Fleet News

Lifecycle lottery revealed

FLEETS may have to consider differing lifecycles for cars in order to maximise their value at disposal time, depending on which sector they belong to, research has found.

Figures released by Manheim Auctions in its latest Market Intelligence report shows that while for some sectors it makes little difference to their value if fleets keep the cars for three or four years, some sectors – notably in the premium market – drop markedly after three years.

Analysts believe that with key fleet sectors such as lower and upper-medium, where percentage retained values tend to be lower than those in the premium segment, it makes little difference whether fleets keep hold of cars for three or four years.

Because they tend to lose a lot of value at the front end, the depreciation curve tends to flatten out as they get older.

However, for compact executive and executive cars the situation is reversed. They hold their value better early in the lifecycle, but as age becomes a factor, depreciation starts to accelerate.

Supermini

3yrs old 4 yrs old
Average mileage 29,017 34,673
Average sale price £3,348 £2,319
% new price retained 44% 32%
Monthly depreciation £121 £103

Buyers don’t expect Superminis to be heavily used, hence retail dealers are often turned off high mileage examples. The figures show that once these cars hit 30,000 miles they start to lose attractiveness to used buyers. As mileage increases beyond this, values start to be heavily hit. It makes little difference if they are three of four years old if the mileage is right.

Small hatchback

3yrs old 4 yrs old
Average mileage 35,125 47,173
Average sale price 3,769 3,183
% new price retained 40% 33%
Monthly depreciation £160 £137

Again, used buyers see low mileage in this segment as key so defleeting after three or four years is more about mileage and condition. Manheim’s figures show that a car doing 12,000 miles (the average distance for a driver) between the third and fourth year will only lose around £600.

Medium family

3yrs old 4 yrs old
Average mileage 56,191 66,750
Average sale price £4,871 £3,765
% new price retained 35% 28%
Monthly depreciation £247 £200

Whether you keep a car in this sector for three or four years is largely irrelevant. Such are the generally high levels of depreciation that most lower-medium cars will have taken the largest hit in residual values in their first three years, so running them for another year will not penalise you financially.

Large family

3yrs old 4 yrs old
Average mileage 71,981 77,883
Average sale price £4,828 £3,683
% new price retained 29% 23%
Monthly depreciation £326 £263

The strategy for defleeting upper-medium cars is similar to that for lower-medium. In fact, because their residuals are weaker still, age is even more irrelevant. After three years, the car has taken such a hit on depreciation that by keeping it for a further year is much smaller, its sale price dropping by only a further 6% of cost new.

Compact executive

3yrs old 4 yrs old
Average mileage 61,841 72,686
Average sale price £8,939 £7,357
% new price retained 41% 34%
Monthly depreciation £361 £302

Age has much more of an effect in this sector and fleets should really be looking to defleet after three years. It seems the desirability of a premium badge wanes a little as they enter that key fourth year. With a relatively small jump in mileage of 11,000 miles in the fourth year, the average compact executive car’s value falls by nearly £1,600.

Executive

3yrs old 4 yrs old
Average mileage 64,887 78,652
Average sale price £11,208 £7,670
% new price retained 41% 29%
Monthly depreciation £441 £394

If age starts to become important to compact executive cars, it is absolutely vital for executive cars which between the third and fourth year drop, on average, a massive 12% against cost new or £3,500 on a further mileage of 14,000. A car run over four years will have an average monthly depreciation nearly £50 higher than a three-year car over the lifecycle.

MPV

3yrs old 4 yrs old
Average mileage 60,502 71,947
Average sale price £6,716 £5,426
% new price retained 39% 32%
Monthly depreciation £298 £242

Such are the steadily dropping residual values of MPVs over the last couple of years, that whether you decide to keep them for three or four years makes very little odds. They lose value at a steady rate every year, with mileage also not a major consideration.

MPV

3yrs old 4 yrs old
Average mileage 42,650 57,433
Average sale price £10,755 £9,105
% new price retained 45% 37%
Monthly depreciation £363 £323

Like the executive sector, SUVs are particularly susceptible to age, probably because as premium cars get older, the demands of fashion have an effect. The average price for a four year old car is £1,600 less than its three-year-old counterpart. Mileages also tend to be lower than many other sectors.

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