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REMARKETING: Around the clock

Date: 05 September 2017   |   Author: Jack Carfrae

Mileage was a pretty clear-cut thing in times gone by. Cars with a lot of it were considered pretty unattractive to used-car buyers and sold on at rock-bottom prices.

That's still true to a degree, as anything that's been around the clock isn't exactly going to fetch top dollar. Big miles are less of a turn-off than they once were, though; cars have become more durable over time and second-hand buyers are generally more comfortable with the idea of a modern vehicle that has obviously hit the motorways.

"If you think back to the days when someone would use the retailer on their doorstep - before the internet age - if they had a high-mileage car, the buyer would tend to run a mile," says Gavin Amos, head of valuations at CDL Group. "But I think the internet has helped to educate that buyer over the years - and now they've got access to cars up and down the country as well."

"Cars nowadays are more reliable; there's no getting away from that," adds Jim McNally, head of remarketing at leasing firm Alphabet. "Not that many years ago, you'd have probably bought a car with 80,000-plus miles on it, thinking it didn't have much of a subsequent life left in it.

"Whereas a car that's three or four years old that has done 80,000 or 90,000 miles, for example, by definition, that has more than likely been covered predominantly on the motorway, and modern cars are so much better equipped to sit at 70mph all day. Especially diesels - they're barely ticking over, and your maintenance on a car that's covered 80?90,000 miles in a three-year period will predominantly be tyres, servicing and brakes."

Though mileage inevitably blunts values, a hefty figure on the clock can actually help a vehicle find a home, as a subsequently lower price point is an attraction in itself.

McNally explains: "There's very much still an appetite for high-mileage cars. Certainly anything between 80,000
and 100,000 absolutely has a market, and there are buyers who veer towards higher- mileage vehicles.

"Theoretically, if you've got £100,000 to spend on a selection of cars for
your forecourt, you can clearly buy cars that have higher mileage, because they are better value."

A quick sale of a high-mileage car that's served its purpose will do the trick for some fleets, but those with a concern for residual values need to keep more of an eye on the odometer. It's difficult to draw a line in the sand delineating the point at which mileage takes a chunk out of values, not least because of all the other variables, although six figures is the anecdotal rule of thumb.

"There is no hard and fast rule on when mileage becomes price sensitive," says Stuart Pearson, BCA's managing director for UK remarketing. "We have seen many dealer groups sourcing and retailing used vehicles outside of the traditional 50,000-mile limit, and there is still a strong market. It is when vehicles move up into mileages over 100,000 that we can see reduced interest. However, there are often a few surprises on very high-mileage vehicles."

"It's a six-figure tipping point," adds Amos. "If you see a car that's done 96,000 miles and another identical one that's done 102,000, psychologically, it looks like it's done loads more miles."

McNally agrees that there is a "psychological barrier" at 100,000 miles, but claims vehicles are still selling readily up until 125,000 miles. "North of 125,000; that's when you're finding it harder work to find homes for those cars, because you're then back to the point of somebody subsequently buying that car to sell it.

"There's a sort of confidence, if you like, that a car is likely to go to 150,000 without any major issues, whereas at 125,000 you're back to that 'you've only got 20?25,000 miles before you're expecting something reasonable expensive to keep the thing running'."

Conversely, Aston Barclay's group operations director, Martin Potter, believes the starting point for a tangible reduction in price is 80,000 miles. According to the auction firm's figures, its average Cap Clean values crest at over 98% for cars with between 60?80,000 miles on the clock. They fall to 97.41% for those in the 80?90,000-mile band and 96.93% for 90?100,000-mile vehicles; small, but noticeable. 

"The value doesn't drop off dramatically at 80,000 miles, but it does drop away," says Potter. "As you get more and more miles, you are getting less and less, what I would call retailer buyers, looking to buy those cars, because they are not quite as saleable as a 40?80,000-mile car can be. Yes, they can still retail them, but they have to come at the right price."

The impact of mileage varies depending on the vehicle, too. It's no secret, but a diesel estate is likely to weather it better than a petrol hatchback. Pearson explains, "Lower mileage is preferred for city cars and superminis, and excessive mileage on younger vehicles can impact price performance - but it can also make some of these vehicles look exceptional value. It's worth remembering that high mileage does not necessarily mean hard-worked.

"Diesel vehicles are much less price-sensitive to mileage across the board, providing that the condition and specification is good. Estates seem to be less-sensitive to price variations with higher mileage, while in contrast, 4×4s and SUVs are more susceptible, largely as a result of the potential for high-cost wear and
tear items."

Despite the assumption that ex-fleet and lease vehicles all have colossal mileages, the auction industry suggests they are actually decreasing. The average mileage for a diesel ex-fleet car sold by BCA was 48,273 in January, and 46,849 in June. "Generally, we have seen average mileages decline in recent years, although some of this is accounted for by the changing model mix we are handling," says Pearson.

"Everyone thinks about the traditional three-year, 60,000-mile car sector," adds Potter. "But the reality is that the pool of fleet vehicles is now, on average, about 38 months old, and actually, the average mileage is about 45?46,000, so the cars are beginning to age before they reach
their miles.

"I think a lot of it is that traditional company car drivers are just doing fewer miles than they used to years ago, with technology being better - conference calling, video calling - and maybe there's just less necessity to be face to face, so people are spending less time in their cars."

There are a few things to bear in mind if you want to control mileage prior to defleeting and sell vehicles for a decent return. The first of those is establishing the kind of figure you're comfortable with and sticking with it.

"I think it's important to establish a cut-off point," CDL's Amos explains. "So if a fleet is thinking, 'That 3 Series that's coming in, we need to have that off the fleet at 98,000 miles', or whatever it's going to be; just monitor it properly."

Matching drivers and vehicles to the right level of mileage is another. "Make sure the mileage is relevant before you lease that vehicle in the first place," adds Amos. "If that fleet manager is getting those vehicles in on a particular term, make sure that they're qualifying the driver and looking at evidence as to 'this guy said he's going to be doing 20,000 miles a year' - is he just giving himself a comfort zone and actually he only does 12,000?"

Amos' final rule is: don't fib. Never suggest the car will cover less mileage than you know it will just to get the lease rate down, because it will come back to bite you.

"Most importantly, don't put something on 10,000 miles a year because the driver wants leather, and that's the only way you can get it through a rental - but actually the car comes back with way more miles and there's all sorts of shenanigans with excess charges," he says.