In a perfect (fleet) world, a vehicle’s value would remain the same throughout its service life, despite its actual condition when it comes time for replacement. In reality, however, ensuring units retain a percentage value of their original worth is just another aspect of the job for a fleet manager.
"The true cost of ownership is a measure of the original purchase cost less the resale value," explained Bill Cieslak, vice president, North American remarketing for PHH Arval. "The higher the resale value you can achieve in the marketplace, the more of your original investment you can retain."
According to Bob Graham, vice president of vehicle remarketing for Automotive Resources International (ARI), "Increasing a vehicle’s resale value is one of the most important factors in the total cost of ownership that every client should be watching. It’s often overlooked, since it happens at the end of the vehicle’s cycle, but depreciation is one of the two biggest expenses associated with a vehicle, with fuel being the other."
Reducing effective depreciation can, in turn, help lower fleet spend.
"For a fleet to take advantage of this, and truly lower its effective depreciation, it must actually sell the vehicle," said Steve Jastrow, strategic consulting manager for GE Capital Fleet Services. "Similar to home or stock values increasing or decreasing, if a sale is not generated they are paper gains."
Increasing the resale value of a vehicle is not difficult, but it does take some work. Experts share some basic common-sense principles that should help get the highest resale value for fleet units.
Keep Up Appearances
In an industry where vehicles often function as "rolling billboards" and mobile offices, appearances matter when it comes to remarketing a vehicle.
"Vehicle color, certain options, and proper vehicle maintenance will have the most dramatic impact that is within the control of the fleet manager," said Jastrow of GE Capital Fleet Services.
Graham of ARI agreed. "A well-maintained vehicle, both mechanically and physically, will not only keep the driver on the road and present a better image, but also bring a better resale and help the unit sell faster."
Values will also be better for vehicles that are closer to what dealers refer to as "front-line ready," according to James Crocker, director of fleet acquisition & disposition for Merchants Leasing. "A lot of the new-car dealers have such limited inventory due to the manufacturer cutbacks, and they’re looking to basically buy vehicles that are as close to being ready to be sold to the client as possible. So, the closer you have your vehicles in that condition, the more likely they are going to sell — and for a larger amount of money," he said.
Likewise, Darrin Aiken, assistant vice president of remarketing at Wheels, Inc., advised having a good maintenance program in place that is utilized by the driver or the branch to properly maintain the vehicle throughout its lifecycle.
PHH’s Cieslak suggested working with a fleet provider to maintain vehicles.
Whether a fleet manager decides to go it alone or get some outside help, keep in mind proper vehicle maintenance entails several aspects:
Cleanliness: All drivers utilizing the vehicle should operate it with the notion that it is their responsibility to keep it in good condition, especially if they are not the sole user. At the end of the day, make sure drivers remove any trash from the vehicle and perform a quick spot check for dirt or debris, even dust.
"Condition is the single biggest contributor to resale value," said Gus Xamplas, vice president of remarketing for Donlen Corp. "Sparkling clean vehicles with no rips, stains, or odors command the highest prices."
That said, Xamplas also recommended prohibiting employees from smoking in vehicles. "It’s cheaper to avoid odor problems than it is to correct them at resale," he said.
Wear and tear: An old, beat-up unit is not likely to be well-received by a potential buyer. Pushing vehicles past their ideal limits should be avoided, if possible.
"Follow a proper [vehicle] replacement cycle," advised Aiken from Wheels. "Our account management team works with our clients to determine the appropriate replacement cycle based on the specific customer’s fleet needs."
Xamplas concurred. "Commercial lessees can achieve higher resale values by carefully selecting their cycling parameters in collaboration with their fleet management company and being disciplined in the implementation."
Vehicle mileage plays an important role as well, so optimizing delivery routes to reduce mileage pays off, according to Jastrow of GE Capital Fleet Services.
Future owners will also appreciate knowing all the work that has been done on a vehicle.
"It helps to be able to provide a comprehensive maintenance history at the time of resale that shows the timely performance of regular maintenance," Xamplas said.
Aiken agreed. "You need a strong collision program for the drivers and the branches to ensure vehicles are properly repaired if an accident occurs and the repairs are managed appropriately for a quality repair. Disclose any information on the collision management history of the vehicle and the quality of the repair," he said.
Cieslak from PHH suggested working with a fleet provider to offer accident prevention training and qualified accident repair management.[PAGEBREAK]
Get with the Times
Fleets should take advantage of the times, both in terms of season and in regard to current advances in technology.
Choosing the proper time of year to purchase new units and remarket used units can help increase resale values, according to Cieslak from PHH.
Graham of ARI offered some advice on peak times to sell. "Ideally, the majority of vehicles should be offered for sale in the fall and spring markets. Try to avoid the winter/holiday period when values are traditionally much lower," he said.
Knowing replacement cycles also provides remarketing staff enough time to plan sales events that take advantage of the market, added Aiken of Wheels.
An open-end lease can provide several benefits as well. "Since our clients purchased vehicles, on average, three years ago at a low acquisition cost, they are now benefiting from the strong resale so they are experiencing low depreciation costs on their fleet vehicles. [And], with the strong resale market, many of our customers are receiving huge gains in disposal credits as they are taking the residual risk on the sale of the vehicle. This can assist them in offsetting other fleet costs, such as fuel," Aiken said.
Using technology to dispose of vehicles through multiple avenues beats "leaving all your eggs in one basket," said Crocker of Merchants Leasing.
"There are so many buyers now who are buying virtually all online. Strictly sending vehicles through a [physical] auction as opposed to the multiple online auction channels is definitely a disadvantage," Crocker added. "We try to sell through three to six channels, so the diversity of doing that allows you to clearly see that certain vehicles sell better in certain ways. Offering to multiple end-users has led us to see dramatically better results."
‘Do Unto Others’
The idea of "treating others how you would like to be treated" is also an appropriate practice when it comes to fleet vehicles. Once a vehicle has served the purposes of your business, it moves on to the next opportunity.
"Be flexible in vehicle choices, both in models and options. Remember that the vehicle will eventually be sold to either an employee or to a dealer," said Aiken of Wheels.
"Vehicle option content is an area that is frequently overlooked when selecting vehicles," said Xamplas of Donlen.
Choosing the right equipment and options — such as upfitting, sunroofs, entertainment, and leather — for the size, class, and vehicle use, does play a part, according to Cieslak of PHH.
"Once the type of unit needed to do the job is established, fleets should select and equip vehicles with the next owner in mind," said Graham of ARI. "Select the model that drivers, employees, or vendors like and would most likely buy."
When in doubt, keep it simple. "Don’t go overboard, but make sure the vehicle has a good level of equipment for its class," Graham said.
On the other hand, loading up on some non-standard features can also attract buyers looking for a little extra.
"Not often, but occasionally, optional equipment or a higher trim level actually more than pays for itself at resale," Xamplas said.[PAGEBREAK]
Jastrow of GE Capital Fleet Services agreed. "Taking advantage of an increased resale value by upgrading the fleet has multiple impacts beyond lowering effective depreciation, including lower maintenance and increased fuel economy, which has been increasing dramatically over the past few model-years). New safety features can also play an impactful role. Non-monetary benefits may include increased employee morale and an improved company image," he said.
Panasonic Corporation of North America is one such example of the resale benefits offered by selecting a higher-end vehicle. (See sidebar, "Higher Vehicle Class Helps Panasonic Resales.")
The color of a vehicle also has an impact in how well it will sell.
"Stay away from odd or overly trendy colors; every vehicle has colors that are better for resale. Also, make sure the color choices are appropriate for the region of the country; a black car in a hot climate can be less desirable," Graham explained. For example, he said black vehicles are not advised for Florida fleets, and have been steered clear of for many years now.
Fleet management companies can offer expertise in this area.
"As an industry, over time we track colors that have staying power and are popular over a number of years. Those colors become the ‘recommended’ palette of color choices for our clients, since the popular colors will bring more resale than the unpopular, fad, or outdated colors," Graham said.
When choosing fleet vehicle colors, fleet managers must take into consideration that certain colors may be good for small- or mid-size vehicles and not appropriate for a full-size or executive vehicle.
"So, it’s important to recommend specific color codes on each model and, possibly, vary the recommendations based on regions," Graham said.
Cieslak of PHH also recommended consulting a fleet provider to select vehicles and options that will offer lower fuel or maintenance expenses and/or higher resale value opportunities through a total cost of ownership analysis and working with OEMs to get the best initial cost of new vehicles being purchased.
Overall, remarketing the front-end management of vehicles (knowing replacement cycles, marketing maintenance program at the time of sale, disclosing collision management history, and product mix) helps remarket used vehicles.
"The management of all this ensures strong resale on the back end when it comes time to replace the vehicle. It also assists in building a strong used-car brand to all the employees and dealers who may purchase a used vehicle," said Aiken of Wheels. FF
Higher Vehicle Class Helps Panasonic Resales
Panasonic Corporation of North America began adding Audi models to its sales fleet in 2007. Doing so helped boost employee morale and motivate drivers to take more ownership of company-provided vehicles, as well as provide strong resale value in the wholesale market.
Fleet Manager Frank Memolo said the Audi models have held their value and done quite well at auction. "There are a lot less of these vehicles going through the auction than, for example, Impala, Taurus, Malibu, etc. So obviously the demand for them is higher," he said.
Memolo also attributed the strong resale value to the fact that people who buy these models typically have more money than the normal subprime borrower and can afford to visit a higher-end dealership.
The typical base A4 Panasonic sales rep drivers receive are all-wheel-drive vehicles that feature a leather interior, power locks and windows, and sunroofs.
"I could have saved a few bucks and gone with the two-wheel-drive Audi, but I think we probably would’ve done worse on a residual value. The dealers like having those Quattros to put on their lot," Memolo explained. "Having that strong resale value has really protected us."
Originally posted on Fleet Financials