“Would you buy a second-hand car from this man?” This question was famously asked about President Richard Nixon, but these days it is more usually applied to fleet managers and FDs.
The disposal of vehicles from a company car pool is one of the aspects of fleet management that FDs concentrate least upon. According to new research by HSBC, 94% of fleet managers do not intend to change company policy towards fleet disposal. But disposal has a huge part to play in making a fleet’s financials look good.
So how can you profit more from fleet disposals? Ken Booth is in charge of selling fleet vehicles at Lex Vehicle Leasing. He gets rid of 18,000 cars a year. “At the moment, the market for second-hand vehicles is fantastic,” says Booth, who is happy to see it that way after a weak 2000. “This is because people don’t believe the price of new cars is going to fall much more.”
Booth benchmarks his success against prices for second-hand vehicles published in the Black Cap Guide, the motor trade’s price bible. “At the moment, it’s very easy to get one hundred per cent of the price and sometimes more,” he says. “There is a shortage of good quality vehicles in the second-hand market.”
Like all markets, prices can go down, as well as up, depending on demand. But there are two sets of issues that are always critical when you’re looking to get best value from disposals; these are sales channels and vehicle specific factors.
There are five possible channels for selling fleet vehicles, but not all will be suitable for all fleets. The first is the existing driver. “The driver knows the car and may be comfortable with it,” says Booth. To make this approach work better, consider offering a company loan for drivers who want to buy fleet vehicles. HSBC says that 43% of fleet vehicles are disposed of in this way.
Channel two: car dealers. It’s important to differentiate this breed from car retailers with forecourts. Dealers buy cars and sell on to the trade. It’s a relatively simple way of disposing of vehicles but doesn’t always achieve the best price because the dealer will be looking for a margin. Booth sells to dealers by conducting on-line auctions of second-hand vehicles. That pushes the price up, but it’s only really viable if you’re disposing of a regular volume of cars.
Channel three: forecourt retailers. It’s also possible to sell direct to the retailer and that may produce a better price than selling to a dealer. But finding a retailer willing to take the car may consume a great deal of management time.
Channel four: the general public. It may seem attractive to advertise second-hand vehicles for sale at retail prices to the general public. But Booth advises that this route is fraught with pitfalls. “When you’re selling to the public, there’s a lot of consumer legislation you have to be aware of,” he says. For example, the vehicle must be in a roadworthy condition and have an MOT. There is also the problem of dealing with complaints.
Channel five: car auctions. Booth regards auctions as a last resort. It’s where he gets rid of cars he hasn’t sold by other means. But by managing the auction sale well – for example, making sure the car’s history is well presented – you can achieve a reasonable price.
So what are the vehicle specific issues? Again, there are five of these. The first is mileage. The higher the mileage, the harder it is to dispose of the vehicle. Price starts to tail off sharply once a car has clocked up 90,000 to 95,000 miles.
Two: colour. This is very important, especially for medium-range saloons and executive vehicles. The trade goes for metallic colours which can add #200 to #400 to resale value. Avoid buying cars in “doom blue” – dark blues which are very difficult to sell second hand.
Three: condition. Defects which particularly knock-down second-hand prices are damaged seats, cracked wheel trims, and scratches.
Four: paperwork. Second-hand vehicles need a proper service record and all the usual paperwork of registration document and MOT.
Five: valeting. Booth reckons it doesn’t make much difference but others disagree. It is best to test the market locally and see whether it’s an issue for buyers – much will depend on the sales channel that you have chosen.
Now is a good time to be selling, but Booth thinks values might start to fall in the late spring as more people decide to buy new cars after the March registration numbers become available. ?: