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Management

Make the most from your company cars

Tuesday, 28 November 2006

Tom Madden of BCA shows how a little effort can maximise residual value on your company vehicles When your hard-working company vehicles have finished their tour of duty and you are faced with the task of selling them as quickly as possible, what do you do? Call a friendly trader who will take them off your hands? Offer them to your staff? Or sell them through the wholesale market via a remarketing company, such as a vehicle auction?

Choosing the latter route has some distinct benefits. For a start, the auction company can arrange everything for you, leaving you to get on with your business. You don't have to worry about preparing the car, canvassing buyers or whether the cheque you've just taken in payment is going to bounce. What an auction does is bring willing sellers and willing buyers together in a competitive environment - when this is combined with an attractive selection of well-presented vehicles it can have a surprising and pleasing effect on residual values.

Whatever route you choose to market - physical auction, electronic or online auction, tender, fixed price sale, selling direct, selling to staff - you have to weigh-up and balance the benefits of speed, cost and return. There are other elements that all come into play such as security of payment, your company profile and objectives, or the type of vehicles being remarketed.

Selling direct to a third-party trader or dealer can seem very appealing. It's quick and simple, there's no apparent cost, so that scores two out of three immediately. The catch is you have nothing to benchmark against the offer you are getting.

How do you know that what you are being offered is a fair reflection of true market value? You might have a price guide book - CAP or Glass's - but do you really know where the market has gone since the information in that book was sourced, collated and printed? Of course you don't.

While those in the motor trade are among the most philanthropic of people, supporting good causes and fund-raising for the less well off, they won't count you asa charitable concern. They will buy your cars and vans as cheaply as possible, take them away and maybe - just maybe - put them into auction and make a profit.

How about selling to staff? That's also relatively quick and doesn't cost a great deal... or does it? Just consider if you were about to buy your own company car - you'd make sure it had a full service, a new set of tyres and maybe the exhaust done just to be on the safe side. You'd get all this done in the last few weeks that the company picks up the bill. Then you want to buy it at less than trade money, because you see it as a perk of the job. And if anything ever goes wrong with it, you'll be marching in demanding the company puts it right. That's the major problem with staff sales. There is the potential for abuse and the car never goes away.

So why not try the professional services available in the vehicle wholesale market? Here, the real challenge facing company fleets at remarketing time is sorting the wheat from the chaff of the many so-called new routes being brought to bear on the market. While many are as old as the hills and are simply dressed up as new ideas, each has their merits.

What is important, in whatever remarketing channel you choose, is that it meets the three main criteria of speed, cost and return. Speed, because cars are depreciating assets and there will be a holding cost associated with every car, van and truck on your fleet. More speed generally means a reduction in holding cost, which will reflect positively in your residual value. Cost is important because we all have to work to budgets and none of us want to pay more than we need for the services we get. But be careful to balance cost against the return. Don't save £5 in the short-term and then lose £150 in the final analysis. Finally, return - the money back to the seller's bottom-line - is what any remarketeer worth his or her salt will be judged on.

Perhaps the biggest challenge their customers face is to pick the service that suits them most from the offering they have - overwhelmingly, and perhaps not surprisingly, physical auction remains the channel of choice for the majority of customers. Why should that be? It's simple - for most vendors, physical auction meets the criteria of speed, cost and return very nicely.

If you've got an 80,000 mile, five-year old, four door, two wheel trim, no aerial saloon, it's highly unlikely to sell online, it's the one the trader pretends he hasn't seen while he's cherry-picking through your stock and none of your staff would touch it with a barge-pole. It's a standard specification, slightly tired and in white. It's the car that CAP Average was made for.

But at auction, this car can have its moment in the spotlight. Look at its good points - it's a one owner car with a good name in the book - your company name in fact. It's got a full service history, a V5 and a long MOT. It's valued at the cheaper end of the market - where there is always demand - and it would not be too expensive to correct the few faults it has. And, on reflection, that 80,000 miles doesn't look too high on a five-year old car. The truth is that it's very sellable indeed when put before the right audience.

You also have 20 management 'perk cars', all high spec, in nice metallic colours and low, low mileages at two years old.

The trader is nearly banging the door down to get at them and is offering you sensible money, today, to take them away. You've had untold enquiries from staff seeking to purchase the cars. Send these to auction as well and watch them sail past CAP Clean as the trade compete for them, and maybe a non-trade buyer comes in and outbids everybody to semi-retail money.

That's how an auction works - by concentrating dedicated buying power in a competitive environment. It is the fastest, most efficient way to liquidate a depreciating asset. Any subsequent cares and concerns about the car disappear at the fall of the hammer. Current true market value will be achieved and - more importantly - will be seen to be achieved.

As the owner of a vehicle you are entitled to achieve the average market value and not a penny less. The question is who knows what the average market value is? Do you let an agent tell you what it's worth? Or do you let the market decide on the day, with competitive bidding in a physical auction? Who do you trust?

If the market decides that particular vehicle is worth near 'retail money' on the day you are selling, then that is an added bonus - all the price benefits and none of the retail concerns. It happens more often than you think as well.

A competitive auction works well to sell virtually anything, whether you are conducting a physical auction or a real-time electronic or online auction. The trick is to get the right buyers competing at the same time.