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High-Mileage Used Fleet Vehicles Create Difficulties Financing 'C' and 'D' Paper Buyers

January 18, 2011, by Mike Antich - Also by this author

Fleet managers are manufacturers of used vehicles. Many of the buyers of used fleet vehicles are C and D paper buyers. One unintended consequence to companies extending the service lives of fleet vehicles is that it is more difficult for used-vehicle dealers to finance C and D paper buyers in the secondary funding market. The issue is not interest rates. Whether these buyers purchase an identical vehicle with 60,000 or 120,000 miles, they will pay the same interest rate. The issue, from the perspective of the finance company, is the remaining life of higher-mileage vehicles.

Consumers are ranked as either A, B, C, D, or E paper buyers. Consumers who have either A or B credit ratings typically do not have difficulty getting a loan. “The reason someone is in a C or D paper category is because they probably haven’t paid their bills on time or have a personal bankruptcy,” said Kevin McGrath, president of Fleet Street Remarketing, a remarketing company headquartered in Largo, Fla. “When a finance company assesses a vehicle these buyers want to purchase, they determine the vehicle’s remaining life. The reason this is important is because when a vehicle stops running, experience shows these buyers typically stop paying. The finance company only wants to fund a vehicle that will last the length of the loan or at least 80 percent of the loan length, because this is typically the length of time needed to get its money back in profit.”

A typical loan is three years for a C or D paper buyer, typically at 20 percent plus interest. If a driver averages 12,000 miles per year, the finance company wants the vehicle to be able to run at least an additional 28,000 miles, or 80 percent of the loan period. However, this rule of thumb will vary by vehicle make and model. Often, secondary finance companies are a little more flexible in funding import-badged models.

“There are some makes and models these secondary funding companies will not fund, such as those with a reputation of being prone to maintenance issues at higher miles,” said McGrath. “I am getting turned down by banks saying they’re not going to fund a car with this much mileage.’”

Secondary finance companies are funded by other financial institutions, such as GE or Chase, using credit lines. These financial institutions have become more restrictive in the credit lines they provide secondary finance companies. During the recent recession, many secondary funders had their credit lines pulled and went out of business, especially those carrying a high volume of bad loans. This decreased pool of secondary funders also contributes to the difficulty in funding C and D paper buyers.

Not only do high-mileage vehicles limit the number of retail buyers, they also shrink the pool of dealer buyers at the auction.

“Once a sedan gets over 100,000 miles, it limits the number of buyers to whom you can sell the vehicle. At this point, the vehicle is primarily of interest to buy-here, pay-here dealers who aren’t as willing to buy as much at auction,” said McGrath.

The negative impact of high-mileage vehicles is especially pronounced with commercial vehicles, such as work trucks and cargo vans. “I get cars from fleet managers who are running their cars to 125,000-130,000. Vans go up to 200,000 miles. These aren’t small fleets either. These are big-time, well-recognized fleets,” said McGrath.

Finance companies are especially tight-fisted when it comes to funding work truck fleets for C and D paper buyers. “The only buyers they are funding are A and B paper customers. C and D paper customers will have to pay cash for these vehicles,” said McGrath.

Tradesmen, who want to buy a used van that may be newer than what they are driving, are having a difficult time securing funding to acquire these vehicles. “It is very difficult for these buyers. If you are a C or D paper customer looking to buy 2005 or 2006 model vans with 135,000 miles, then you will most likely be forced to pay cash,” said McGrath.

In a soft economy, senior management demands expense reductions and institutes limits on capital expenditures. As a result, there is pressure to defer vehicle replacements. As seen, extending fleet vehicle replacement parameters can prove to be counterproductive to the intended goal, especially with resale value. One unintended consequence to remarketing higher mileage vehicles is “manufacturing” a product that is difficult to finance.

Let me know what you think.


  1. 1. Ricky Beggs [ January 18, 2011 @ 07:03PM ]

    Great article about higher mileage fleet cars. In my conversations with remarketers the vehicles with the most concern in value retention are the extremely high mileage units and often some that are less than 3 years old. The deducts for higher mileage ranges are going up as the vehicles age instead of getting reduced. We still are faced with a mileage deduction that can't exceed 50% of the base vehicle value. Sure vehicles are better quality and last longer but the point about financial companies being concerned about the collateral running for most of the life of the loan is real. Keep up the good work of providing real world concerns.

  2. 2. Charlie [ January 21, 2011 @ 10:33AM ]

    Mike - “manufacturing” a product that is difficult to finance certainly rings home to finance people. This explains at least one of the problems with extended replacement mileages. But, what next? When will new analysis models arrive to show when sales sedans should be replaced to minimize total costs? When the residuals improved and better quality removed most of the maintenance issues, it was not hard to show that extending mileage was a good thing. Now you are providing good reason to establish a cap of the mileage. We just need to define the cap.

  3. 3. John Brewington [ January 22, 2011 @ 09:51AM ]


    Your article is right on point. Operators of owned and leased fleets would be well served to use life cycle cost analysis in determining the optimum replacement timing for their fleet assets. By extending their replacement criteria, they typically incur increased maintenance costs, extend use of less efficient assets, and see their end of life residual values erode. I’m not a rocket scientist, but in a few minutes, I can usually tell if a fleet is replacing units on the most favorable schedule – surprisingly, many are near-sighted in their approach to this critical component of fleet management.

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Author Bio

Mike Antich

Editor and Associate Publisher

Mike has covered fleet management and remarketing for more than 20 years and entered the Fleet Hall of Fame in 2010.

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