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Depreciation Returns to the Used-Vehicle Market

October 17, 2014, by - Also by this author

File photo
File photo

Remember depreciation? It's coming back. Not with a vengeance — quite yet — but it is back. The historically unprecedented bull-run in used-vehicle prices has been going strong since the second-half of 2009. New-vehicle production plummeted for a while, finance sources dried up so leasing plummeted, and the rental industry contracted quite a bit. It was a happy recipe for any fleet manager looking to turn over his or her fleet or sell some vehicles.

The latest auction figures point out a few important trends: First, the market for certain types of vehicles is definitely getting softer. Second, there really isn't one "used-vehicle market" anymore. There are several markets and it all depends on the types of vehicles you are using. Full-size pickups are still as strong as ever, with year-over-year prices up 5-7 percent. Full-size vans are incredibly hot, with prices up 15 percent or more in most markets. And, the experts seem to agree that this trend should continue for the foreseeable future. But, full-size cars? Ouch. This segment is down 16 percent this year. Compacts and mid-size vehicles are faring a little better, but they are still seeing consistent declines year-over-year.

The days of being able to predict values based on overall industry trends and outlooks are over. Managing a fleet in this age of procurement and constant cost reductions means not only picking the right brand and negotiating the best possible fleet incentives, but now you also need to be absolutely sure you are picking the right vehicle categories. Deciding to go with comparably priced CUVs over mid-size cars may save you thousands of dollars in depreciation three years down the road. Conversely, over-spec'ing your trucks might make you look like a hero in today's bull market for big trucks, but if fuel prices spike again (not too likely, but still possible), you won't be able to give them away.

And, then there are the issues related to technology, telematics, and infotainment systems. The pace of change with in-vehicle technology is staggering. And, the "fleet-delete" options out there give you the opportunity to maybe save a few bucks on the initial CAP cost, but could make your vehicle almost unsellable in the used market. Consumers have a new set of expectations when it comes to buying cars. They expect a certain level of safety and security to be built into the vehicle. They want 265 air bags, if possible, they want back-up cameras, satellite radio, and an emergency 911 system. Tread lightly when you are considering deleting optional, or even standard, equipment in these categories.

The used-vehicle market is fragmented by vehicle category, technology, and geography. The best way to maximize resale value is to educate yourself up front about where the market is going to be when those vehicles come out of service. There are some tremendous resources available in our market for those that want earn their Ph.D.s in TCO. The guidebooks are a great starting point to help you take some of the guesswork out of your vehicle cost forecasting, as well as FMC remarketers, wholesalers that work in our market, and your local fleet dealer.

But, the burden is on the fleet manager to take as much guesswork out of the process as possible. Unless you don't mind being the guy or girl who has to go to the CFO and explain why your depreciation bill is $2-million higher than you said it was going to be.

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Author Bio

Sherb Brown

Vice President and Group Publisher

Sherb Brown is the vice president and group publisher for BBM's AutoGroup. Sherb has covered the auto industry for more than 12 years in various positions with Bobit Business Media.

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