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REMARKETING: Waiting for a spark

Date: 10 April 2017   |   Author: Jack Carfrae

When it comes to plug-in hybrids, the market in the UK has been aimed squarely at fleets. Granted, the retail consumer market has a foot in the door as well, but the associated tax breaks for company car drivers and businesses are hard to ignore; if your employees fit the usage profile - and they're committed to charging the vehicles as much as possible - then, on paper at least, the vehicles are no-brainers.

There has been a bombardment of new products since 2010, but registrations only began to gain traction in 2014 - and, if we're really honest, they're still peanuts compared to petrol and diesel - so the vehicles are  only scratching the surface of the used car market. 

The traditional three-year model cycle suggests it's reasonable to expect a larger portion of defleeted models arriving in 2017, so the popularity of plug-in hybrids with second owners should begin to prove itself in the coming months - and therein lies their biggest challenge, as the huge incentives for new car buyers don't necessarily translate to the used market. 

"The catch is that, at the moment, there has not been perceived to be a clear benefit to the second user," says Mark Jowsey, manufacturer liaison director at KeeResources. "For plug-in hybrids, the focus is the UK corporate car market, as significant tax incentives have driven a level of engagement, but for a second user, I'm not sure we've seen a great deal of evidence that there's an incentive."

"The reality is that, from a new car perspective and for a business user, they make sense because they drop the benefit-in-kind taxation," adds Rupert Pontin, director of valuations at Glass's. "But for you, or me, or anyone else who wants a used car, there isn't a huge benefit unless you're living in central London and can avoid the Congestion Charge.

"This area is going to move very quickly in coming years and I think there is a consensus of opinion that what we've got in terms of hybrid vehicles at the moment is good, but the market is being overloaded, as a lot of manufacturers have rushed to get a plug-in hybrid out into the marketplace, and I still think people are holding out for a battery electric vehicle with a proper range."

They're also complicated things to stick a value on, as plug-in hybrids frequently differ from their conventional equivalents in ways that would traditionally alter the value of a petrol or diesel model.

"One of the complexities, inevitably, is that there is often a change to the overall power output," says Jowsey. "Sometimes it's four-wheel drive rather than two-wheel drive - and automatic as well - so you always need to look at individual products and ask how they compare in their peer groups and existing ranges with internal combustion models." 

Buyers are still picky when it comes to anything with battery power, and despite the used car market's recent strength, plug-in hybrids also have to compete with wary punters.

"Professional buyers remain cautious and tend to focus on the best examples," says Simon Henstock, BCA's COO for UK remarketing. "They generally prefer younger, lower-mileage examples, mainly because of perceived worries about the reliability of the batteries as they get older. As older models reach the market, questions about longevity and even replacing the fuel cells emerge, so age and mileage is a concern."

That said, there is usually a nominal price premium for used examples over their petrol and diesel equivalents, as Jowsey explains: "The uplift for plug-in hybrids isn't large sums of money, although it may be more significant if you're talking premium upper medium, where we may see a petrol plug-in hybrid close to comparable diesel values. Forecast RVs for the BMW 330e variants, for example, are £1,000 ahead of the 330i and within £350 of the 330d equivalents."

Among the acid tests for second-hand plug-in hybrids is the Mitsubishi Outlander PHEV. Launched in 2014 with extremely low emissions and the headline of costing no more than an equivalent diesel version (which has since been kyboshed by the change to the Government's plug-in car grant in March 2016), it was a brazen shot at the fleet sector. The firm has played its cards close to its chest and kept the cars within its dealer network as much as possible. That makes total sense for Mitsubishi, but it hasn't made the used plug-in hybrid picture any clearer.

"There isn't a lot of used plug-in hybrid product about at the moment, and even with the market leader, the Outlander PHEV, a lot of used products were sold on a £299 a month PCP deal in recognition of the challenge for the new entrant into the used market," says Jowsey. "This was a well-considered approach, and it allowed Mitsubishi to ensure that dealers were able to lend demonstrators for more than a couple of hours and that they had sufficient cars to satisfy interest, plus the ability to sell or pre-sell them."

Pontin, however, thinks values of the Outlander PHEV could struggle in the long run: "Mitsubishi had to do something in terms of remarketing and it is, I would imagine, very difficult for them. The reality is that that car suits a business user from a tax perspective, but when you speak to a retail used car buyer, they're just not interested."

"They will face some difficulty with that car, and it's not just me saying that; contract hire and leasing companies that have got high volumes of Outlander PHEVs are really worried because they don't how they're going to put them back in the market. I fear they have some residual woes to come; I know there are a number of companies who have put those cars on their fleet with a residual value that's just wrong, and it's going to cause some pain." 

If there is a way to navigate the unchartered territory of remarketing plug-in hybrids, it's by preaching to the converted. It may not work for leased vehicles, but for companies funding their own fleets, drivers who are used to, and fond of, the vehicles are worth tapping up at defleet time.

"The first thing fleets should do is ask whether the company car driver wants to keep it; that might sound daft but you don't know until you ask the question," says Pontin. "They may not get a retail figure for the vehicle, but they may be able to draw somewhere around the trade figure for the car, which makes it a good deal for them the drivers."

"If you are prepared to sell ex-fleet cars to employees then the original drivers should be the greatest advocates," adds Jowsey. "Therefore, the people they interact with within the business may well be the prime candidates to buy something like that. You could argue that if you've got a private motorist as the second user, who plugs it in properly, then they - and a great many other people - could do almost the typical 8,000 per annum private mileage on the battery, so why would they not be interested?" adds Jowsey.

"Until there is a more mature used market for plug-in hybrids, the challenge is that used car managers will remain reluctant to pay more than an equivalent diesel, which currently will have a wider appeal and logically sell faster. For them, stock turn is crucial."

Pontin says fleets need to get vehicles in prime condition before they sell, particularly in mind of a greater volume of stock hitting the market: "When it's back, just make sure that thing looks as shiny as shiny can be, and take the first bid on the car; it's the best you can do with it. I don't think there's anything else you can try to move something like that, because very soon there'll be quite a volume of them coming back to the market."