REMARKETING: Expensive faults and how to find them
22 November 2017
Author: Jack Carfrae
Costly mistakes are all too common in the remarketing arena, and businesses are haemorrhaging cash on schoolboy defleet errors. Jack Carfrae explains what they are and how to stop them.
For all the effort that goes into remarketing, there are always things that manage to slip through the net. Ex-fleet vehicles hit the auction halls every day with easily preventable hindrances that take a bite out of their price and, fundamentally, the business's bottom line.
Some companies are happy with that. Given an attractive enough front-end deal, certain firms will just accept that the odd vehicle is in for a hard life, and chalk any losses up to the nature of the job, while those with a sage economical eye will pay attention to the minutiae that make or break residual values.
There are a lot of common slip-ups that hack away at a used car or van's resale price, the majority of which are perfectly easy fixes for an astute fleet operator.
If anything's going to eat away at a sticker price, it's time, so it's in your best interests to get any vehicle ship-shape and under the hammer as quickly as possible. "Delays in the process are the biggest cost to the owner," says Simon Jackson, managing director at vehicle inspection specialist VQS. "There's an industry-recognised figure of £10 a day; that's what people would, on average, expect. If it takes a month to collect it, it's going to cost £300 in depreciation - and that could be £1,000 if it's more of a prestige marque."
BCA's managing director for UK Remarketing, Stuart Pearson, agrees: "Time-to-sale is often overlooked in favour of price or guide performance. Holding costs for a vehicle may be 'out of sight, out of mind', but they can have a significant impact on the eventual, real return to the company's bottom line. Vehicles deteriorate with age and generally drop in value, and this only stops, from the vendor's perspective, when the vehicle is sold."
BusinessCar understands that at least one large auction firm has begun offering larger clients guaranteed payments, at a pre-agreed cap percentage, on the day the vehicle is delivered to its site - regardless of whether or not it sells. The idea is that the likes of leasing companies get instant payouts for defleeted vehicles, instead of hanging around and risking further depreciation.
End-of-contract charges are the other obvious element that will cost you at defleet time, but there's more to the identification process than spotting a scuffed bumper or an absent service history, because the little things that go undetected until the last minute can be the most expensive.
"EV cables are very expensive to replace; it's really important that if it comes with two, it goes back with two," says Mark Jowsey, director of manufacturer liaison at KeeResources. "It's a handful of cars at the moment, but it's growing all the time, and in the auctions, if you've got an EV with no cable, it's not unheard of for it to get no bids."
Keys are equally expensive and difficult to replace, according to Jowsey - something upon which other experts agree. Martin Hughes, remarketing manager at leasing firm Activa Contracts, estimates the cost of some replacements to be £400-500. "We give people fair notice that's the car's coming back and what we expect from them, but despite that, they still come back without spare keys," he says. "Six months later, we'll get an email saying 'I found the spare, can I have a refund?' but we've had to get a new one cut or sell the car without the benefit of a spare key and the affect that has on the residual value."
Keys and cables are the tip of the iceberg, as just about any mobile item that comes with the car from new, but isn't there when it's sold on, will cost you.
"It's normally the removable items that are a pain," says Hughes. "SD cards for navigation systems go missing; parcel shelves are taken out the car and put in a garage because someone's got to load something in the boot, and they never go back in."
"Smaller items, such as manuals, radio/audio codes, tyre repair kits, or locking wheel-nut keys are an irritation for buyers if they are not present," adds Pearson. "While these and other items, like spare keys and sat-nav discs, can be replaced, there will be a delay before the car can be retailed and a cost for the replacement items will be factored into any bidding."
It goes without saying that any form of damage has a massive impact on a vehicle's price, but there are ways in which fleets can reduce, or even avoid, the effect at the point of order.
"From the start, we try to encourage customers not to go for two-tone polished alloys, because they cost a fortune to put right," says Hughes, "Yes, they look plush, but they're just wheels, and you can get some nice alloys that don't have a two-tone finish. From a fleet manager's point of view, try to get those away from your list - and, if you can get parking sensors fitted on the car, brilliant."
As always, it's worth approaching vehicles from a second-hand buyer's point of view. Minor damage that may not seem worth your while to sort has the capacity to deter retail customers and trade bidders alike.
"The traders aren't silly; they know the things that are going to cost them money," says Hughes, "the current thing that is a bit of a pain in the neck is the ADAS (Advanced Driver Assistance Systems) on the windscreens. A customer will return a car with a chip in the screen - and to be fair, it's gone through an MoT and it's fine from that point of view - but obviously, we've got to sell the car afterwards and, because of our retail network, selling ex-lease cars through our own dealers, and the quality we expect, chances are, we'd have to put a new screen in it. If the system needs recalibrating and that's £600, that's a hard conversation to have with that customer, but we can't just put a new piece of glass in and not charge for it, because we have to get it recalibrated."
Catching any such ailments before a vehicle heads to auction is clearly hard work, so an early inspection is the best way around it, as VQS's Jackson explains: "Getting that car inspected before it goes through the defleet process, and having an opportunity to repair those faults at that point, will significantly reduce your recharges when the vehicle's returned."
Better still if it comes back in one piece and with all the original bits and pieces. "It can be very easy," says Jowsey, "you should give people documentation, when they collect a new car, that gives them a clear understanding of what is acceptable wear and tear. That might be the company's policy or it might be BVRLA guidelines - or, if the contract hire company has issued their own guidelines, go with that. If you don't inform people properly, then you're halfway to a disappointing outcome. This should be enforced by their line manager, because it's very easy for these to be issued in a 'sign this and send it back' manner."
Vigilance with drivers is a massive part of avoiding expensive remarketing mishaps. As Jowsey says, you have to be as clear as you can from the start, but, providing you've done due diligence, it's equally important to stick to your guns.
"It's really basic and it may sound harsh, but fleets have just got to stand up to their drivers," says Hughes. "We get constant emails from fleet managers where we've sent a recharge through - a perfectly fair one - and they'll send it on to the driver for their comments. The driver will then come back and say it's totally unfair, or, 'How much to look after a key for three years?'. I'm not saying that's anything we can't handle, but those fleet managers need to be trained to stand up to their drivers and say 'you've lost a key, it's your responsibility to find it'."