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Fleets can capitalise on evidence from Cap that proves that RVs fall over a model's lifetime, writes Tristan Young
New research from valuation specialist Cap has revealed that fleet managers should pay greater attention to car design in order to maximise disposal values.
Presenting the research to a Finance and Leasing Association conference, Cap's Mark Norman showed that values of small family cars follow a typical pattern over their model life. The three-year/60,000-mile disposal value of an all-new version of a car typically starts high then drops until the model is facelifted. This then gives a slight uplift, but before it is replaced the residual values drop even further.
While this trend may not be unexpected, the research gives figures to support the intuition so that fleets can capitalise on this trend through their choice lists.
"The drop in value over the life cycle of a car is between 20% and 30% over three years/60,000 miles. It depends on the car; in the case of the Astra it's 30%, but with the Golf it is more like 20%," said Mark Norman, Cap's operational development manager.
"The trick is to get into the new model at the start of its life. The first two years are best. Most models have a five-year cycle with a half-way facelift."
Norman says user-choosers usually go for newer cars, so fleets may already be benefiting from this effect to a certain extent. However, he points out: "You have to remember it's harder to get discounts on newer models so you have to include this in the sums.
"If you're buying a model that's two years into its cycle and selling it after three years, you're effectively selling a five-year-old design. Used car buyers are okay with that, but selling a seven-year-old design isn't as appealing to used car buyers."
Cap's research looked at the small-family segment, singling out the Ford Focus, Vauxhall Astra and Honda Civic. Data for all three show that as well as the trend over the model life of a car, there can also be repositioning of the car at a higher level if the design moves on significantly. However, spotting when this is going to happen is difficult according to Norman.
"Knowing in advance of a car going on-sale if it will undergo a repositioning will come down to gut feeling," he says.
But he does list some examples: "When Ford changed from the Escort to the Focus the three-year/60,000-mile values went up 50%, but they've never done that again because successive Focuses have not shifted the design in the same way. The Honda Civic also made that leap. It went from being dowdy to young and aggressive and as a result repositioned its residual value. The next Toyota
Auris has the potential for shifting perceptions and the new Hyundai i30 is one that's doing that too.
"A more modern and more aggressive design will shift perceptions and, with it, values. The styling is everything because it's the number one attractor for used car buyers in that market."
Norman also points out how styling can play a big part in a car's value, using cars with similar underpinnings but different bodies.
"A good example is the Fiat Panda and the Fiat 500 - they are essentially the same underneath, but different designs. However, the 500 is double the price of the Panda in the used market.
"It's a similar story with the Range Rover Evoque and the Land Rover Freelander."
Norman believes that if car makers want to do something to boost residual values then they have to go with the best designs.
He adds: "The biggest of these repositioning shifts come in the volume segments such as the city car, supermini and C-segment [lower medium] because they are the most sought after by private buyers."
However, there are anomalies, admits Norman. "This then produces a problem for the Golf, which is number one in the segment for used value. However, with the Golf they got it right in the first place so there's no need to change the design."
The research is particularly pertinent to the volume-selling brands in the small to medium-sized car segments, according to Norman, because the badge has less influence.
The flip-side to this is that where the badge has a greater influence, both the general trends and the repositioning moves are more muted.
Norman adds that this is also the case for sectors such as MPVs and estates where the market is driven by practicalities rather than styling.
Interestingly, Norman says that while good, dramatic new styling will see a new model reposition itself, a poorly received new car design does not have the opposite impact on RVs. Any new car in this category merely continues at the same three-years/60,000 miles RV level as its predecessor.
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