The Car and Truck Fleet and Leasing Management Magazine

Regarding the Rethinking of Residual and Remarketing

November 2002, by Ed Bobit - Also by this author

You can't sit on the lid of progress. If you do, you will blown to pieces. -Henry J Kaiser


For most Americans, progress means accepting what is new because it is new, and discarding what is old because it is old. -Lewis Mamford


Is it progress if a cannibal uses knife and fork? -Stanislaw J Lec.


With nearly all commercial account lessees under contract with an open-end lease, they and their controllers are noticing that the price of doing business for a fleet has increased markedly.

The heavy pounding depleting our substructure (after many years of obtaining high residuals) has been the advent of the egregious incentives showered on both retail and fleet accounts.

Yes, the fleet manages are continuing to boast receiving larger checks to wave in front of the CFO but long after the purchases are made, the company learns it's actually costing them more.

The demon is well identified although not given much respect; depreciation. It feeds off higher incentives, both the obvious ones tabbed as incentives but also the subtler one of the carmaker picking up the tab for the interest which is sort of hidden.

The question remains, why aren't these professional managers giving proper credence to total cost? It is not like they haven't been exposed to the idea. It's not because they're clueless in Seattle.

As an observer, let me mention a few things that may provoke you to re-think your position and posture.

People like Automotive Lease Guide (and other guide book marketers) have come out with a specific "fleet/lease" residual book that carmakers are now paying attention to. Your mouth is liable to drop open to see some of the projected values three years from now. Frankly, it's scary.

GM just announced that they are not encouraging their dealers to sell accessories that do not add substantial value on resale. GM doesn't want more expensive accessories (that are profitable for the factory) melded into the cap cost of the vehicle. When this happens, it is simply widens the depreciation gap. Making that policy took guts.

I've often wondered about the wisdom of a larger commercial lessee account maintaining three lessors. So, one day I asked. I was given the factual evidence that the monthly residual summaries from each lessor were carefully scrutinized. When one was not getting comparable numbers for two months in a row, an ultimatum was issued. Incredibly they were brought into line.

NAFA's latest Used-Vehicles Marketing Study reveals some pretty startling results among the 145 commercial fleets responding. Would you believe that one-fifth of them do not have a formal replacement policy in force?

Figure this one out. A remarkable 61 percent of the fleet offer their used cars to employees (the good news); but only 21 percent are actually sold to employees (the bad news). What's wrong with this picture?

For cars the average replacement still hangs at 36 months or 65,000 miles. Even with 2002 being a difficult economic year for most corporations, only 4.1 percent plan to run the units for more months and 6.9 percent will try to get more miles before replacing.

My friend, Keith Kreps, of ULTEA Leasing has actually worked out some documentation that involves where prime and U.S. Treasuries were three years ago (assuming a fixed, not floating interest rate) vs. today. He tells me he can build a strong case for not extending the life of that three-year old car and why it might be wise to purchase now and lock in the current interest rates for the nest three or four years.

There are many reasons to re-think our position and posture on depreciation and residuals. The boldest notion is one of my pets that I dust off every so often. If the lessors are the experts and the fleet managers refuse to learn remarketing, why not let the lessor take the risk? It's called a closed-end lease; and it is available if anyone wants to consider true and total costs.

What one can learn globally can often apply locally. I urge you to think outside the box, internationally, if you will, as you study the future.


Twitter Facebook Google+


Please note that comments may be moderated. 
Leave this field empty:

Fleet Incentives

Determine the actual cost of owning and running a vehicle in your fleet. Compare vehicles by class and model.


Fleet Tracking And Telematics

Todd Ewing from Verizon Connect will answer your questions and challenges

View All


Fleet Management And Leasing

Jack Firriolo from Merchants will answer your questions and challenges

View All


Fuel Management

Bernie Kanavagh from WEX will answer your questions and challenges

View All


Sponsored by

Personal use in the fleet industry refers to the personal use of vehicles by an organization’s employees.

Read more


Market Trends

Mike Antich
Obstacles to Overcome Prior to a Volume Rollout of Autonomous Vehicles

By Mike Antich
I believe volume penetration of fleets by autonomous vehicles will take much longer to occur than what is predicted in today’s optimistic forecasts. Conceptually, autonomous vehicles are technologically feasible, but, as they say, the devil is in the details. One thing is certain, as we trail blaze new ground, so too will we trail blaze new problems.

Integration of Mobility Management Into Fleet or Vice Versa?

By Mike Antich

View All

Driving Notes

Paul Clinton
2019 Mercedes-Benz Sprinter

By Paul Clinton
The 2019 Mercedes-Benz Sprinter is a significantly upgraded van that offers a dizzying array of configurations and meaningful improvements designed to improve productivity for delivering packages or hauling passengers.

2018 Ford EcoSport

By Mike Antich

View All

Nobody Asked Me, But...

Sherb Brown
Remembering Sundays in St. Louis, Detroit, and Atlantic City

By Sherb Brown
There is just no better opportunity to network, to learn, and to mingle with the best and the brightest than an in-person fleet event.

Adapting to a Changing Tide

By Sherb Brown

View All

Data Points

Dylan Brown
What Are the Most Valuable Services Offered by FMCs?

By Dylan Brown
What do fleet managers value in their relationships with fleet management companies? The answer may surprise you.

Demand More From Your Fuel Card Provider

By Dylan Brown

View All

In Memoriam: Coach's Insights

Ed Bobit
Thinking of the Newbies of the Future

By Ed Bobit
A lot has changed in the past 10-15 years, so we can only imagine this momentum will continue into the next decade-plus. How will this change impact the fleet manager of tomorrow?

Managing a Car vs. Work Truck Fleet

By Ed Bobit

View All


Up Next

More From The World's Largest Fleet Publisher