Maximising residual values is one of the fundamentals of fleet management, but – as with most of the other fundamentals – it’s easier said than done.
A key strategy in maximising the used value of a vehicle is to sell it quickly: an unsold car costs money in depreciation and storage costs. Clearly, the best way to do this is to offer it at a cheap price, but that conflicts with the whole “maximising value” ethos. Remarketing is a balancing act between a quick sale and a good price. Industry experts believe too many fleets are failing to keep their balance on the remarketing tightrope, mainly because they don’t correctly price their vehicles.
In order to set a price that reflects the state of the vehicle, you need to appraise it before it goes before the punters. Hazarding a rough guess will not work – you need to know what you’re doing. Too many fleet managers don’t, with the result that cars are overpriced and don’t sell.
Over-valuing cars is not a new phenomenon and is compounded by the trend for buyers seeking out cars that are in ready-to-retail condition, according to Gerry Lynch, managing director of First Fleet.
“A high reserve is likely to frighten potential buyers resulting in a sale not being achieved,” he says.
Rob Barr, group communications director at Manheim, says the problem is far from rare.
“It is quite common practice for vehicles to be entered into the wholesale market where a blanket pricing policy of setting values at CAP Clean is adopted,” he says.
“This becomes a potential issue when the vendor does not have the benefit of a full condition report undertaken prior to sale or does not attend the sale to physically inspect vehicles themselves.”
Mr Barr says buyers may dismiss the vehicle even if the problem is rectified the second time around.
“If no action is then taken to review unsold vehicles immediately, then the exactly same thing is likely to happen again,” he says.
“This can get worse as regular and previously interested buyers see the same vehicles coming into sale at the same unrealistic prices and just don’t bother to bid again. Worse still, they may perceive that the reason it has remained unsold is that there may be something else wrong with it which they may not have picked up before.”
Unsold vehicles continue to cost the vendor money in additional depreciation and storage costs.
“To allow vehicles to remain unsold for weeks or even months is poor business practice that will have a direct effect on the bottom line of the vendors concerned,” says BCA’s sales director Mark Hankey.
Adds Gerry Lynch: “A car stationary in a compound is a car losing money and fleet holding costs will rise as a result. The chances of wear and tear damage will escalate as the vehicle is manoeuvred in and out of auction halls and around sites.”
An unsold car costs between £5 and £10 per day in depreciation and storage costs.
With that in mind, it’s worth taking the time to learn exactly what to look for to determine what’s expected of a car described as CAP Clean. Many remarketing companies offer appraisal services, but fleet managers can also do it themselves.
BCA’s training manager Les Butler runs courses on vehicle appraisal for BCA’s customers.
“We think it’s such a serious issue that we hold training days for motor retailers and fleet customers, advising them on the best way to instil good practice into their used car appraisals,” he says.
“While the aims and objectives of motor retailers are different to fleet managers, the skills of appraisal are universal and apply equally to any business involved in handling used vehicles.
“Conducting an accurate cosmetic appraisal is about routine and procedure. While professional inspectors use hand-held PCs or PDAs, a simple appraisal form with a schematic of a car is also an effective method of capturing data.”
Mr Butler says consistency is the key to looking at cars effectively.
“Always walk around the car you are appraising in the same way and complete the required checks in the same order,” he says. “Take your time and don’t be hurried.
Flitting from one part of the car to another will increase the chances of missing something. We recommend that all inspectors and appraisers should have some formal training and that should be followed up with refresher courses.”
Mr Hankey concludes: “An understanding of how appraisals are conducted will help every vendor to keep in tune with the marketplace. In today’s professional used car environment, benchmarking cars from a price guide is not enough.”
Fleet operators must ensure that they have as much information as possible about a vehicle at the time they are pricing it, according to Rob Barr.
He said: “When a market is buoyant and stock is in short supply even sub-standard vehicles can find homes but when trading conditions weaken, the first casualties are always those vehicles which are unrealistically over-valued due to poor condition.”
“Make sure you price your vehicles in line with their condition and prevailing market conditions.”
CAP Clean: exactly what is it?
Vehicles described as CAP Clean should:
Typical areas that affect prices: