Fleet News

Remarketing: residual values

SOME marques of car appear a safe bet when it comes to retaining their value, but there are a few that could just catch you out.

In order to avoid unexpected losses on a car, it is important to understand customers’ attitudes to it and keep a close eye on residuals throughout its life.

The lifecycle of a model – how long that particular car is available in the range – and the stage the car is at are major factors that will influence the residual values of a car.

Jeff Knight, forecast manager for CAP Monitor, explained: ‘Taking a snapshot at any one time, to compare the residual values of different models, can lead to misapprehensions.

‘For example, differences between models in the same sector, with similar reputations for quality, often reflect different stages in the lifecycle, rather than differences in perception of performance, fitness for purpose or quality.

‘The truth is that cars retain stronger residual values the earlier they are in their life and this should be borne in mind whenever comparisons are made.’

So, that would explain blips in high-end prestige marques. But let us not forget that by the very nature of second-hand car buying, those shelling out the cash do not want to spend more than they have to. Otherwise, they would buy new.

Hence, such anomalies can be seen across the range of cars on sale today. And, of course, some cars that wouldn’t immediately strike you as strong players in the RV game can do unexpectedly well. So there is an upside.

Tony Gannon, commercial strategy and communications director for remarketing specialist BCA, explains: ‘It is supply and demand that causes residual values to rise and fall in the wholesale market, combined with the actual transaction price on new.

‘As a case in point, the Honda Jazz is currently an exceptional performer in terms of retained value, not just because it is a very desirable and fashionable car but because supply in the wholesale market is very limited. The MINI has also been a strong performer since launch, with relatively limited supplies and a high demand. But it is noticeable that as availability has risen, values have eased off a little on the earlier models.

‘This pattern is generally repeated throughout the used car market and is particularly true of niche models.’ The Ford Focus range supports Gannon’s theory, according to CAP. The ‘hot’ Focus ST outperforms the rest of the Focus range, typical of a trend that tends to apply to specialist, low volume vehicles which develop something of a cult following.

Other factors can include international appeal as well as domestic. Gannon said: ‘One model that is truly bucking the trend at the moment is the Mercedes-Benz C180 Kompressor saloon. ‘Many are going for export to South-East Asian markets where a combination of factors has created hotspots of demand.’

BMW also has its used high flyer. At the time of going to press, an 03 plate 2003 BMW 318 Ci 2.0 manual convertible with 50,000 miles on the clock would sell for 111% of CAP Clean price. New technology can sometimes scare off cautious consumers, but the poor RVs generated by market conservatism can often be transformed as faith in the technology grows. With this in mind, Jeff Knight talks of the latest major technological leap of faith in motoring.

‘Hybrids tend to be viewed with some caution by the used car buyer,’ he said. ‘It is a conservative market in the sense that people are reluctant to pay more for technological advancement. It should also be remembered that hybrids tend to cost more when new but sell used for similar prices to their conventional equivalents.

‘Therefore, while percentage value retention may not appear as good, they should not be identified as poor used performers. Hybrids are currently strengthening and trends such as congestion charges will encourage this process as perceptions of their benefits spread more widely.’

Some vehicles, such as the ever-popular Volkswagen Golf, have a reputation for great residuals across the range. But even in this case, there are models that stand out.

Take, for example, the 2.0 GT TDI, which is currently selling for £500 over guide value at two years old and 30,000 miles.

Big executive saloons have generally seen a downturn in desirability in favour of smaller, more economical models.

Let’s take Mercedes-Benz as an example, but there are many others. Pick up an A to E-class and it is likely to still be worth a tidy amount when you sell it on. But try to shift an old-shape S-class and you’ll be facing a much sharper drop in residual value in pound terms.

The same is true for a BMW – strong residuals across the board, except perhaps for a 7-series. In which case you might be in for a disappointment when trying to shift it in three years’ time. This doesn’t reflect on the quality of the cars – both the 7-series and S-class are fabulous motors – it’s a trait of their sector and there are top-of-the-range luxury cars from other manufacturers suffering the same fate.

It’s all down to supply and demand, according to those in the know, and the differences between the way that new and used cars are regarded.

Knight says: ‘Large luxury cars like Mercedes S-class or BMW 7-series are aimed principally at the high-end corporate market, where fuel, servicing, maintenance and insurance fall below image in the list of priorities.

‘Once they reach the used market, despite superior performance and build quality, such vehicles are inevitably subject to insufficient demand to keep residual values at the higher end.’

The estate variants such as the BMW 5-series Touring, Audi A6 Avant and the cavernous E-class remain hugely popular and attract exceptionally competitive bidding. Diesel power is the option to go for, but the relative scarcity of these compared to the huge demand can see prices rocket. ‘There is a similar spike in demand for convertibles and tin-tops, which will regularly outperform their hard-top counterparts in terms of retained value,’ says Tony Gannon.

‘Models such as the Audi A4 and Saab 9-3 convertibles and Peugeot 307 CC consistently perform well in the used market, whether it is the height of summer or the depths of winter.’

To conclude – don’t be quick to judge the likely RV of a car.

Things change, certain models buck trends, and the only way to be as sure as you can that you won’t be throwing money away is to do your homework.

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