Fleet News

Used car shortage tipped to spark residuals rise

Fewer company cars will be de-fleeted over the next couple of years as a result of the dip in new fleet registrations during 2009 and 2010, combined with a fall in early terminations and a continuing trend for organisations to retain cars for longer.

Professor Peter Cooke, from the Centre for Automotive Management at Buckingham University, told delegates at the BVRLA Residual Value and Remarketing Forum that this would result in strengthening residual values – as long as the economy started to recover.

Last year, 474,510 three-to-five-year-old cars were sold; this year Cooke predicts that total will fall to 415,300; in 2013 it will dip again to 409,500 – a near 14% reduction on 2011, and down 21% on the 2008 peak of 520,400. In 2014, numbers will begin rising again, to 434,500.

“The used vehicle market is price and economy sensitive – and it’s more sensitive to the economy than the business market,” Cooke said. “So if the economy doesn’t recover, there could be some significant implications.”

However, Martin Keighley, head of valuation services at CDL, forecasts a 3% rise in values over the next three years due to dwindling supply.

Outright purchase fleets could benefit most due to their greater flexibility to change replacement cycles based on market movements.

However, all fleets and leasing companies should take note of a survey finding in the latest Fleeteye report when calculating running costs of future car purchases.

When asked what their next car would be, 42% of consumers specified a used petrol model; just 23% said diesel.

With diesel accounting for around 80% of company cars, a drop in demand among used car buyers would have significant implications for residual values – which currently enjoy a premium over petrol – and resale times.

The survey also revealed that for company drivers, CO2 is the top factor influencing their choice of car, selected by 81%, followed by fitness for purpose (76%) and maximum allowable rental (68%).

Since 2008, the average mileage of an ex-fleet car has risen by 10,000 miles to 61,448, reports Manheim.

Basing its research on a fixed basket of vehicles to allow direct like-for-like comparisons, Manheim said longer operating cycles were partly behind the rise. It also pointed to a high level of early terminations in 2008.

However, despite the increase in age, prices have remained fairly steady. Consequently, on a like-for-like age/mileage comparison, residuals are noticeably higher now than they were four years ago.

Manheim Remarketing managing director Mike Pilkington said the typical fleet cycle had now risen from three years/60,000 miles to four years/80,000 miles.

He claimed that franchised dealers had been slow to react to changes in the used car market, but predicted that they would begin to bid more earnestly for these vehicles due to a shortage in younger cars and the need to increase profits from used cars.
That should see residual values further strengthen.

Adrian Rushmore, Glass’s Guide managing editor, said there was some evidence that the volume of fleet cars returning to market this year would be down between 5% to 15% compared to 2011.

In a quick straw poll of leasing companies, eight out of 10 said they expected to bring fewer cars to market this year, while six out of 10 forecast it would be more than 5% down on last year – yet further evidence that residual values will increase this year.

Rushmore also urged leasing companies to consider accepting more bids at the first time of offering at auction, warning them that cars sold first time typically made £500 to £600 more than a car presented a second time.

However, he also conceded that if every leasing company followed this advice it could lead to an overall softening of residual values.

Pilkington added: “Some companies work out market movements quicker than others and react. If you miss it, that’s when it costs you money. The cars that won’t sell are the ones that de-value the quickest, so it’s a double-whammy.”

 


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