Fleets and lease companies already struggling with lower than predicted residual values for their end-of-term vehicles have now been warned that the country’s auction houses will increase their charges.
“Motor auction houses are facing severe cost increases and are likely to raise charges to car dealers, fleets and other sellers as a result,” warned the Retail Motor Industry’s Society of Motor Auctions (SMA), which represents the UK’s major auction houses.
The country’s two biggest auction houses, BCA and Manheim confirmed that price increases are already in force.
Manheim managing director Mike Pilkington blamed “unforeseen cost rises,” while BCA said it was the “unprecedented scale, nature and frequency of cost increases”.
Andrew Walker, CEO of the Fleet Auction Group, said: “It’s not rocket science, costs have been increasing dramatically over the past few months and auction houses have managed to hold their fees to vendors for some time now.
"Some form of realignment is inevitable.”
Following the SMA statement, the auction houses’ biggest customer – the vehicle leasing industry – has warned that it will take its business elsewhere if costs increase too much.
“In these very cost-conscious times, our members would look to explore other means of disposing of vehicles if this particular route to market became too expensive,” warned John Lewis, director general of the British Vehicle Rental and Leasing Association (BVRLA).
“As the trade association for the motor auction industry, I would question whether it is the SMA’s role to try and lead market price change in this way.”
Julie Jenner, chairman of ACFO, the car fleet operators’ association, added: "Unfortunately this is a further area of increased cost to fleet operators when they need it least.”
But according to Louise Wallis, head of the SMA, auction houses are “facing greater economic pressures” and must now pass on costs to their customers.
She said the increases, which will be at least in line with inflation but may be higher, will begin within the next three months – but more likely within days.
She also warned that auction houses may increase charges again if costs associated with rising fuel prices, inflation and labour charges are not brought under control.
“Energy and business rates have both increased, as has the cost of insurance, labour and consumables.
"The 50% increase in fuel prices since December last year has also made a significant impact on margins,” she said.
“The vehicle remarketing industry is a low-margin, high-turnover business, which is only sustainable from a low cost base.”
She points out that some auction houses have held their charges to fleet and lease companies over the last few years by absorbing cost increases, improving efficiencies and reducing their margins.
Some, she said, have actually been able to lower charges as a result.
However, the costs associated with vehicle auctions have increased considerably and now they are looking to pass some of the pain onto their customers.
There has been significant investment in the auction industry, particularly in improved and new-build facilities.
“Additional services have also been introduced, including specialist collection services, vehicle preparation, and IT-based bidding and other internet services,” said Ms Wallis.
However, as the BVRLA points out, these additional services have been to the benefit of both sides and should not mean extra charges being forced on fleets and lease companies.
“The SMA rightly points out that its members have introduced a range of added-value services in recent years which have benefited customers, but they have also brought in extra revenues,” said the BVRLA’s Mr Lewis.
While fleets continue to sell vehicles through auction, they have again been reminded to set realistic reserves.
“Some sellers reserves are still too high and this is causing major problems,” said Ms Wallis.
She advised that CAP is proving most accurate at predicting auction values, but she stressed that sellers need to take into account the condition of their vehicles as well as mileage and age.
Ms Wallis said that despite the imminent charge increases, auction is still the most effective and economical method of selling on high volumes of vehicles.
“Auctions are an integral, transparent and ever-more important part of the distribution chain for used vehicles,” she said.
“Auction is here to stay.”