REMARKETING: Prepared to pay a premium
09 June 2017
Author: Jack Carfrae
There was a time when the difference between prestige and volume manufacturers was clear-cut. Your Fords, Vauxhalls and Peugeots were the default choice for the average company car driver, while the likes of BMW, Audi and Mercedes sold in smaller numbers, and were the preserves of upper management.
To say that is no longer the case is stating the obvious. Granted, Ford and Vauxhall are still at the top of the UK sales charts, but BMW was the third biggest-selling fleet manufacturer in 2016, followed by Volkswagen (itself something of a halfway house between mainstream and premium) in fourth and Mercedes and Audi in sixth and seventh respectively.
Typically strong residual values have shaved down lease rates and made posh badges more attainable. That, plus an obvious pursuit of the corporate market on the part of the premium manufacturers, has blurred the class lines.
The used car market is snobbish in terms of the value it places on respective brands, though. "There's still quite a void between volume and premium values," says Gavin Amos, head of valuations at vehicle information services firm CDL Group. "That quest for having a premium car on the drive - I don't think that's going to go away. People are willing to sacrifice some specification from a volume model just to get the curtains twitching on their neighbour's house. I get that feedback from dealerships and from the remarketing channels.
"With second owners, you have to bear in mind that this is their own money. They've either saved it or they've borrowed it, and there's some sacrifice involved. That's a massive influence as to what's selling and at what price."
The success of premium brands and the extra money used buyers will pay for them proves that what is often considered largely a volume game is not the case, as Andy Hartley, commercial director at leasing company Lex Autolease explains: "When I moved into the industry, I took the textbook, purist view that the most important thing will be supply, and the more and more vehicles you get the more it will push down prices.
"Remember, a decade ago, the concerns that there were more BMW 3 Series' registered than Ford Mondeos and we'd see prices start to fall? Look at where we are now.
"Last year there were around 56,000 3 Series and 4 Series registrations in the UK. It's almost four times as many as Mondeos, but people still pay a premium for them both new and used. That proves the point that it's not purely about volume.
"Despite phenomenal growth over the last decade, the premium manufacturers are still seeing that hold up in used values compared to the traditional, volume vehicles."
The used car market likes posh badges, but specification is critical, and if anything can blunt the value of a C-Class or A4, it's poverty spec. "Beware of user-chooser drivers who squeeze the budget to get a premium badge on the bonnet," says Simon Henstock, auction specialists BCA's chief operating officer. "Almost inevitably, they will turn in a car in three years' time that will be difficult to remarket because it is in a poor colour and looks under-specced in comparison to other cars on sale.
"From the professional buyer's viewpoint, these cars are in competition with well-specified cars in attractive colours that are popular with retail customers."
As desirable as they are, premium models can be victims of their own success. It's basic economics, but big batches hitting the used market in one go is clearly not good news for values, as Henstock explains: "In the premium saloon sector, the balance of supply and demand is critical, and there are generally a lot of mid-sector and executive models about. Premium estates can also be prone to pockets of oversupply, with plenty of examples around. However, well-specced, nicely presented examples at a sensible mileage will always find a ready audience."
Another facet with which fleet operators have to grapple is the level of control manufacturers have over remarketing, which is especially prevalent in the premium sector, as OEMs dictate when and where vehicles are sold, how many and in what specification. Anecdotally, remarketing specialists say BMW, Audi and Mercedes are doing a particularly good job of controlling their used stock, although savvier mainstream brands, notably Kia, are also said to be playing the game.
"There are some very good retailers around," says Philip Nothard, retail and consumer editor at Cap HPI, which specialises in forecasting residual values. "Some manufacturers do a lot of direct-to-dealer sales. If they have product in the market in any kind of volume, they will do a specialised, closed sale or they'll save the best stuff for their own dealer network, which allows them to control the residual values of their product."
The condition of the cherry-picked models also holds a lot of weight because, these days, dealers don't want stock that needs refurbishment. "Certain premium manufacturers, when they have open dealer sales, will almost always have fully prepped cars," adds Nothard. "That allows them to achieve good percentages. Last week, I was at a sale where they didn't prep the cars, and they bombed. It's because the dealer network wants them ready to go.
"Dealers and retailers haven't got time to prep the cars for sale. It's easier for them if it's delivered ready to retail or with minimum repairs - that's what fleet managers should be thinking about if they want the best returns."
Despite the appeal of premium models, mainstream brands shouldn't be written off. They're cheaper to buy or lease at the front end, and therefore more realistic options for many employees, but there's also a lot of them around, and used examples need to find a home.
Amos claims fleets should try to strike a solid balance between the brands they're running at any one time: "The key is having the right manufacturer mix; not having all your eggs in one basket. The second point is having the correct model mix; we all know certain brands are going to be popular within that vehicle parc, so don't have too many 2.0-litre diesel models in the same spec and colour going into the market at the same time."
"Demand in the used market broadly mirrors that seen in the new car market," adds Henstock, who believes that good, mainstream best-sellers will usually find homes. "The most popular volume makes and models on the nation's new car forecourts are inevitably the cars that attract buyers in the wholesale markets. But there is a lot of competition for the buyer's wallet in the bigger-volume sectors, and that is going to intensify in the post-Easter period."
Your strategy obviously hinges on your fleet size, your stock and your resources, but fundamentally, businesses need to think about the type of vehicles they have and where they are going to end up.
"It's more about the remarketing process than what you've actually got," says Lex's Hartley. "It's like anything: what's the customer looking for? For a fleet company like ourselves, where you're selling significant volumes - we're selling 100,000 used vehicles a year, 2,000 a week, 400 a day - what you wouldn't do is go to one location and try to sell them all in one go because it's overwhelming.
"Particularly for us, with three- or four-year old vehicles, generally the buyers aren't going to be the franchised dealers. They are going to be the supermarket; the guys that can wholesale, and they're not going to specialise in one particular brand. So it's about bringing things together that make life easier for them.
"They know that they are likely going to be able to walk away with five, six, seven vehicles from one day's work; that's far more productive than only walking away with one. It's all about doing that preparation work; making sure you do the marketing up front to bring the right buyers in, so you've got the right mix of product with the right age and mileage profile."