Board of sales talk
07 February 2007
Vehicle disposal is rarely discussed at board level, and that means companies are losing out financially, says Rupert Saunders
One of the more curious aspects of the business car industry is that, despite its size, there is very little management research or data to back up best practice.
Let's assume there are 1.5 million business cars bought each year and each one costs, on average, £10,000 - that makes the industry worth £15bn a year. Yet, for the most part, business car managers work on good old 'gut-instinct' rather than take any rigorous financial approach to their job.
Don't believe me? Take a look at the data in a new report by Professor Peter Cooke of the Nottingham Business School. It reveals the majority of companies (58%) discuss vehicle acquisition and disposal at board level less than once a year - in fact, 12% never discuss business car buying and selling.
Even if they do take the issue seriously, the board is much more interested in vehicle acquisition than it is in disposal. Vehicle selection is a board matter in 18% of companies; vehicle disposal is a board matter in 8%.
These are staggering figures, particularly when you consider how much time and effort is spent worrying about pence per mile running costs. You could be saving 1p a mile during the three years you run the car and then throw most of that away by losing £400 on disposal.
So Tony Gannon, communications director of BCA, who sponsored the report, is quite right when he says "disposal is less understood than it ought to be" and the gulf between doing the job well and doing it badly is huge.
“The survery reveals the majority of companies (58%) discuss vehicle acquisition and disposal at board level less than once a year - in fact, 12% never discuss business car buying and selling.”
This is not just about policy. Professor Cooke also found that few companies have any sort of benchmark for disposal value. In 59% of cases, they were ready to accept "best achievable price" (which is a pretty vague notion at the best of times) and there is very limited understanding of the hidden costs of disposal - even after the driver has handed the car back.
Apart from the obvious, such as ongoing depreciation, movement charges, preparation for sale, insurance and tax, these can also include management time preparing advertising, charges for parking and security, invoicing, audit trail and bad debt collection.
Cooke estimates that having an unsold car sitting in a compound is costing around £10 a day, which leads him to conclude that 'speed to market' is a major factor in achieving best value at disposal. His clear view is that auctions are the best route.
You could argue that, since the report was sponsored by BCA, they "would say that wouldn't they". But, as Gannon is quick to point out, virtually all the top 20 leasing companies now use auction disposal for the majority of their fleet.
Get hold of a copy of the report (e-mail: email@example.com), read it and then decide for yourself.
Ruper Saunders is a specialist in automotive finance and retail