Fleet managers should be looking at the pipeline of new model releases and consider the impact they will have on used car values this year.
Simple upgrades timed as part of the model life cycle are easy to manage because the changes are stepped. Though a significant new model release is always preceded with a run out of the old model, which is accelerated by discounting and special offers.
This can create a conundrum for the fleet manager: do they bring the vehicle changeover date forward to take advantage of the discounting? Or take a longer-term view and wait for the new vehicle and hope the increase in used values is higher that the level of discounting?
Chetan Varsani, commercial manager at Pickles Auctions which manages the sale of used vehicles for a large number of Fleet Management Organisations (FMOs), says fleets can take advantage of a major model changes if they are smart about setting future vales.
"In terms of senior series change, our data suggests FMOs can generally set a residual value 15 per cent higher when comparing to a seven-year-old model, we call this the honeymoon period, we find this increase comes down in an exponential fashion as the model gets old," says Varsani. "This increase allows smart FMOs to really gain advantages on newly released model, however they do need to be prudent and bring that number down quickly as the honeymoon period fades away."
Nick Adamidis, marketing and sales manager at Glass's Information Services, says fleet managers need to look at the short and long-term benefits in this situation.
"When a vehicle update occurs, if the change in appearance of the new model is minor, then there isn't a large impact on the resale values of the discontinued models. If there is a major update to the new model, for example a completely new reskin, then this may have a further negative impact on used prices for the discontinued model, " Adamidis says.
"Whether fleet managers buy the current model or wait for the new model depends on the level of discount they are offered. As such, this decision is highly dependent upon each individual fleets' circumstances, with regards to their vehicle changeover policies, the age of their current vehicle fleet and the level of discounting."
Exit strategy well managed
Decisions made by manufacturers at the end of a model cycle can have a major impact on fleet values. History has shown that when Mitsubishi retired the Magna and 380 nameplates the new vehicle advertising stopped and the demand for used models dropped, followed by declining prices.
The current exit strategy by local manufacturers appears to be well managed and Glass' Information Services thinks it will limit the impact on future values.
"Both GM Holden and Toyota have confirmed they will name the replacement models, Commodore and Camry, respectively. As such this will help support residual values going forward, as opposed to ceasing the model name when local production ceases," says Adamidis.
"We are beginning to also see weakening in residual values for non-performance Falcons [non XR8 and XR6 Turbo models] due to the model nameplate being discontinued with local production ending late last year.
"It is the new car advertising and marketing for a specific model that maintains awareness for the same model in the used car market. Seeing these new cars driven on the roads, coupled with online, TV, billboard and print advertising, provides constant market awareness in used car buyers' minds when deciding on buying a second-hand car.
"If awareness remains healthy via advertising of the new model nameplate, demand remains strong in the used car market, then dealers will see continued demand from the private market and they will in turn actively participate in taking in trade-ins and purchases of these second-hand models at auctions, further adding support to the resale value."
Business as usual
Ed Stanistreet, general manager at Toyota Fleet Management, does not think the move from local manufacturing to all cars being imported will have a big impact.
"We anticipate Toyota Camry, for example, will remain the same popular fleet vehicle when it is imported as it was when it was built here," says Stanistreet.
"We expect other automotive brands with model changes are likely to be impacted more than Toyota – it's largely business as usual for us."
Timing the sale of all used vehicles is important because they experience seasonality throughout the year. Getting this right in order to maximise the value and maintain a low whole-of-life cost (WOL), which is a key vehicle selection criteria for fleets, is critical.
"In terms of seasonality, we find that the start of the year is the best time to sell a vehicle...where FMOs yield the best results," Varsani says. "This generally lasts until about April from which point prices start coming down as we head into July which is generally the time of year when you get lowest value for a car, we call this the winter dip.
"Generally speaking, as the financial year comes to an end, dealers are less inclined to buy high volumes of stock and therefore demand lowers. From July onwards we do see a steady climb up to November followed by a drop in December when demand is low."
