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Who Has a True Appreciation for Depreciation?

July 6, 2011, by Ed Bobit - Also by this author

If you read the media regularly or attend the manufacturers’ future product previews, each and every one of them is touting the significant used-car value increases over the last few years.

Little mention is made that 2009 was a disastrous new-car sales year with fewer retail buyers because the nation was deep into a recession. Many fleets also found they could extend recycling and thereby reduce new purchases. In fact, it was so bad that some of the OEMs were forced into a financial reorganization.

It also prompted the OEMs to drastically reduce “program car” policies (convenient buy-back arrangements), which virtually dried up the daily rental market’s major contribution to the auction market. 

All this “action” formed a sort of tsunami in remarketing. For months now, used-vehicle values have exploded because the demand for good used cars is very strong and the availability of product is heavily reduced — so much so that auctions are consolidating locations, and some are actually closing.

Tom Webb, Manheim’s economic guru says, “The trough in new vehicles sales is still about three years away. We can expect the lack of whole supply will continue, which will continue to bolster resale prices…”

ADESA’s guru, Tom Kontos says, in part, “Average wholesale prices remain at near-record levels as concerns about new-vehicle supply disruptions and high gas prices add to the tight-supply/high-demand dynamic; new-vehicle incentives are down considerably, giving more upside support.”

Fortunately, fuel prices are coming down so the hot used-car market commands more focus than ever for the fleet manager. So, if you’ve been to the recent factory fleet previews, each OEM proudly displays charts showing the dramatic increase in resale values for its vehicles. Everybody is a winner right now; especially in the lower-cost, fuel-efficient models.

In the mix are the OEM price increases. At least one major fleet supplier has announced three price adjustments since January of this year, adding an average $375 to the sticker. And, special fleet incentives are getting tighter with good retail demand and lower dealer inventories. More evidence is confirmed as you see “nothing short of amazing” retail lease promotions. One import brand is actually “guaranteeing” an ALG used-car value as you buy now for your trade-in 24-36 months from purchase, thus buying the same brand.

Incredibly, most of the fleet managers I discuss responsibilities with assure me they know how to negotiate and buy, but are quite happy to outsource the major remarketing function. Now is the most critical time, perhaps in history, when their professional knowledge is required to save their company huge dollars and visibly demonstrate how valuable their talents are.

The obvious answer is partial short cycling, who know both the buying and the remarketing (plus have the ear of management). Among the elite who are executing this model or are strongly studying it for short-term action are Jim McCarthy from Siemens, Michael Beiger from ADP (both attendees of our Conference of Automotive Remarketing [CAR]), David Haselrud of 3M, Don Schaefer of USG, Mike Sims from LDS Church, and others who are proven leaders.

What’s not to like about short cycling? You’re undoubtedly trading a less-efficient mpg unit for a better one. You can probably cover both with the OEM warranty usage. You lower your maintenance and driver downtime. And, you take advantage of the hottest resale market you’ve probably ever witnessed and make more of your drivers very happy. Plus, you’re a hero!

My question is, “How can you not do it?”

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Author Bio

Ed Bobit

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Former Editor & Publisher

With more than 50 years in the fleet industry, Ed Bobit, former Automotive Fleet editor and publisher, reflected on issues affecting today’s fleets in his blog. He drew insight from his own experiences in the field and offered a perspective similar to that of a sports coach guiding his players.

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