Fleet News

Remarketing: disposal strategy

Summary:

  • Disposal should be considered as part of an overall vehicle lifecycle strategy.
  • Keep reviewing your strategy.
  • Don’t just consider the vehicles – consider wider industry implications.
  • What’s the best channel for disposal? Consider the advantages and disadvantages of each.
  • Review who makes decisions – how far up the hierarchy does your strategy go?
  • Once a strategy has been agreed, ensure it is being implemented. Intentions are worthless without action.

    WHEN was the last time you thought about your fleet’s vehicle disposal strategy?

    Do you even have a policy on how cars should be defleeted?

    Recent research by fleet expert Peter Cooke, professor of automotive industries management at Nottingham Business School, suggests that the majority of firms pay little attention to used vehicle disposal.

    As reported last month (Fleet News, January 25), Prof Cooke believes fleets could be losing out on hundreds of pounds each year because they have not thought through the best way to get rid of vehicles.

    In the report Rethinking Used Car Disposal Strategy, published by auction giant BCA, Mr Cooke outlines the reasons why fleets should take time to regularly re-examine their policy – or put one together as a matter or urgency – and the best way of going about it.

  • WHAT IS A USED CAR DISPOSAL STRATEGY?

    PROF Cooke’s definition is ‘the company plan to achieve the best possible residual value for its used vehicles, taking account of the whole envelope of associated costs including acquiring the appropriate new vehicle, most cost-effective means of used vehicle disposal at the lowest practical transaction cost and working within an acceptable risk management framework.’

    It’s a bit of a mouthful, but it contains some critical phrases – ‘achieve best residual value’, ‘envelope of associated costs’, ‘disposal at lowest possible cost’ and ‘acceptable risk management’.

    These factors can have different implications for different organisations and need to be focused on. A common mistake, Prof Cook believes, is treating disposal as a stand-alone job. It should be regarded as an integral step in the supply chain, part of the overall life of a vehicle.

    As such, disposal should be considered when procuring new cars, not just a few months before they are due to be retired.

  • PURCHASE OR CONTRACT HIRE

    THE uncertainty of residual values makes for risky business and Prof Cooke says this makes contract hire a strong option.

    ‘To minimise risk, an optimum situation is to have the units with an assured residual value set at the time those vehicles come into the fleet,’ he says. ‘This is difficult with small numbers unless the operator is acquiring its fleet capacity through contract hire.

    In such instances, the residual is built into the total rental and the leasing company carries the risk.’

    If a fleet does decide to purchase vehicles, much needs to be done to minimise the risk and ensure the best possible value is achieved on resale.

    CAP or Glass’s Guide expectations of how much a vehicle will make on resale is all very well but the real residual value is the price it achieves when it is sold.

    Not only can the sale price vary, but the net revenue to the company is unlikely to be the same as the amount the buyer pays.

    Factors within the disposal transaction to be taken into consideration include:

  • Movement to disposal site
  • Depreciation
  • Damage
  • Insurance
  • Commission
  • Preparation
  • Sales administration
  • Security
  • Parking
  • Unexpired road tax
  • Auction fees
  • Speed of sale is key – the faster a vehicle is sold, the lower the overheads.

    Prof Cooke says: ‘Time and cashflow are of the essence and as such the issues above are nuisances that are best avoided. The hidden cost of delay is difficult to determine, but it is likely to be significant.’

  • WHO SHOULD DECIDE THE STRATEGY?

    ACCORDING to the research, board-level management is rarely involved in vehicle disposal. Prof Cooke believes that indicates a disregard for the importance of residual values to the business.

    ‘Used vehicle disposal is essentially a trading situation for the organisation,’ he says. ‘It deserves either highly proactive management or outsourcing to a trusted organisation.

    ‘The growing emphasis of duty of care and the necessity to budget ever more tightly has brought a whole new dimension into both the role of the board in fleet management and the context in which used vehicle strategy is treated.’

  • PLANNING AND MONITORING

    COMPANIES can add value to the vehicle disposal process by thinking ahead and taking various factors into account.

    For example, a multitude of issues affect residuals – including time of year, specification of vehicles, whether a new model is about to be launched and quality of maintenance. Planning ahead can make the process much more profitable.

    Monitoring the policy as a whole is vital to ensure your firm is ahead of the game.

    On a regular basis, look at the current disposal methods and results, consider the requirements and look at alternatives. Is the current method still the best? Could a different contractor make improvements? Is the strategy being implemented?

    ‘Used business car disposal is a complex issue and there are many potential pitfalls for any organisation that does not take the subject very seriously,’ Prof Cooke says.

    ‘The dynamics of the used vehicle industry are such that disposal needs to be kept under constant review.

    ‘Changes in residuals may be induced by movements in tax, changes in relative fuel prices, economic outlook and supply and demand as well as a dozen other issues.

    ‘An enormous amount of data is available on used vehicle disposal, but the business needs to build it into its own strategy, test that strategy, implement it and monitor it.’

  • STEPS TO CONSIDER

  • Current disposal methods: How effective are they?

  • Annual disposal characteristics: How many vehicles are disposed of each year and how do prices obtained compare with guide prices?

  • Requirements for vehicle disposal: What are the residual benchmarks to be achieved in the future and what resources are available to support disposal?

  • Alternatives: Which other methods of disposal could be considered?

  • Preferred method: Select the most appropriate based on the above.

  • Choose contractor: Seek quotes for necessary services, including collection and delivery of vehicles and auction fees.

  • Implement disposal strategy: Ensure the new method is carried out, including any necessary training within the organisation and to contractors.

  • Monitor performance: Compare against targets and benchmarks, keeping track of residuals achieved.

    Disposal: the choices

    RECENT years have seen an ever-widening range of disposal routes.

    Auctions have long been popular, but what about tendering or selling direct to the general public?

    Your employees might want to buy their former company car and some vendors offer a guaranteed repurchase scheme. Leased vehicles can simply be returned to the lessor.

    Whatever method you use should involve the smallest amount of preparation to reduce overhead costs.

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