REMARKETING: From Mondeo man to Qashqai customer
27 February 2017
Author: Jack Carfrae
Ask someone to draw a company car and, chances are, they'll sketch a three-box saloon - probably something that resembles a 1980s Volvo.
You can hardly blame them; the repmobile saloon image is still heavily associated with corporate transport, and we'd be lying if we said those types of cars, along with their estate offshoots, were no longer relevant to fleets.
They aren't as prevalent as they used to be, though. SUVs and crossovers have soaked up much of the ground previously occupied by old-guard bodystyles. The newer shapes are fashionable, practical and generally well-specced, so it's easy to see why the likes of Qashqais and Yetis have eaten into Mondeo and Insignia territory; even more so when you consider the number of manufacturers that have jumped on the crossover bandwagon.
"Crossovers and SUVs sell well," says Rupert Pontin, director of valuations at Glass's, "and they will continue, for the time being, to be strong at auction for two reasons: firstly, there's good retail demand for them and, secondly, they sell quickly; days to sale are pretty good."
"SUVs are the explosion sector," adds Philip Nothard, retail and consumer editor of Cap HPI's Black Book. "If you look at the SUV trade data from 2014, they accounted for 12% of the overall used car market. If you look at that same SUV sector in 2016, it's 19%, so you've seen 7% growth in a two-year period."
Nothard claims SUVs and crossovers are also less subject to seasonal variations in price as most vehicles: "Because it's more of a lifestyle sector, seasonality is less influential - there are fewer peaks and troughs as you get into the winter and back out again. You get a little bit, and it's mainly with true four-wheel drive vehicles, but if you speak to a dealer about a Qashqai, the majority of consumers who buy one probably don't know whether they're driving a two- or four-wheel drive model."
By contrast, the poor old saloon has shrunk back into the shadows.
"The diversification within the new car market and the rise of the 'lifestyle' car has seen a steady drop in the percentage of saloons reaching the used sector," says Simon Henstock, BCA's chief operating officer for UK remarketing. "Although estate numbers have remained relatively stable, saloons and estates each represent around 10% of the vehicles on offer at any one point.
"In the saloon sector, the balance of supply and demand is critical, and there are generally a lot of mid-sector and executive models about. However, well-specced, nicely presented examples at a sensible mileage will always find a ready audience. Estates can also be prone to pockets of oversupply, with plenty of mid-sector and executive models around."
Henstock's point about decent saloons still selling well rings true with other remarketing specialists. Volumes may have shrunk, but the general consensus is that lower supply isn't a bad thing as far as values are concerned, and tidy, well-specced examples make good money.
"It never hurts a vehicle's value to be in relatively small supply," says Jim McNally, head of asset risk at Alphabet and vice-chairman of the BVRLA's RVR (Residual Value and Remarketing) committee. "If you look at a Titanium X Mondeo, it's actually a really good package - it's a nice-looking car, it's eminently practical, it's got big wheels, which people love, privacy glass, a spoiler - it looks more premium than the badge would have you think. The new shape, especially, is performing quite well because there aren't millions of them around like there would have been 10 or 15 years ago. What's replaced all of those, from a volume perspective, are all those SUVs. Mondeo man is now Qashqai man."
"That saloon sector of the market is actually selling quite well," adds Pontin. "You might find a Peugeot 508 diesel, or something like that, that rocks up at auction and actually makes really good money, because there just aren't that many of them around."
Data suggests that estates are typically more consistent than saloons, and they also make better money. Pontin claims fleets "could be talking a £750 to £1,250 increase for the estate version of a premium upper medium saloon", while McNally adds that estates "serve a purpose. By definition, you're generally buying an estate car for a reason. An estate will have roof rails, which facilitates the fitting of roof bars, so if you're out mountain biking or whatever, it's much easier to have that kind of lifestyle car. So even relatively uninspiring estate cars can serve a purpose because they allow the driver, who perhaps can't quite stretch to an SUV's purchase price, the facility of that lifestyle element."
As buoyant as they currently are, there is a risk that the likes of SUVs could become victims of their own success. "There's been a big jump in volume of premium SUVs - X5, Q5 - that type of stuff," says Pontin. "That's off the back of manufacturers pushing them two to three years ago. We saw a 38% increase in volume to auction in 2015 and a further 75% increase in 2016 - that's big. There was no drop in value in 2015, but in 2016 they showed a 2% drop in value. The really interesting piece comes when you drill down into the background data and see what particular manufacturer activity was behind that 75%.
"If you think how active Audi has been within that sector of the market, I would say we'll see a big increase in Q3s and Q5s coming back to the marketplace. We'll probably also see an increase in BMW X1s and X3s because both of those manufacturers pushed really hard on those vehicles."
Henstock warns that the increasing number of crossovers and SUVs could take the edge off values and make traditional models look more appealing: "Volumes of crossovers and SUVs are rising, and oversupply of a particular model at any one time will see some pressure on values. The critical factor is inevitably price; some models can look expensive when compared to the traditional alternatives, which are available in large numbers at a variety of price points."
Nothard believes that prices of SUVs and crossovers have "stabilised" despite strong sales in the sector, and that popular models need careful handling if they're to retain their strong residual values and popularity.
"It's like when the Range Rover Evoque started to stabilise. It came into the market and it was the car - it was pulling above cost new for a long period of time, then it found its market. That's similar to the Qashqai to a degree; you've got to be careful with the Qashqai because in terms of remarketing that vehicle, it's big in the Motability sector, so managing that product is defined by where it's registered. But Nissan have done a good job, and they've managed the supply and demand well."
"At some point there has to be some kind of softening of SUV values simply because of the volume of them in the marketplace," adds McNally. "It doesn't feel like we're there yet, though. Values are always under pressure through volume - just generally.The car parc we'll see soon will be as big as it has ever been, then we are potentially heading for a softening of values, but now, today, there's good, strong demand for the right product, and to a certain extent, that's irrespective of sector."
As a parting shot, Nothard says fleet operators would do well to keep as broad a spectrum of vehicles as possible to get the best returns: "They can't lose sight of superminis and MPVs because there's still a demand for those vehicles. The remarketers and fleet contract-hire guys are being a lot more diverse in terms of their product offering; it isn't just the upper medium diesel vehicles that were assumed to be wanted as a company car. Fleets are now being a bit more open to the demands that are out there and managing it back into the used car marketplace."