Supplier Selection & Agreements
The resale value of a used vehicle determines its depreciation cost, which is potentially the largest expense in the Total Cost of Ownership (TCO) calculation. For this reason maximising the resale value is critical.
What then are the best practices to maximise it.
- Never sell a “non-runner”
- Select the vehicles with best resale values
- Optimise condition and refurbish if cost beneficial
This is of course sounds a little obvious but what are the real criteria that maximise resale value and reduce depreciation cost.
- When you developed your vehicle selector list, you chose a vehicle with best resale values, based on your replacement policy, considering usage, time and Kms. This translated into least TCO – cpk.
- Unpopular colours or the fitment of non-standard extras can reduce resale values.
- Your replacement policy (time and Kms) enabled you to replace your vehicle with optimally least cost and before age and Kms exposed you to the high risk of major mechanical failure. The next buyer needs to know that there is some useful life remaining.
- The condition will determine the best resale value. Obviously, give it a clean but repair any accident damage and broken glass (your insurance might pay) and recondition, where it is cost effective.
- Have spare keys, accessory codes, Service books and registration documentation available. A detailed maintenance history is a plus.
- Select the best disposal method.
What disposal options are available?
- Single vehicle Trade in – probably the easiest and certainly the one with the least administration. True pricing in this scenario is sometimes difficult to judge as fleet discounts and allowances, which may apply to the new vehicle, can be seen to be part of the trade in. having 2 separated transactions will give you a better picture.
- Multiple vehicle trade in – sometimes you end up with a number of vehicles to sell or a real “dog” that no one wants. Packaging these as part of a new purchase can have benefit.
- Application of a buy back agreement – returning a vehicle to the dealer will have strict Kms and fair wear and tear conditions which may expose you to penalties.
- Auctioning – this method is a true reflection of the market but it does change daily. There is a time delay between defleeting and final payment. Although a single vehicle sale will work this is often the preferred method to dispose of batches of vehicles, old and out of service vehicles
- Sale to Professional buyers – provided the price is right, administration is correctly concluded and the money is in the bank, this is an option.
- Sale to employee – this seems a good option as it does provide some benefit to employees but it has difficulties. Buyers expect a good deal, expectation of good condition and recourse if it fails, payment “terms”, internal resale policy in terms of frequency etc. and CoF and transfer of ownership.
- Private sale – this is considered to be a way of achieving retail pricing, as opposed to trade values. There are lots of difficulties; Administration, expectation of condition and proof of payment.
Although returning a vehicle at the termination of an operating lease is unlikely to be seen as a sale it does have stringent disposal requirements of condition and Kms usage. They expect a condition of “Fair Wear and Tear” and failure to meet this may result in some penalties of make good and excess Kms charges.
See SAVRALA fair wear and tear guide - http://fleetsolutions.co.za/downloads/Savrala-Fair-Wear-and-Tear-Guide.pdf
Have a question?
Contact Nigel Webb - Latitude Fleet Services - nigelw@latitudefleet.co.za