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REMARKETING: The colour of money

Date: 29 July 2015   |   Author: Jack Carfrae

Paintwork and personalisation can make or break a vehicle's residual value. Jack Carfrae asks which shades and styles make for the best returns, and what colours a used buyer's judgement

You can dress up a vehicle's exterior in all manner of ways before it leaves the factory these days, and the paintwork colour palette has widened accordingly.

The fashion for personalisation is a nice bit of marketing on the manufacturers' part and is appealing to a portion of the retail sector, along with a chunk of company car drivers with generous choice lists.
This broadening of shades isn't necessarily good news for the fleet operator, though.

There's no guarantee that a new and experimental colour will hold its value when a vehicle is sold on, so it literally pays to regulate the paintwork of business vehicles if you want the best financial returns at disposal time.

The old adage of playing it safe with sober, metallic paintwork is still generally the best solution according to BCA's UK operations director Simon Henstock: "We see larger volumes of metallic blues and silvers [from fleet and lease sellers]. However, the business sector also provides a volume of utilitarian and corporate colours into the used market.

"The message for fleets managers is that, where possible, choose a colour scheme for your vehicles that will attract buyers when you come to sell the car, rather than one that will have only a limited appeal."
He continues: "This may not always be possible for user-chooser fleets, but guidance and common sense should avoid the worst colour faux pas. Smaller hatchbacks and city cars can carry off brighter colours with ease, but remember that highly fashionable colour schemes can just as quickly become unfashionable. Limited editions with over-fussy colour schemes tend to date quickest and should be avoided where possible."

"Colour is hugely important when remarketing vehicles - and it can be both positive and negative," says Jim Hannah, operations director at leasing firm Ogilvie Fleet. "Too many identical vehicles in the same colour can impact on residual values; equally, the right interior and exterior combinations can attract strong money."

He says wraps are the way forward for LCVs. The firm has adopted a practice of buying vans in colours it knows will appeal to the second-hand market, covering them in professional wraps for customers and removing them before auction.

"We purchase a silver van in most cases [rather than white vans or another standard metallic colour] and wrap the vehicle in the customer's colour choice. The process is so good today it is difficult to tell the difference between a wrap and paint. On defleet, the vehicle is unwrapped and a silver van will attract better money than a white van."

He adds that bright paintwork for cars isn't necessarily something to be afraid of, providing it's applied to the right model: "A smart-looking, clean, red car will always attract stronger money than a bland car - for example, a silver or grey metallic model with a black interior. The market is very fickle and a well-presented clean car in a bright colour will always perform strongly when compared with 'doom blue' or something similar."

ACFO chairman John Pryor recollects leasing companies going to great lengths around procuring vehicles with paintwork that guarantees a good return: "In the past, comments have been made about colour specification to maximise values and I recall some leasing companies compiled a popular colour list. However, any problem is likely to emerge in respect of higher-specification vehicles or the strange colour combinations that are becoming more and more commonplace.

The best advice is to keep colour specification simple and watch what you put into the vehicle, as you may not recover all the costs."

Savvy ordering from new is always where strong residual values are made. In terms of speccing the vehicle to achieve the best RVs, the criteria are different for user-chooser company cars and job-need vehicles. Those in the know say the former is more difficult: there's a need to leave the colour in the driver's hands as such cars are still perks, while the paintwork of LCVs, pool cars - anything that isn't assigned to an individual - should be totally dictated by the business with economics in mind.

"If it's a user-chooser fleet then an element of freedom of choice should exist, but if it's a job-need car then the freedom of choice can be tighter," says Pryor.

From the leasing company's perspective, Hannah says colour choice is still down to the end user, but businesses should be prepared for an increase in their lease to account for drivers plumping for a shade or combination that's liable to tank when it's sold on: "Drivers should have and expect to have a choice of colour combinations - inside and out; it is up to us to find a second-hand buyer who likes [them]. If a driver chooses odd colour combinations then we may reflect that in the monthly rental by 2-3%.

"Restricting colour choice and specification can be hugely detrimental, as too many of the same vehicle can impact on values. Equally, personalisation of a vehicle can benefit residual values, so it is a balancing act."  

Cars for which personalisation is a unique selling point (e.g. Minis, Citroen's DS sister brand, the Vauxhall Adam) and have a seemingly endless range of paintwork and external options, still represent something of a quandary when it comes to economic performance second-hand.

"I think the jury is still out," says ACFO's Pryor. "Such vehicles are becoming more available and fleets may need to think more about the issue. Lease companies, I am sure, will be taking them into account on rentals, but I suppose the more bizarre, the lower the value at sale time."

He's certainly not wrong about leasing companies being in tune with these sorts of cars and planning for future costs accordingly: "Personalisation would be reflected in the monthly rental and the impact on price depends on the combinations of colour and specification chosen," says Hannah.  

This package effect, where the fleet or leasing company builds in anticipated costs, has been recommended as best practice before and applies just as much to vehicles ordered in garish colours or plastered with brash decals to be mobile billboards as it does to paying a higher lease rate for, say, a van that's going to take a beating in a quarry.

"[Fleet managers should] build in the costs to refurbish the vehicle at the end of its life so they're selling a clean car," says Pryor. It's a tried and tested way of avoiding a hit at the end of a contract.

The residual value expert's view

Rupert Pontin, head of valuations at Glass's, agrees with ACFO chairman John Pryor and Ogilvie Fleet's Jim Hannah that businesses will automatically shoulder higher lease rates if they go for more outlandish types of paintwork. If you're comfortable with that then user-choosers can do as they please with colour schemes: "If the cars are being offered via a contract hire or lease operator then let staff choose what they want as the operator will have already built in the cost of odd colours into the rate."

However, he's all for limiting choice lists if a business is funding its own vehicles: "If a company purchases their own cars or takes the risk themselves then it is very wise to restrict colour choice on the company car list. Best practice for colour choice is simple and that is to stick to the traditionally popular ones.

Metallic silver, metallic grey and metallic black are the safest options for passenger cars. Lifestyle colours such as yellow, orange, brown, lime green and purple are just not going to get a sensible return on investment at defleet, as the used buyer base for these is much smaller."

Despite the well-established advice of playing it safe, Pontin adds that unusual combinations of paintwork and trim and/or personalisation sometimes produce strong results at auction, but that doesn't mean fleets should immediately follow the trend: "There will be a few examples of what many consider to be strange combinations that find homes at strong money when they return to the market.

People then spec a number in the same vehicle only to find that the market size is actually very small. A good example of this is the black paint and brown leather combination. More recently, black paint and red leather seats and dashboard seems to be in strong demand, but this could switch very quickly should volume increase too much."

As for vehicles in gaudy colours or dolled up in brash decals, he claims that extra preparation before selling and considering exactly how you dispose of the vehicle and through which establishment are all worth considering.

"Extra prep to make these examples look as good as possible is important," he says. "At auction, take the first bid - it is usually the best that will come. Odd colours are odd colours and there is little that can be done to disguise them, but if time and policy permits, these should perhaps be offered direct to the retail buyer via some of the retail auction websites.

This bypasses the trade, which will rightly look for a larger margin to compensate for long sale times and the associated costs of extended stocking."