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.
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.
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:
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.’
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.’
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.’
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.