Managing the Financial Side of Commercial Fleets

Resale Basics 101

March 2012, by Grace Suizo - Also by this author

In a perfect (fleet) world, a vehicle’s value would remain the same throughout its service life, despite its actual condition when it comes time for replacement. In reality, however, ensuring units retain a percentage value of their original worth is just another aspect of the job for a fleet manager.

"The true cost of ownership is a measure of the original purchase cost less the resale value," explained Bill Cieslak, vice president, North American remarketing for PHH Arval. "The higher the resale value you can achieve in the marketplace, the more of your original investment you can retain."

According to Bob Graham, vice president of vehicle remarketing for Automotive Resources International (ARI), "Increasing a vehicle’s resale value is one of the most important factors in the total cost of ownership that every client should be watching. It’s often overlooked, since it happens at the end of the vehicle’s cycle, but depreciation is one of the two biggest expenses associated with a vehicle, with fuel being the other."

Reducing effective depreciation can, in turn, help lower fleet spend.

"For a fleet to take advantage of this, and truly lower its effective depreciation, it must actually sell the vehicle," said Steve Jastrow, strategic consulting manager for GE Capital Fleet Services. "Similar to home or stock values increasing or decreasing, if a sale is not generated they are paper gains."

Increasing the resale value of a vehicle is not difficult, but it does take some work. Experts share some basic common-sense principles that should help get the highest resale value for fleet units.

Keep Up Appearances

In an industry where vehicles often function as "rolling billboards" and mobile offices, appearances matter when it comes to remarketing a vehicle.

"Vehicle color, certain options, and proper vehicle maintenance will have the most dramatic impact that is within the control of the fleet manager," said Jastrow of GE Capital Fleet Services.

Graham of ARI agreed. "A well-maintained vehicle, both mechanically and physically, will not only keep the driver on the road and present a better image, but also bring a better resale and help the unit sell faster."

Values will also be better for vehicles that are closer to what dealers refer to as "front-line ready," according to James Crocker, director of fleet acquisition & disposition for Merchants Leasing. "A lot of the new-car dealers have such limited inventory due to the manufacturer cutbacks, and they’re looking to basically buy vehicles that are as close to being ready to be sold to the client as possible. So, the closer you have your vehicles in that condition, the more likely they are going to sell — and for a larger amount of money," he said.

Likewise, Darrin Aiken, assistant vice president of remarketing at Wheels, Inc., advised having a good maintenance program in place that is utilized by the driver or the branch to properly maintain the vehicle throughout its lifecycle.

PHH’s Cieslak suggested working with a fleet provider to maintain vehicles.

Whether a fleet manager decides to go it alone or get some outside help, keep in mind proper vehicle maintenance entails several aspects:

Cleanliness: All drivers utilizing the vehicle should operate it with the notion that it is their responsibility to keep it in good condition, especially if they are not the sole user. At the end of the day, make sure drivers remove any trash from the vehicle and perform a quick spot check for dirt or debris, even dust.

"Condition is the single biggest contributor to resale value," said Gus Xamplas, vice president of remarketing for Donlen Corp. "Sparkling clean vehicles with no rips, stains, or odors command the highest prices."

That said, Xamplas also recommended prohibiting employees from smoking in vehicles. "It’s cheaper to avoid odor problems than it is to correct them at resale," he said.

Wear and tear: An old, beat-up unit is not likely to be well-received by a potential buyer. Pushing vehicles past their ideal limits should be avoided, if possible.

"Follow a proper [vehicle] replacement cycle," advised Aiken from Wheels. "Our account management team works with our clients to determine the appropriate replacement cycle based on the specific customer’s fleet needs."

Xamplas concurred. "Commercial lessees can achieve higher resale values by carefully selecting their cycling parameters in collaboration with their fleet management company and being disciplined in the implementation."

Vehicle mileage plays an important role as well, so optimizing delivery routes to reduce mileage pays off, according to Jastrow of GE Capital Fleet Services.

Future owners will also appreciate knowing all the work that has been done on a vehicle.

"It helps to be able to provide a comprehensive maintenance history at the time of resale that shows the timely performance of regular maintenance," Xamplas said.

Aiken agreed. "You need a strong collision program for the drivers and the branches to ensure vehicles are properly repaired if an accident occurs and the repairs are managed appropriately for a quality repair. Disclose any information on the collision management history of the vehicle and the quality of the repair," he said.

Cieslak from PHH suggested working with a fleet provider to offer accident prevention training and qualified accident repair management.

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