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REMARKETING: Can poor weather provide rich pickings for fleets selling 4x4s?

Date: 31 January 2011

It's inevitable that 4x4 sales will be positively affected by bouts of bad weather. But can well-timed remarketing of these vehicles pay off for fleets? Rachel Burgess reports

The value of 4x4s will rise as winter weather worsens, according to BCA UK operations director Simon Henstock. Indeed, prices increased in December as the UK experience some of the worst snow and ice in years.

The average value for all second-hand 4x4s sold by BCA in December rose to £14,264 from £12,190 in November and £12,408 in October. It was the highest average value the sector recorded in 2010.

Average values for nearly new 4x4s rose in both November and December, reaching nearly £39,000 by the end of the year having been under £28,000 earlier in 2010. But Henstock warns that volumes are small and model-mix has a large role to play.

Meanwhile, fleet 4x4 values climbed in December by £810 to £16,406 - equivalent to a 5.1% rise over November - the highest average price recorded in 2010.

Continuing the upward trend, values for older part-exchange 4x4s - averaging seven years old and 75,000-plus miles - rose by £736 in December to £6029, representing a 13.9% climb in a month.

While other factors were also at play - volumes rose quite sharply in November, while supply lines were disrupted in December - there is a distinct correlation between driving conditions, average temperature and 4x4 sales.

Henstock says: "For many motorists - particularly those living in rural or remote areas - a 4x4 is becoming a necessity in winter rather than a luxury.

He suggests values could rise even further if the cold snap returns: "Another dose of severe icy conditions is likely to sway even more motorists towards buying a 4x4 and prices could rise again as a result."

But a spokesman for residual value expert Cap suggests caution when it comes to 4x4 values: "There is a common assumption in the motor trade that the onset of winter causes 4x4 values to rise, just as long sunny spells in summer lead to increased convertible values.

"There is actually little hard evidence for either of these as general principles. However, there is some evidence that during and immediately following the most severe spells of travel disruption in the winters of 2010 and 2011 there was an increase in trade transaction prices," he adds.

"Whether this is stimulated by demand from retail customers or simply traders choosing to purchase 4x4s for their own short-term convenience is not known. The point here is that it is unwise to make the assumption that weather is as significant as many commonly assume in this sector."

The best time for fleets to dispose of 4x4s, according to Cap's spokesman, is "just ahead of very severe travel disruption due to snow, which is, of course, impossible to predict".

"The most sensible answer is 'as soon as it is off contract'. Let us imagine a vehicle off contract in October. Even assuming there might be some increase in value during, say, December this would not be guaranteed," he says.

"Meanwhile there would be storage and other costs associated with waiting for disposal. In the case of convertibles, many disposers store them over the winter until March. But this does not mean they are benefiting much, if at all, from any increase in value sparked by the return of warmer weather."

But leasing company Alphabet has identified one area where holding onto vehicles has reaped benefits. Director Mark Sinclair says: "Currently, demand for convertibles is sufficiently seasonal to justify keeping them in storage over winter before remarketing them. We've shown that the higher prices we achieve in the spring outweigh the storage fees and opportunity cost of holding them back until the weather improves."

But this is not the case for 4x4s: "For other types of vehicle, including 4x4s, the market is not sufficiently seasonal to warrant bringing forward or delaying disposal," says Sinclair.

Roddy Graham, commercial director at Leasedrive Velo, says the firm does not delay disposals according to seasons - vehicles are sold on average 12 days from de-fleet date. However, he says 4x4s see modest improvements of 1-4% on sales values in the winter compared with the summer. "Should we have a period of bad winter weather with snow I would expect sales values to increase significantly by 5% plus," he adds.

Graham says fleets may consider uplifting a vehicle's RV by, for example, disposing of a convertible in the summer months or a 4x4 in the winter, but warned there are increased risks associated with doing this such as contract extensions and increased manufacturer lead times.

?Meanwhile, Sinclair said that there is steady demand for used 4x4s all year round and plenty of supply, so seasonality is not really an issue even when we get a bad winter. "It's possible that if the run of severe winters continues we might see a trend for 4x4 disposal prices to rise toward the end of every year as buyers anticipate an increase in demand.

"But the British weather is too unpredictable to risk trying to schedule a specific disposal to coincide with a specific bad weather event. It normally takes a couple of weeks to get a vehicle prepared and into an auction slot, and there's no way of telling what the weather will be like on the day."

He adds: "The last two severe winters will certainly boost demand for used 4x4s - but that needs to be viewed in the context of a market that is well supplied and generally buoyant all year round. There is also a healthy and growing export trade, which is not at all seasonal.

"On the other hand, the market for convertibles is definitely seasonal, with demonstrably better outcomes for cars remarketed in the spring and summer. So much so that it is usually cost-effective to take a convertible on, say, a 31- or 42-month lease if that means the car will be defleeted in the spring."

BCA's Henstock says it would not be sensible to suggest fleet managers keep an eye on the weather with a view to de-fleeting their 4x4s the minute a flake of snow hits the Home Counties.

"However, you can observe the broader price patterns with a view to remarketing any 4x4s during the colder winter months - generally November through to February. The numbers of these vehicles reaching auction are not large but are relatively consistent for the volume and premium models from fleet and leasing sources which are sold on average at three years and around 45,000 miles, so it makes sense to expose them to the most receptive marketplace."

Equally important in Henstock's view is to maximise the asset by following some simple guidelines when selling 4x4s. "At three years and 60,000 miles, a well-maintained 4x4 from the one company owner, complete with a fully stamped service history and with a good specification, is an appealing combination. Even so, they are price-sensitive and at the top end of the range they still represent a considerable investment for the used buyer. Don't overvalue them as buyers expect to get a lot of car for their money."

Henstock adds: "Specification is important and alloys, leather, aircon and satnav are favoured in the used market and add value. Make sure the spare wheel is in place, particularly if it is exterior-mounted on the rear hatch. Buyers also like 'rugged' accessories, like mounted spotlights and roof bars, but beware making the vehicle look like it has just come back from peace-keeping duties in some war-torn hotspot."

He concludes: "Depending on what the new owner has in mind, performance and torque could be an issue. Diesels are generally favoured, but petrol also does well as long as the mileage is not too high. Colour is important, but generally you can get away with anything that looks sober or utilitarian. Many of these big, rugged vehicles do not suit subtle or frivolous paint schemes, so beware the pearlescent finish with the peach leather interior."