Vehicle Valuation 101
In today’s fleet world, fleet management companies administer purchases ranging from 25 to thousands of cars, trucks and vans. But there are also many small businesses that only purchase several new vehicles a year, with 10 to 15 units or fewer in the fleet at any point in time.
These smaller fleets may have a set plan to purchase and remarket those vehicles, or they may only cycle fleet when the need arises. What knowledge is needed to help in your small fleet administration? Do you have an understanding of depreciation and how vehicles are valued?
Remarketing prior to increases in depreciation can improve your total cost of ownership. But what is that point in time?
Factors Affecting Value
Fleet vehicle selection should be primarily based on the need and functionality of the vehicles for your business. Once this is determined, how do you decide which vehicle or brand gives you the best value and service?
Depreciation is the largest vehicle cost, followed by fuel and factors such as maintenance and insurance.
Let’s take a look at depreciation and used car values at the time of remarketing. There are many factors involved in value depreciation or, more positively, value retention.
Let’s start with brand and segment type. Due to consumer perception, how a vehicle is sold new, and even the vehicle’s segment, plays a major role in retention.
Honda and Toyota have traditionally had stronger brand strength than the Jaguar brand. Part of this is consumer perception.
For Honda, its models are perceived as “retail units” with little or no penetration in the daily rental or fleet markets. Another factor supporting stronger retention is related to Certified Pre-Owned (CPO) programs.
Over the past several years, almost every manufacturer has been focused on improving quality, design and production levels to meet new car demand. So today, there are no “bad” vehicles, just some that might have slightly better overall retention. How do you identify those stronger retention models?
You can look at forecasted residuals from a source such as Black Book, which tracks and reports the used market with daily updated values from wholesale auctions all over the country. (Other industry-recognized guidebooks are Kelley Blue Book and NADA Guides.)
You can also look at current wholesale market values of selected vehicles at the age of the vehicles you would be remarketing. From there, you can do an actual retention analysis based on that vehicle’s original equipped MSRP value.
In this case, consider the differences or enhancements on current similar models compared to the two-, three- or even four-year-old actual retention. Has technology involving engines, transmissions or fuel economy significantly improved? Has the design and functional space improved to adjust demand levels higher?
Retention is also affected by market supply, which not only includes volume (units sold) of that model, but also the competing models within the segment.