As well as ensuring new vehicles meet your fleet’s current requirements, it's important to consider the needs of buyers three years down the line in order to maintain a healthy balance sheet.
Fleet vehicle remarketing is the process of selling vehicles in your fleet once they reach a certain age - usually three years.
Every fleet manager wants to get the best possible price for these older vehicles, in order to bring down the total cost of ownership (TCO) and improve the firm's bottom line.
But what are the best fleet management strategies when it comes to maximising the resale value of a vehicle?
Ultimately, it all begins with the process of procurement. First and foremost, you need a vehicle that meets your operational and budgetary needs.
You need to ask questions such as:
- Does it have sufficient space for the goods or passengers it’s intended to transport?
- Does it have an attractive MPG figure, if buying a petrol or diesel?
- If it’s an electric vehicle (EV), does it have sufficient range for the kinds of tasks it will undertake?
- Is it right for the task at hand: long motorway journeys, urban stop-start trips, or off-road tasks?
- Is it available at the right price point for your company’s current cash flow position?
But an equally important question is:
- Will it have a good residual value when the time comes to sell?
Residual values, as it turns out, relate to the questions above - among many others.
The degree to which a vehicle depreciates will of course directly impact this value. Indeed, such asset depreciation could account for half of the cost of the vehicle over the first three years.
Leasing costs
Another important point is the residual values will impact the cost of leasing. In short, the residual value is subtracted from the vehicle’s original cost to work out the total depreciation over the term of the lease.
A model that is offered now through attractive leasing deals will have a good residual value. Examples include the Renault Kangoo E-Tech and the Ford Transit Courier.
Market analysis: Choosing vehicles that people will want to buy
While managers need vehicles that fit well within their fleet, they also want - if possible - vehicles that people will want to buy three years down the line.
The idea is to align what you need from a vehicle with what the public will want to buy - as far as possible.
How do I know which vehicles will fetch good prices in three years?
Manufacturers want to get their vehicles onto as many ‘choice lists’ as possible - and a good predicted residual value will help them do so. As such, vehicle makers work closely with price guides to maximise the figure.
The impact of these price guides is likely to increase as more fleets look to adopt EVs. Because they have a high purchase price, managers want to know - as far as possible - that they’ll get a decent sale price in three years’ time.
Vehicle appraisal specialists, informed by data, can help fleet managers estimate what this residual value will be.
The accuracy of this input will help fleet managers determine the total cost of ownership (TCO).
This residual value can be more important than things like service costs, fuel economy and insurance.
Used vehicle sales: What dealers want is what buyers want
When a dealer looks at buying a former fleet vehicle - whether at auction or through a remarketing channel - they need to know it will be attractive to the man or woman on the street.
Residual value/vehicle appraisal will depend on factors that include:
- Market conditions (e.g. after the pandemic, demand for used vehicles surged)
- Make and model
- The powertrain - front/rear wheel drive; electric; diesel; hybrid etc
- The different specifications of the vehicle on the market
- The ‘trims’ or features that are offered on different models
- Is there an over- under-supply of the model? (over supply would likely reduce values)
- Methods of disposal for that vehicle type in the future
- To what degree the vehicle’s tech will make it attractive to buyers
- Transmission (e.g. manuals are falling out of favour)
- Condition
- Colour (a lurid shade might not go down well at resale)
Often, a vehicle’s cosmetic features and attributes, rather than its tech or safety systems, will catch the eye of a potential buyer. As Matt Freeman, a consultant with Cap HPI, explained to Fleet News:
“Used buyers are still influenced by those obvious features they can see and recognise, like leather seats and panoramic roofs."
“They won’t pay for things they can’t see or imagine using, which makes some safety features poor residual value performers.”
Panoramic roofs, leather seats, a sense of spaciousness and even the colour can all be deal-makers for the general public.
When it comes to used vehicle sales, these cosmetic features can attract the interest of a buyer who will then learn about features they cannot see.
The manufacturer’s role
Making a vehicle attractive to the user buyer (and therefore dealer) goes back to the manufacturer’s drawing board, where they need to ask what equipment, trim levels etc., will make a model a good seller three years or so after the original purchase.
When making procurement decisions, fleet managers should take note of any residual value optimisation or asset depreciation studies carried out by manufacturers - if they exist.
Members of the public looking to buy new vehicles are also increasingly interested in residual values - especially when it comes to EVs, which tend to come with a high price tag; they want to get some of their money back.
Future EV values may depend on whether buyers want longer ranges, or faster charging - and the jury is still out on that question.
Conclusion
Aside from ensuring a new vehicle meets your operational and cost needs, it’s essential that it has a high chance of fetching a good price at resale. To this end, market analysis of predicted residual values is critical, both to control leasing costs, and to get back some of the invested capital later on - with the ultimate goal of having a healthier overall balance sheet.
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