Setting RVs is only (very) educated guesswork
21 March 2007
How can Ford forecast what the new Mondeo will be worth three years down the line, asks Rupert Saunders, when even the Chancellor can't predict the economic future?
Two bits of good news for Mondeo man's business car manager this month. Firstly, the , exclusively previewed in BusinessCar (21 February isse), is going to cost an average £300 less than the current one. And secondly, after 60,000 miles and three years of being flogged up and down Britain's motorways, it's going to be worth £850 more than the existing car.
How do I know all this? Because Ford and those clever people at EurotaxGlass's have told me.
Hang on a minute, I hear you cry - the new Mondeo doesn't go on sale until June and even the Chancellor of the Exchequer can't forecast the economy in three years' time. So, how come Ford and Glass's think they know all the answers?
It's a good question.
The past few years have seen increasing co-operation between the car manufacturers and the residual value guides to help them set accurate forecasts. Dermot Kelly, the boss of Mercedes Cars in the UK admits it was "a breakthrough" when he got the Germans to allow the value guides to have an early drive on the new C Class. Meanwhile, Kevin Griffin, Ford's fleet boss, told BusinessCar he has been working with the whole-life cost providers since the middle of last year so that they can get "all the data in the marketplace way before launch".
There are good reasons for this. In a highly competitive market, manufacturers need to get their new models on business car choice lists early and they need the major leasing companies to set contract hire rates ahead of launch. To do that, there must be some first stab at SMR costs and residual value forecasts.
“These are only forecasts - based on complex formulae and calculations, then topped up with his own instinct - but still only forecasts.”
But, should we be taking these early forecasts, three months ahead of launch, with a pinch of salt?
Jason King, forecasting editor at EurotaxGlass's, is a mate and I have been with him while he grapples with the figures to arrive at a fair and accurate conclusion. He takes a very independent view, as do all the other forecasting companies. But even Jason would be the first to admit these are only forecasts - based on complex formulae and calculations, then topped up with his own instinct - but still only forecasts.
So you need to make up your own mind. That's what the major leasing companies will do: take a basket of the residual value predictions, add in their own factors (including competitive pressures) and then set a monthly rental figure.
The new Mondeo looks great and I am sure it will represent a step change in quality, but only a few leasing companies will have driven it and the key factor in its resale value will be supply and demand, three years down the line.
Arguably, supply is in the hands of Ford but demand will depend on the economic factors of the day. If you think you have the answer to that, I am sure both Jason King and the next Chancellor of the Exchequer would like to hear from you.
Rupert Saunders is a specialist in automotive finance and retail