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Auction price gloom lifts for fleet models

The values of fleet and leasing stock at auction are on the up and there looks to be a semblance of stability entering the sector.

It’s not all good news, because prices have fallen enough to make almost all cars worth considerably less than they were previously, but it seems the constant falls of the past few months are slowing.

Some predictability may be coming back to the market allowing dealers to bid more confidently.

The margins might be smaller, but at least it seems they can now be predicted.

But there are still major problems out there. In the fleet market, where residual values can make the difference between profit and loss, the issue is when to defleet, with many knowing full well that they are going to get considerably less for that car at auction now than had been budgeted for three years ago.

It could result in some major casualties.

As one insider said to AM: ‘The second half of next year could be horrendous, because that’s when the residual value issue is really going to hit home, especially for some smaller leasing companies who don’t have the cash reserves to make up the shortfall between what they achieve for that car and what funding they need to pay back.’

One option is to extend contracts, often changing from a three year to four cycle and there is a lot of anecdotal, rather than concrete, evidence that leasing companies’ salespeople are out in the market talking to their customers and encouraging them to look at this option.

It’s postponing the inevitable though: extend the contract for another year and the car is going to be worth proportionately less than it is now, unless the market does some unexpected backflip, but at least it gives leasing firms longer to refinance their fleets.

As with everything in the long cycle nature of fleet, the effect of contract extensions takes time to filter through into the market.

BCA claims it is yet to see any clear evidence of cars coming through its auctions at an increased age and mileage profile, although Manheim believes it is seeing the first evidence of contract extensions.

“In terms of profile, in November we’ve seen an increase in average age rising from 36 to 39 months, although mileage has fallen slightly,” said non-executive director Rob Barr.

But this is across the board, including manufacturer and dealer part exchanges, rather than solely fleet vehicles.

Does that mean that dealers are going to be faced with the choice of older, higher mileage stock over the next year or so?

It seems unlikely because with as many as 600,000 cars leased three years ago there are still a lot of cars to come back to the market in the next few months, meaning that in the short term, there will be plenty of choice.

Indeed, Manheim says it is still seeing strong volumes coming through its centres.

And fleet stock is actually looking relative healthy. Manheim’s Market Analysis report found that, the average selling price in the fleet sector rose by 3.4%, in November compared with a fall of 10% during the previous month, although average age fell by one month and average mileage by 2,080 miles during November 2008.

Almost all fleet sectors saw rises, including off roaders. Manheim’s report said: ‘Only compact executive and MPV models recorded a fall in average values, with the largest increases recorded by small coupe (7.7%), large coupe (5.6%) and off roader models (5.7%).

‘For the much maligned off roader segment, this represented the second consecutive monthly increase, with values having risen 4.7% during October 2008. Average stocking days increased, albeit by only one day, having fallen by 2 days during the previous period.’

However, despite the good news, relative to this time last year, the average selling price was £999 (-17.1%) lower with very little change in mileage and age.

BCA’s Pulse report tells a different story: for November it reported that average monthly fleet and lease values fell year-on-year by £918 (14%) to £5,596. Against CAP performance fell by 4.78 points year on year to 88.94%, which was 1.88 points lower than October.

For daily rental firms, the situation is different: they do not have the luxury of longer contracts to buy themselves a number of months to reassess the situation, and according to John Lewis, director general of the British Vehicle Rental and Leasing Association, many rental firms are looking at extensions to the amount of time they keep the cars on their fleet.

This may only be by a month or two though.

Of course, many daily rental cars are part of complex buy-back deals with the manufacturer and so become the responsibility of the OEM to find a route to the used market.

One of the major issues of following this strategy of a longer term on the fleet is that pre-registrations hit the values of these cars hard.

After all, given the choice between two nearly new cars, one with a hard rental life behind it, and one pre-registered with barely a wheel turned, it’s no surprise the rental stock looks a poor relation.

However, speaking to a remarketing expert about the issue of pre-registration, it seems that manufacturers are finally pulling back from the strategy.

‘They have finally realised there’s no point pre-registering all these cars,’ he said. ‘They are going to hit their volume targets anyway, so most manufacturers are giving up on the practice as it serves no purpose.’

As a result, rental stock should become more attractive as the supply of that age of car slows.

But while there are subtle shifts in the market that could help to shore up prices, overall tor the near future, the outlook still remains fairly bleak.

At the conclusion of it major reforecast in the December Monitor, undertaken in order to catch up with such a rapidly spiraling market, CAP said: "Aside from City Cars, which show modest rises at all future year points from 12 to 60 months, further downward movements will be seen in other sectors.

"Looking to the future we remain of the opinion that early 2009 will see the worst of the used car market weakness that has characterised most of 2008.

"From summer 2009 onward we continue to expect the market to remain subdued and remain little changed during 2010.’

So perhaps it is not all good news, and the travails of the fleet and leasing sector will continue in the used market.

The huge volumes still being put through mean that fleet dominates the pricing of the market and the strategies of contract extensions will have little effect on prices, at least for the next few months, unless significant numbers are kept out of the auction halls.

But remember, they will always reappear.

Perhaps for dealers, the slowing of the stream of pre-registrations and the effect of less nearly new cars, and the resultant less supply against demand could be the single most pertinent positive aspect of the current downturn.

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