REMARKETING: The end of the line
30 September 2014
Author: Jack Carfrae
End-of-contract damage charges are a constant bone of contention for fleets. Jack Carfrae finds out from remarketing experts how best to handle them
End-of-contract damages are one of the biggest single gripes for fleet operators, drivers and vehicle funders. One person's minor scratch is another's serious scrape, and even with a well-established set of industry guidelines governing the issue, disputes still happen.
There's more than one way of dealing with it, with inspecting vehicles while they're still serving on the fleet being among the best, according to BCA's operations director, Simon Henstock: "The value of a mid-term inspection cannot be over-emphasised. If a car or van is inspected one or two times during a typical working life it will identify damage that could be rectified immediately, rather than waiting for this to be picked up at defleet time, when the cost to repair may have risen many times over.
"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 when the vehicle is sold."
Selling at auction is the most straightforward process, according to Lex Autolease's commercial director, Andy Hartley, who says there's no need to worry about tending to damage beforehand: "The majority of people who bid on ex-fleet vehicles at auction are independent traders who will choose what level to refurbish vehicles to and can complete repairs themselves cost-effectively.
"It's a quick way to turn ex-fleet vehicles into cash, and an auction situation with a number of interested buyers drives up the price."
He continues: "Moreover, it's efficient; a fleet company can spend lots of time and money on repairing vehicles and second-guessing what a potential buyer might be looking for. The lower value commanded by a non-repaired ex-fleet vehicle sold at auction is more than offset by the quick sale and absence of repair costs."
That said, investing in repairs before a vehicle is sold on is well worth doing according to Ogilvie Fleet's operation's director Jim Hannah, but he advises that any work has to be done properly.
"The best course of action is customer education, and having the vehicle repaired, to the required standard, before it is returned is essential. It is important for fleet managers to avoid having vehicles repaired to a poor standard, which may then still incur an end-of-contract damage charge."
Ogilvie operates a fixed-cost system that details exactly what fleets will pay for each kind of damage from the outset. The firm keeps prices the same across model sectors; for example, £75 for a door panel, front wings or rear quarter panels, regardless of whether a car is an executive model or a supermini.
"If charges are levied, they are aware of what they will be at the outset of the contract," says Hannah.
The BVRLA - the authority behind the industry's Fair Wear and Tear Guide - suggests a middle ground approach. Chairman of the organisation's Residual Value and Remarketing Committee, Jim McNally, recommends a case-by-case evaluation of whether a repair is worth it.
"Tactical repairs are the best route forward," he says. "With damage covering a large area or multiple panels, it's always worth considering whether to dispose of the vehicle immediately and settle for the reduced value, or send the vehicle away for bodyshop repairs prior to the sale."
The type of vehicle and the severity of the damage should determine whether or not it's worth repairing, and there is no shortage of largely affordable ways to do so. The advice, though, is not to go overboard because buyers need to be able to see certain types of damage.
"Cold dent repairs and some scratches that can be removed with a machine polish are as far as smart repairs should go," says Hannah. "Small scratches and bumper scuffs that require painting should be left visible to the buyer. If a panel is repaired, the buyer does not know how badly it was damaged - it could have been a major dent or a minor scratch. Visibility of what's wrong is essential to the buyer in my opinion."
There is a difference between the condition of certain areas of a van versus what you can get away with on an ex-fleet car, and there's an easy way of distinguishing what's acceptable for each one.
"The BVRLA's LCV Fair Wear and Tear Guide differentiates between three zones for commercial vehicles," says McNally. "The blue zone does not contain working surfaces, so covers exterior paintwork, body, bumpers and trim. The yellow zone is the area that comes into contact with the load, while the magenta zone is the driver cab and passenger area. Any surface in contact with the load is subject to heavier wear and tear."