REMARKETING: Fit the specification to the model
24 April 2015
Fleets must make sure that a car's spec is appropriate when looking to maximise residual values in the remarketing arena, reports Tom Seymour
As convenience and technology takes centre stage in all aspects of our lives, having a car with a good level of specification is now expected on all types of cars. This means fleets need to make sure they are speccing cars in the right way and to the right standard if they want to achieve a good return on the used market.
The choices fleet managers make when speccing vehicles ultimately sets the agenda for the used car market, as these are the models that get pumped back out to second-hand buyers.
Fleet managers need look at specification from two perspectives: what will be good for the company car driver and what will be desirable for the second owner.
Andy Brown, managing director of CD Fleet Services, advises that fleets don't get suckered into buying "low-spec fleet specials that have limited appeal on the private market".
Going for a cheap, pack deal of low-specification vehicles might save money in the first instance, but they are not desirable when it comes time for them to be remarketed.
One of the major changes over the past decade with specification levels on fleet vehicles, according to remarketing company BCA, has been the trickle down of features and options once only seen in the best premium models. Safety and security features such as airbags, remote central locking, anti-lock brakes and other driving aids are all expected as standard by used buyers now. However, this doesn't mean fleet managers need to load vehicles with fancy kit.
As Simon Henstock, BCA UK operations director, explains, the simple rule is to make sure the specification matches the model.
The expectations of used car buyers differ depending on the type of model they're going for, and in many cases a logical approach to speccing a car applies: those wanting a city car or small hatchback will accept a lower level of standard equipment, while executive saloons need to be well equipped.
Henstock says: "If you have premium models on the fleet then they should have a good level of specification - attractive paint and trim, leather interior, alloys, all the expected bells and whistles - because low-spec premium cars can be difficult to remarket. The used buyer expects to see a decent specification on these models."
Meanwhile, fleets can make the mistake of loading too much kit onto smaller vehicles, and while that's great for the individual business driver, optional items can bring little additional value, according to Henstock. Conversely, larger cars that are under-specced will see a negative impact on values.
The choices that can have a negative impact on values
? Bad colour choices for the car and bad combinations of colours for the external and internal of the car.
? Small wheels for the size of the car.
? Cloth trim on a high-value vehicle.
? A manual gearbox on larger-engined premium cars.
The bare minimum
While some customers may accept an entry-level car without air-conditioning, it is now expected as a standard feature on all model types, likewise Bluetooth connectivity.
Henstock describes aircon as close to essential for business drivers, and he says it will be detrimental to residual values if it isn't on a used car. Brown agrees that aircon is now a must have on all but the most basic of cars.
One thing for fleets to look out for is not giving in to badge snobbery from user choosers within their company.
Henstock says: "An allowance [to buy a company car] can be stretched to breaking point just to get a premium badge on the bonnet at the expense of spec and trim.
"It's also worth remembering that while a higher specification car may be more saleable and attractive to buyers, this has to be balanced against the additional cost at the front end.
"Motorists will make decisions about desirability and value and will buy the best used cars they can for the money they can afford, avoiding the cars that appear overly expensive, poorly specified or in unattractive colours."
Jim Hannah, Ogilvie Fleet operations director, says fleets with upper medium models need to spec leather, metallic paint and navigation as the top priority to maintain values.
One trend continuing to gain traction is the reduction in fleets taking optional extras on their cars. It has led to manufacturers making fleet-specific trims with equipment built in to the P11D, which satisfy fleet drivers and used car buyers too.
According to Hannah, the sort of options still on the increase are the more functional ones such as
space-saver spare wheels and parking sensors because they add practical benefits without inflating the P11D too far.
There aren't many options, beyond odd paint colour choices, that can affect values negatively, but Hannah says that if a vehicle is fitted with a tow bar, that can be an issue. Optional safety technology such as lane departure warning systems and automatic braking aren't being chosen by fleet managers at this stage due to the impact on P11D, but they are gradually becoming standard items.
Hannah says: "We have not seen any definitive shift to [automated safety options] and as P11D is still extremely sensitive, and these options are expensive, drivers tend to pick more usable or desirable options that benefit them day to day. I am not sure the general public know what these systems do for them."
CD Fleet Services' Brown says advanced safety technology may appeal to some fleets, but they're not adding value on the used market yet.
"Private buyers generally need an incentive, such as lower insurance premiums, before they get excited about safety features. And fleets need to be aware of loading up P11D values," he says.
"Increasingly, such extras as smartphone connectivity and parking aids are expected on younger used cars, as well as multi-functional dashboard computers that monitor mpg to recommending the gear you should be in, rain-sensitive windscreens and light-sensitive headlights. However, while these make the car more desirable, any added value is fairly negligible compared to the importance of presentation and a good colour, for example."
Rise and fall of satnavFactory-fit satellite navigation was a big incentive a few years ago, but there has been a rise in the amount of free or relatively inexpensive smartphone apps that drivers are using instead.
It's a trend that has even been reflected by some manufacturers, with the new Vauxhall Corsa and Smart Fortwo available with smartphone cradles on the dash, rather than an integrated satnav. It means fleets can keep the P11D cost down and their drivers can still get turn-by-turn directions for free.
Henstock says DAB radio is becoming more essential and will be even more so when the switch is made from analogue to digital radio at the end of the decade, while Brown states fleets need to think three years ahead and specify cars with smartphone connectivity and DAB because they will be important on the used car market.
He says: "The bar is always rising for in-car entertainment, and used car buyers expectations are equally high."
The most efficient engines and fuel-saving technology such as stop-start will always do well at auction because all buyers are looking for cost savings.
Henstock concludes: "Going forwards, connectivity, data and safety are likely to be critical -
giving drivers live information about their journey so blockages and accidents can be avoided, for example - as will an increasing number of driving aids, from parking to auto-stopping to avoid accidents."
The residual value expert's view
Steve Jackson, Glass's chief car editor, says manufacturers are looking at advanced safety systems as the next big thing to add value for fleets now that satellite navigation and air-conditioning are ubiquitous.
He says: "Manufacturers are very much looking to maximise the residual values in the fleet wholesale market as they compete for market share.
"Better residual values ultimately mean better whole-life costs. Manufacturers are finding it difficult to predict what will be the next big thing."
Jackson says fleets must be careful that any advanced safety options they spec on vehicles are not gimmicky and end up adding no value.
According to Jackson, one tip for fleets is to go for option packs if they want additional specification as they can be more tax and price efficient than individual options. However, fleets should consider the options in the pack because some special edition, limited run specification can contain items that look good for the fleet driver but add little or no value when the vehicle comes back to the wholesale market.
Jackson says the lack of equipment items such as leather and satellite navigation can have a "large impact", with an underperformance on values as a result.
Cosmetic options such as two-tone paintwork with a different colour roof to the body work well on models like the Audi A1 and Citroen DS3.
Jackson also believes advanced safety systems are making headway and growing in popularity with some fleets.