The remarketing industry is rapidly changing and so too are the needs and priorities of the way fleet managers - both government and corporate - remarket vehicles. The depressed residual values following 9-11 and the subsequent “zero interest” new-vehicle marketing programs prompted some government fleet managers to look to non-traditional avenues in order to achieve higher resale values.

Rather than viewing retired vehicles as strictly salvage material, innovative government fleet managers have begun to consider a strategic, proactive approach to vehicle disposal that will improve resale values via certain remarketing tactics such as implementing lifecycle cost analysis to determine the proper selection and optimum replacement of fleet vehicles. Capturing accurate maintenance and repair costs and the impact of driver downtime helps the fleet manager recognize and substantiate changes to their existing remarketing program.

Many government fleets, however, are not focused on the residual dollars and do not conduct sufficient analysis of alternative versus traditional remarketing channels. Moreover, if sales proceeds are not returned back to the user, department or agency, there may be little motivation to provide a well-maintained vehicle - resulting in a cycle of continuous diminished residual values. The choice of remarketing channels depends upon many factors, including the age, condition and type of vehicles, the policies of the organization, the location of the vehicles, and the ease with which fleet managers can access specific groups of potential buyers at minimal costs. Utilization of multiple remarketing channels requires fleet managers to fully understand the true net cost of sales and when to market specific types of vehicles.

Traditional Remarketing Channels
Most government fleets dispose of vehicles via internal surplus property auctions and external public auctions.

Internal Surplus Property Auction
Internal surplus property auctions allow governments to dispose of excess assets ranging from office machines to kitchen equipment. Vehicles enhance these auctions, because they bring in a greater number of buyers and, therefore, lift the residual value of all property sold. Moreover, taxpayers generally view such auctions as a positive experience since they can acquire goods at a reasonable price. In fact, some governments follow the philosophy that since the taxpayers paid for the vehicles in the first place, they should be allowed to “purchase them back” from the government when the government is finished using them. Buyers also most likely will have greater confidence in the quality of the goods and recourse (in the event subsequent problems arise) from a government agency versus acquiring from an unknown entity. Many government fleets restrict employees from participating in surplus auctions, because of concerns regarding the potential for fraud. For example, a vehicle repair technician could possibly raise or lower the value of a vehicle as a result of tampering with it during the pre-auction preparation period. On the other hand, some fleets allow all employees to bid at their auctions, because they view the sealed bid process as fair and equitable. Internal auctions save time re-locating vehicles and the cost of storing the units at another location. However, depending on timing, vehicles could be losing value as they sit waiting for the internal auction date. In addition, internal staff is needed to administer and run the auction. Some auction firms will bring their mobile equipment to the fleet facility and conduct the auction on-site. They also provide a marketing plan to identify target markets of qualified bidders and evaluate the best method of publicity such as direct mail, telemarketing, or a broad advertising campaign including newspapers, specialty trade publications, electronic media, the Internet, and other communications networking systems.

Commercial Public Auctions
Public auctions are open to the public and to car dealers. Sellers may be government organizations or private industries that need to sell surplus vehicles. As with internal auctions, by selling directly to the retail public, prices may be higher than selling at wholesale to dealers. Conversely, there may be less demand for a particular vehicle than at a dealer-only auction. Services provided by auctions generally include vehicle transport, condition report preparation, vehicle security, reconditioning services, and competitive bidding.

Specialty Auctions
Some auctions focus on industrial equipment such as construction vehicles, forklifts, bucket trucks, and other specialized equipment. The buyer usually does not need to be a dealer, although many dealers purchase vehicles at equipment sales. Specialty auctions can offer a marketplace for items such as boats, motor homes, or heavy-duty trucks. Some auctions market solely specialty equipment, while other locations have the specialty sale at a time or date different from their normal sale. Government fleets may sell specialty equipment, or for that matter, any vehicle to other government fleets that have programs that acquire used vehicles. If selling unique or sophisticated specialty vehicles, the seller must pay close attention to liability issues and legal aspects surrounding the sale.

Dealer-Only Auctions
Dealer-only auctions permit registered franchised and independent dealers to purchase vehicles. The retail public is not allowed to attend or to purchase vehicles at these locations. Dealer auctions may be part of a chain or privately held. They offer two auction formats - open or closed sales. An open sale allows any registered dealer to attend. This is the most common type of sale and usually offers a range of vehicles from various sources. A closed sale limits the buyers and sellers who may attend. Smaller dealer-only auctions have a tendency to attract local buyers who become “regulars” and it is possible that restricting the auction to strictly local dealers may result in lower resale prices as those dealers work to hold prices down.

Alternative Remarketing Channels
In order to understand the various alternatives to physical auctions, the process of upstream remarketing should be apparent.

Understanding Upstream Remarketing
Upstream remarketing is the process of beginning the resale activity of selling a vehicle scheduled for replacement prior to its anticipated replacement date. The fleet manager essentially accelerates the sale process prior to the vehicle physically reaching the auction. The first step to upstream remarketing is to obtain a condition report at the time that the vehicle is scheduled for replacement. The vehicle is then placed into the sales “stream” where it passes a variety of disposal resale opportunities or “channels.” The vehicle continues “downstream” until it reaches the open marketplace of the physical auction. Generally, the more upstream a vehicle is sold, the greater the residual value and the lower the selling cost. The advantages of upstream selling include reduced days to sale, shortened holding costs, increased gross earnings, product exposure to the broadest audience, elimination of reconditioning costs and auction fees, and potential avoidance of transportation fees. Ideally, vehicles are offered through an electronic, online system throughout the process as each vehicle moves downstream to the physical auction. Several industry remarketing firms specialize in upstream remarketing and offer a variety of services to assist fleet managers. However, the fleet manager must be knowledgeable about each end-of-service vehicle, order a pre-turn-in condition report, assemble data files, and understand and become familiar with the marketplace.

The Online Channel
Advances in technology such as sophisticated software programs and broadband Internet capabilities have allowed upstream remarketing to transform the process of reselling and recycling a used vehicle. Traditional used-vehicle sales methodologies are being supplemented with easy-to-use, accessible upstream systems. Additional use of digital technologies and online services to remarket fleet vehicles has grown to broaden the reach of various upstream channels. Most auction firms offer individual online programs that sell vehicles to wholesale dealers and allow fleet managers to facilitate the process before the vehicle actually goes through the auction line. National consignors and auction companies allow vehicles to be wholesaled at any stage in the remarketing cycle. Fleet vehicles may be sold via the auto manufacturers’ upstream Internet sales programs (such as GMAC’s SmartAuction); auction companies’ Internet platforms that allow dealers anywhere in the world to bid alongside dealers in the lanes in real time (such as Manheim’s Simulcast); comprehensive Internet sites listing all vehicles available for immediate purchase - regardless of ownership or physical location - such as Manheim’s Online Vehicle Exchange; or online dealer-to-dealer sales platforms (such as Manheim’s Dealer Exchange, a sub-site within Online Vehicle Exchange) that give dealers a wider pool of potential buyers for cars not sent to auctions. The State of Oregon has utilized eBay to increase its market exposure and the online marketplace has proven itself to be the fastest method the state has to dispose of used vehicles. The state can still sell vehicles to its citizens via its surplus property auction while it expands its market to the entire eBay audience. The fleet also operates a used-vehicle lot that is open daily, serving a strong local market. Online buyers will require a comprehensive provision of data in place of the traditional “kick the tires” physical inspection that takes place at a traditional auction. Electronic data includes a complete vehicle description, condition report, history, and maintenance records, availability information, pricing details, photos, and, when applicable, financing, warranty, and service contract availability. Online buyers’ willingness to purchase a vehicle without a physical inspection depends upon the credibility of the seller, the confidence the buyer has in the condition of the vehicle, the ease of use of specific sales channels, and other factors beyond the desirability and price of the vehicles. Provision of sufficient information expands the marketplace and significantly enhances the prospect of a vehicle sale before it is physically “grounded” to a dealer or transported to an auction. As the saying goes, “It’s a lot easier to transport digital pictures and electronic condition reports than it is to move metal.”

Driver and Employee Channel
Most government fleets are prohibited from marketing to employees. In the corporate environment; however, the primary initial option used by fleets to remarket a pre-termination vehicle is to sell the vehicle directly to the driver. Between 25 to 33 percent of all corporate fleet vehicles are employee sales. These sales are generally viewed as the most profitable method of vehicle remarketing, primarily because fleets allow drivers to buy additional options to reinforce their desire to buy vehicles at resale. Corporate fleets average $500 to $1,000 higher gains with this remarketing method. In addition, the vehicles are sold in as-is condition, with exception of safety-related items, which should be repaired or replaced. An extended warranty and financing are sometimes offered as well. It is critical to note, however, that residual gains are easily lost if the fleet manager does not monitor and eliminate unnecessary repairs made to the vehicle prior to its sale to the driver or employee. Vehicles can also be merchandized to other company employees, even those in large, multi-location companies. Some corporate fleets have begun opening vehicle sales to employees at affiliated companies or entities. A proprietary Web site makes this sales channel available and controllable. “Affiliated” company employees can include anything from employees of other divisions or subsidiaries of the same parent entity, to employees of all of the corporate clients of a single or multiple fleet management companies, using the same remarketing channel partner. Many corporate fleets that lease vehicles rely on their fleet management company to remarket to employees. However, to run an effective program the fleet manager must still spend considerable time to monitor, maintain, and measure the details and results.

The Retail Channel
Marketing used vehicles and equipment directly to individuals, groups, or organizations holds certain remarketing advantages as well. Developing a list of buyers in advance helps obtain the highest resale value when selling vehicles directly to consumers. This can be accomplished by keeping lists of repeat customers, using a network of vendors from a remarketing company, or taking advantage of association networks. The fleet manager usually establishes different lists for a sedans and another for heavy trucks or special purpose vehicles to target buyers interested in specific types of vehicles. Having established customers makes selling vehicles easier, faster, and more profitable particularly for fleets that employ a rapid replacement program. Retail sales require a dealer’s license and adherence to numerous legal requirements. While retail sales often return a higher price, significant expenses are involved in this process (a used-vehicle lot, office space, salespersons, advertising, licenses, etc.) that prevent many organizations for using this channel.

The Dealer Channel
The first step in an upstream selling scenario is usually to offer the vehicle to the new-vehicle dealer. Some fleet managers trade in used vehicles to dealers to offset the costs of new vehicles. Many local dealerships of larger trucks and construction equipment may offer the trade-in option if they have a group of potential buyers. This would then offset the cost of a new acquisition and free up more cash for capital investments. As with other remarketing channels, selling directly to dealers has both advantages and disadvantages compared to selling vehicles through an auction environment. Advantages include opportunities to reduce both the expenses and time required to sell the vehicle. Auctions charge a fee to handle the transaction and usually sell vehicles only one time per week. Direct sales to dealers can be done anytime and without the associated selling fees. However, time must be spent negotiating the sale price and the transaction eliminates competitive bidding.

The Wholesaler Channel
The wholesaler channel typically provides an advantage when a fleet is remarketing executive vehicles, four-cylinder vehicles, those painted in colors not popular in retail market, or high-mileage vehicles. Like selling to employees and dealers, wholesalers would rather buy vehicles in as-is condition and recondition vehicles themselves, thus eliminating the reconditioning cost. Wholesalers usually pick up vehicles within 24-48 hours and do not charge a fee for selling the vehicle. Unlike auctions, however, the wholesaler channel allows no competitive bidding and the wholesaler may in fact sell the vehicle at auction for a profit that the fleet manager left on the table.

Salvage Auctions
Salvage-vehicle auctions offer fleets an opportunity to sell damaged or total loss vehicles principally to licensed vehicle dismantlers, rebuilders, repair licensees, and used-vehicle dealers. As with traditional auctions, fleets are charged an auction fee and must pay for services such as towing and storage.

Which Method is Best?
The goal of today’s remarketing industry is to enable every sales venue to be efficient and effective for both buyers and sellers. The industry is evolving toward multiple channels where each participant is able to realize his own objectives faster and easier through a combination of technology and information. Surplus property auctions, dealers, public, private, and salvage auctions, Internet, retail, and selling directly to employees are all options to remarket a used vehicle. Which method is best? No single best method works for all vehicles in all circumstances. Channels that work well in a market where prices are rising may not work well when used-vehicle prices are declining. Different types of vehicles should be assigned to the channel that provides the best overall return. Age, equipment, condition, mileage, and vehicle type must all be considered when remarketing a vehicle. To be successful, government fleets should consider a mix of remarketing channels and adjust the mix of channels as they encounter changes in the used-vehicle marketplace.

Originally posted on Government Fleet