Motability Finance Ltd, the contract hire arm of Motability, has unveiled 'do-or-die' measures to take increased control of its used car stock in an effort to boost residual values.
At a 'business update' held at Ascot MFL senior executives explained the changes which they said were fundamental to the survival of the organisation which has a fleet of 400,000 vehicles.
The changes also signal a return to the Motability choice list of 23 manufacturers for Rover, Peugeot and Ford, which had accused MFL of attempting to take too greater a control of the used car market when it announced it would take the residual value and maintenance risk (from March 1999) of its vehicles in-house. Customer are now allowed to have any in-franchise garage maintain their car rather than the one that sold the vehicle to them, which has now been deemed too restrictive.
97% of vehicles are now maintained by franchised dealers.
This change has provided MFL with an accurate picture of the condition of its fleet. This has helped MFL develop a new remarketing programme for the 140,000 vehicles defleeted annually, structured around the MFL Direct website.
The new programme, called the Maintenance and Residual Value Project, means the dealer who maintained a car will be given the exclusive chance to buy it seven days before a customer hands it back at the end of the three-year contract. The fixed-price offer will last for four days. At the end of this period the car will be offered to all dealers within the franchise, an offer that lasts for three days. MFL expects 50-70% of all cars to be sold by the end of this stage, most through the website.
Those that are not are taken to a regional collection centre, where they are offered to the whole market, franchised and independent. The final stage is where vehicles are sold at trade sales or Manheim and BCA auctions.
Ford vehicles will not be sold through this new system. It will continue to buy back its cars, which account for 20% of MFL's fleet.
Jeremy Martin, MFL vehicle remarketing programme manager, said: “The old scheme relied on dealers being able to exactly manage every new car supplied through used car sales three years later. In practice, as scheme volumes grew, more dealers found their return volumes were too large for their used car business – creating local market distress.
“The new scheme brings cars back locally and gives dealers access to that stock for which they can easily find customers and to drive stock away from those dealers when they cannot, relieving local market distress.”
MFL says stock will now move from 'high volume' Motability dealers to high volume used car dealers including those who do not sell new cars to Motability and therefore no easy access to its used stock.
At the moment, Mr Martin said, dealers have been “trading their way out the problem”. “Each car goes through three to six hands before finding a retailer who keeps it,” he said. “By redistributing vehicles at source MFL will benefit from the value that is taken out by the traders and effectively wasted away.”
Ed Lester, MFL chief executive said: “One could argue this is not a good time to take on more residual risk, and we have seen additional costs taken by the scheme associated with both short and long-term losses. But then it has to be considered how long the old scheme would have survived. I do think we are in a better position to respond to the increasing pace of change in the industry.”
Motability runs a fleet of 400,000 vehicles, buying and selling 150,000 a year, nearly 7.5% of the UK market.