is if the trend to keep making cars bigger continues to the extent where they reach D-sector size.
‘Assuming that doesn’t happen, we believe over the next three to four years C-sector RVs will remain flat and consistent, and that degree of certainty is unusual in the car market,’ Cowling says.
ACCORDING to Cowling, the 90,000-mile mark is the point when trade buyers can start to get put off.
‘There’s incredible consistency between depreciation of vehicles all the way up to 90,000 miles – about 5 to 6% for each 10,000 miles – but then the depreciation increases to 8%. This is partly because of the psychology of the buyer, but also because of warranties, a lot of which cut off at 100,000.
SPECCING the right options when new can affect vehicle residuals by hundreds of pounds.
For example, auction firm Manheim says the executive sector is very sensitive to price adjustments for fitted options – a manual gearbox on such a car can reduce its worth by up to £2,500.
A lack of desirable options coupled with the wrong colour paint could make a car so undesirable it might not even get a bid.
‘It’s buyers who determine the used price of any car,’ says Manheim’s group communications director Rob Barr.
‘In theory no fleet should really buy an executive car without a popular metallic paint, sat nav and leather to ensure they optimise residual values.’
REACTING quickly to regional variations in RVs can make a big difference to the prices cars achieve, according to CAP.
Inevitably, prices do vary from region to region. Automatics and cars with sat nav tend to be favoured in London and the south east, but generate little or no additional interest in Scotland. But most variations tend to occur because of time-limited factors.
For example, an influx of specific models in one area will depress values solely in that region. When those cars have been sold the problem eases.
MANUFACTURERS selling large numbers of cars to daily rental companies can be accused of depressing residual values. But for new products the impact can be positive as the vehicle’s profile is raised.
Only when short-term cycle cars are unwisely managed – by ‘dumping’ too many of the same spec and colour into the market at once – is there a significantly detrimental impact.
Many operators source new model mixes that avoid eventual gluts of identical returns.
Where oversupply does occur, the impact on residual values is not necessarily permanent, and prices can recover once the initial surplus has been absorbed.
THE relationship between the economy and RVs is more common sense than complexity.
When disposable income is plentiful and cheap finance available – coupled with consumer confidence at the prospect of paying finance off – the used car market will reflect those conditions.Residual values are more directly linked with brand perceptions and the supply/demand ratio than to specific economic indicators.
Research at CAP into the historic relationship between car prices at three years/60,000 miles and a range of economic indicators, including GDP and house prices, has failed to identify any clear causal relationship.
What buyers want
WHAT do the buyers look for when poking about at auctions or searching the web? Tony Styles, CAP Black Book database manager, says the simple answer is a vehicle that is fit for purpose.
‘For the trade buyer, that means a car that will attract the retail customer quickly, rather than outstaying its welcome in stock,’ he says. ‘For the retail buyer it is about carrying the right number of passengers at a manageable cost for their lifestyle while presenting an image they are comfortable with.’
After model and derivative, the first key factor buyers will consider is colour.
‘Colour is a common sense issue. Realise that what looks great new and under the showroom lights does not necessarily maintain its appeal with three years of road use,’ says Styles.
The fashion of the day can also have some effect. Who would have thought five years ago that white would be cool again?
‘While ‘60-day white’ is a long-held trade joke, there is now growing evidence that it no longer damages the residual value of some sports variants, like Golf GTi,’ Styles adds. ‘And flat red is enjoying a strong reputation on some models, such as the Audi A4 Sport-spec models. However, solid white can still penalise a Vauxhall Vectra by almost £500.’
Specification should be researched thoroughly.
‘The used car market contains many variations and the customers for different cars can see the value of optional items vary from model to model,’ says Styles.
‘For example, leather trim is perceived very differently on a variety of models.
‘It adds very little value to a Peugeot 206.
‘But in the more image and luxury conscious executive sector a BMW 3-series is enhanced by up to £600.’
For fleet managers, a combination of research and common sense goes a long way towards securing good residual values.