REMARKETING: The four seasons
03 September 2015
Author: Jack Carfrae
The time of year has an impact on used values and defleeting activity. Jack Carfrae explains when and why fleets should check their calendars
The changing of the seasons has always influenced both the new and the used car markets. Public holidays, peak registration times and simply the weather all have an effect to one degree or another, so it's worth bearing in mind the time of year when planning a defleeting strategy.
"The registration plate changes in March and September traditionally stimulate new sales, and plenty of dealer part-exchange stock will reach the remarketing sector," says Simon Henstock, BCA's UK operations director. "Any uplift in volume has the potential to change the balance in supply and demand and can impact on values as buyers simply have more choice."
"The broader seasonal patterns - busy early in the year, slower post-Easter and into the summer, then picking up again in the early autumn - are a little less defined than they once were. The effect of digital platforms [means] the used car trade rarely has any downtime these days and you can technically buy a 'virtual' used car at any time of the day or night, 365 days a year."
Andy Hartley, commercial director at leasing giant Lex Autolease, explains why the market is traditionally "busier" and prices stronger in the early part of the year: "This may be due to an increase in demand after people receive their annual bonuses and have cleared their post-Christmas credit card bills, meaning that February and March is their most cash-rich time.
"Prices then fall steadily through to the year end, bar a small jump around the September plate change, with the lowest prices recorded in December as the market seeks to minimise stock levels ahead of the Christmas closedown and financial year-end."
The plate change has the capacity to temporarily increase the amount of stock hitting the used market according to Alex Wright, managing director at Shoreham Vehicle Auctions: "During the plate change and depending on aggressive marketing by car makers, there may be a flood of part exchanges, which could slow the used market slightly. However, the influx of used cars should be met with considerable demand, keeping the impact on prices to a minimum."
The old saying about selling a cabriolet in summer and an off-roader in winter still applies to a degree. Hartley continues: "Predictably, demand for 4x4s and convertibles continues to be heavily seasonal. We certainly see a greater appetite for 4x4s in winter as inclement weather sets in and customers are reminded of the benefits of four-wheel drive; similarly, Easter sees a spike in demand for convertibles following the move to daylight-saving time as the weather gets warmer and days get lighter."
The demand isn't just habit, though. With 4x4s at least, there is a serious utilitarian reason behind it, and strong sales can extend beyond the usual seasonal periods. Wright explains: "As always, 4x4s are sought after in the run-up to winter and convertibles are sought post winter. [We] tend to see higher demand for all-wheel drive vehicles throughout the year, as many will be used alongside light commercial vehicles in the construction sector, whether they have been converted or not."
Seasonal factors are much more acute with cars than vans. With the exception of Christmas and the immediately succeeding weeks, LCVs are almost immune to fluctuations in demand and value throughout the year.
"The purchase of LCVs is a business decision and typically less subject to seasonal considerations or plate snobbery," says Hartley. "One exception to this is immediately after Christmas, when there is typically a spike in the supply of used LCVs, as rental companies reduce the size of their fleets that were expanded to support parcel delivery businesses' requirements along with the delivery fleets of retail businesses in the run-up to the festive season.
"It can take a month or two at the start of the year for this influx of vehicles to wash through the system and for the market to stabilise, although the general shortage in availability of good-quality used LCVs in the last couple of years has minimised this impact."
Shoreham Vehicle Auctions' Alex Wright adds that used van values were on the up over Christmas 2014: "According to the latest NAMA [National Association of Motor Auctions] data, year-on-year volumes in December 2014 compared to the same month in 2013, increased. This, alongside demand slightly outstripping supply, helped contribute towards a slight increase in average [LCV] prices."
Though you're generally at the mercy of the seasons come end-of-contract time, BCA's Henstock says it's best to focus on a quick sale and the core qualities of a vehicle that will sell, rather than to fret too much about the calendar.
"Seasonality is just one of the factors that fleet managers should consider, but not at the expense of age, mileage and condition, for example - all of which have a greater bearing on the price achieved. It is worth remembering that high-demand, popular models will sell strongly relative to the market whatever the time of year. The critical factor is to carry this out quickly and efficiently to ensure the best possible return to the company bottom line."
However, there are one or two measures fleet operators can take to avoid the negative impact of defleeting at a particular time of year. "In practical terms there is little a fleet operator can do to counteract seasonal pitfalls," says Hartley. "Although residual values can be flexed at contract outset to reflect expected defleet dates, customers can choose to retain their vehicle beyond the original return date without penalty.
"If a contract hire agreement comes to an end in December, an operator can offer the customer an extension, but unless this is managed considerably in advance of that date, the chances are that the customer's next car is already on order.
The main decision for a fleet operator is whether to hold the vehicle over the Christmas break in a bid to enjoy the benefits of anticipated market increases in the New Year, but risk having to compete with other vendors with large volumes of stock in early January, or whether to crystallise stock into cash and avoid stockholding costs prior to their financial year-end."
Hartley adds that in "extreme" market situations, it can also be worth keeping an eye on what the competition is up to in order to avoid clashes of stock hitting the market, even if the remarketing industry generally regulates itself well enough for that not to be an issue.
"The auction market is about as pure an example of a market as can exist, being driven completely by supply and demand, with full visibility of stock availability across the country on a real-time basis, regulating itself and making competitor monitoring largely unnecessary. Most vendors are relatively sophisticated and take action to minimise distressing the market in the way that used to happen a decade ago, utilising multiple routes to spread the concentrations of vehicles.
"However, it can be worthwhile in cases where the market is behaving in an extreme way, such as the post-2008 slump, when some vendors' controls restrict the authority of their representatives to conclude sales and sell outside certain parameters, typically linked to guide prices and their short-term inability to reflect underlying market conditions.
"This affords auction representatives greater latitude in order to manage stock levels appropriately, take advantage of other vendors' slower decision-making and offer a better service to buyers who are still keen to acquire stock."
The residual value expert's view
Christmas and August are the times of year to avoid defleeting if you can help it, according to Rupert Pontin, head of valuations at Glass's: "December is always a bad time of the year as the trade are more interested in Christmas than cars, and August can be difficult because so many people are away on holiday.
Retail and therefore trade demand during major and world sporting events can also have a negative effect, although this is inevitably followed by a brief high as the pent-up demand is released."
Contrary to popular belief, Pontin believes the likes of 4x4s and convertibles are nowhere near as subject to seasonal highs and lows as they used to be: "This is now less of an issue, as convertibles have become more of a year-round car with most benefitting from a solid roof and decent water seals, meaning they are warm all-year round and do not leak with the rain.
"4x4s are also year-round performers, as many these days are now comfortable and quiet with modern suspension systems unlike older models. More importantly, the engines are now refined, return good fuel economy and emit similar levels of CO2 to other types of vehicle, thus making them a lifestyle choice rather than a winter necessity."
He adds that "steady defleet activity that avoids certain months" is the best strategy for remarketing, along with a few other elements: "There are a number of variables to consider and these start with the types of vehicles that are part of the deal. The fleet's requirements must also be factored in and then a view of the contract length assessed. [Using] key forecast and market intelligence data will [also] assist in reading what will happen in the market in the coming months and years."