Fleet finance: residual values

How much do you know about issues surrounding vehicle appraisal?

Try this quiz set by BCA’s Les Butler. Answers are upside down at the bottom of the page

“I think this is bread and butter stuff,” says Mr Butler. “I’m always surprised at the gaps in knowledge from people that offer themselves up as professionals. You should know about these things.”

1. How many digits on a chassis number?
2. What do the first three digits indicate?
3. What is the legal minimum tread depth and over how much of the tread?
4. What is the maximum size/diameter of damage allowed to a front windscreen for MoT purposes?
5. How long is the V5/2 (green slip) part of the log book valid for?
6. Approximately how much would a replacement master key for an old style Fiat Punto cost?
7. How many categories of write-off appear on the V car register?
8. If a car appeared on the HPI register with make and model unknown, what would be the most obvious reason?
9. What is the maximum period an MoT can be issued for?
10. Which agency would you contact to establish whether there were any manufacturer recalls on a car?

When selling your cars on, how much of an interest do you take in their condition and possible value?

You may well have a remarketing or leasing company that takes care of it all for you, so why worry?

Several reasons. Firstly, however big they are, companies make mistakes. Costly mistakes.

Secondly, there are concerns in the fleet industry that some companies see remarketing time as an opportunity to claw some extra cash in.

“I have major issues with leasing companies,” says Graham Short, fleet manager for Indesit and a regional chairman for fleet operators’ association ACFO.

“The perception among fleet managers is that some contract hire companies use end-of-life as a profit centre to try and get some money back. We have a lot of issues with our vehicles when they go back and I’m sure a lot of other fleets do as well.”

Mr Short’s main complaint is that damage valuation is a subjective art.

“What they think is damage I think is wear and tear,” he says.

“I have one leasing company where I’ll get a car “smart” repaired and I’ll still get an invoice for the damage.

“But that damage won’t be repaired – they just assume it’ll be devalued and don’t repair it.”

Les Butler is the dealer training manager for auction house BCA and has been in the remarketing business for 40 years.

“Leasing companies put block buys from one marque back into market three years later and as the market is saturated, the value drops,” he says.

“So they do hit you – whether it’s right or wrong, I don’t know. But they can only charge you if damage exists.”

With that in mind, Mr Butler runs a course designed to teach both dealers and fleet managers what to look for when valuing used cars.

“Fleet managers should be involved at some stage even if your remarketing company does valuations,” he explains.

“They’re your vehicles after all, so you should really ascertain the value before they go out into the marketplace.

“There seems to be a lack of knowledge about how to get the best out of this process.”

VALUATION

So, how do you judge what a used car is worth?

“The first thing we need to do is look at the car and do a very thorough appraisal,” Mr Butler says.

“I look at an awful lot of cars that have been valued incorrectly, almost always because of poor valuation.

“If you miss something there’s a potential loss of thousands of pounds. Some of these things are easy to spot if you just know how.”

The first place to turn is the pages of valuation guides. They can differ in their estimates of what a particular car is worth, but the editorial is always worth paying attention to.

Plenty of information about cars is available from a variety of sources, but not enough people know how to use it, Mr Butler says.

Guides such as CAP and EurotaxGlass’s are often overlooked.

“There’s a lot of good information there, especially the kind of stuff about how much leasing cars are making and so on,” Mr Butler says.

“But perhaps we should be looking at things a bit more scientifically. A lot of people valuing vehicles get hung up on the guides rather than what else is out there.”

Trade publications – such as the one you’re reading now – are also useful sources of information.

“They’re reporting what’s happening within a few days. CAP’s manufacturer relationships manager Martin Ward’s column in Fleet News is often very good –there are various snippets of useful information in there. Fleet managers don’t have the luxury of walking around looking at everything, but these people do.”

Bigger fleets may already have, within their fleet management systems, a way of collecting residual value data, and Mr Butler says more use should be made of data available.

Regional information and local market knowledge is worth collecting, too.

“How many times would you ring an auction when you have cars to get rid of?” he asks.

“It’s an area that’s underutilised. There are certain markets where the only places you’ll get the information are the auctions.

“People will learn more in an auction watching the metal meet the money than I can teach in a classroom.

“You only have to go out there and have a look at what’s going on. If you’re attending on a regular basis you can see a reflection of retail by how many people are there.

“Additionally, might a vehicle perform differently in a different area? For example, there will be markets that are strong on 4x4s. Alternative fuel cars could be better sold in London because they are congestion charge free.

“However, you still have to weigh up the benefits – is it worth the cost of transporting cars to a different location?”

FACTORS AFFECTING USED VEHICLE VALUES

Now you know where to look for information, you need to know what to look for on the car itself and what can affect values.

The make, model and derivative might seem blindingly obvious, but according to Mr Butler people do get it wrong.

“Some manufacturers offer a debadging option,” he points out.

“And for example, Volkswagen’s 1.9 TDI has several different guises. If there is a mistake somewhere in the system how do you check? Look at the service handbook in the car. Check it; it’s very easy to get wrong.”

Within the type of car, the way it has been specced can make a huge difference to its value.

“Some of the prestige cars come with automatic transmission as standard and manual as a no-cost option,” says Mr Butler. “But the RV differences can be huge.”

Other fairly obvious factors include mileage, age and registration letter/number and colour.

Often overlooked is documentation, including MoT certificate and service history. “They need to be the right documents and up to date,” Mr Butler says.

“You need to pay a lot of attention to that. We see an awful lot of vehicles where the documents might be available but the car is presented without them.”

The condition and presentation of the car is particular important. Dents, bumps and scrapes can reduce value, but so can dirt – a good valeting can work wonders for the overall appearance of the vehicle. But you’ll only know the condition of the car if you’ve done a thorough appraisal.

“Is it clean? Is it ‘smart’ repaired?” asks Mr Butler.

“We can do that as a remarketing organisation, but you might have a deal with someone local to do it beforehand. Sign writing removal is an absolute must.”

However, larger forces than the condition of the metal are at work when it comes to determining a vehicle’s worth. Market sentiment can send values soaring or plummeting.

“It only needs somebody like the press to make a few derogatory comments to really have an effect,” says Mr Butler.

“Jeremy Clarkson has a big influence. Just look at the impact he had on the Vauxhall Vectra and the Land Rover (Clarkson famously derided the Vectra and drove a Land Rover Discovery up a Scottish mountain in an episode of Top Gear), or Ford’s Premier Automotive Group (PAG) after its cars appeared in the latest Bond film.”

Let’s also not forget that in these days of environmental awareness, running costs are more important than ever to customers.

“It’s a very hot topic with carbon footprints, congestion charges and so on,” Mr Butler says. “So it will have quite an effect on RVs.”

Answers: 1. 17 – make sure there’s no evidence of tampering, which could indicate that the car is cloned;
2. The place of origin;
3. 1.6mm over 75% of the tread. If a car needs new tyres, its value will drop significantly;
4. 10mm within the driver’s view and 40mm over the rest. A car needing work to pass an MoT will be less attractive to buyers;
5. Two months;
6. Between £700 and £750. No master key could mean a very expensive bill, which reduces a car’s value;
7. Four – Cat A means a vehicle is scrap, Cat B means it can be broken for spare parts, Cat C means the vehicle is repairable, but not economically so, and Cat D is all other repairable vehicles. A and B cars must never go back on the road;
8. It’s an import;
9. 13 months, meaning a car can be put on sale with a full year’s MoT; 10 – The Vehicle and Operator Services Agency (VOSA).