Used Vehicle Market: Normal or Crashing?

Have questions or comments? We want to hear from you.

donlen-cycling-opportunitiesWe all know that vehicles are depreciating assets. The vast majority of cars and trucks will be worth less next month than they are now. Every new model introduced makes the existing one less desirable and therefore worth less money to a potential buyer, even if the new model isn’t full of technological advances.

“The term “seasonality” is frequently used to describe changes in the used vehicle market,” said Gus Xamplas, Donlen’s VP of Remarketing. “Seasonality is really the fluctuation in the depreciation rate during different times of the year.”

For instance, the “spring market” is usually not a period of increasing prices, but rather a slowing in the rate of price decreases. It corresponds to the time of year when consumers receive their tax returns and there’s an increase in all types of consumer spending. Of course, there are specific vehicles that may actually increase in price during the spring. Convertibles and sports cars immediately come to mind.

Used vehicle inventory available for sale comes from new vehicle trade-ins on current sales and maturing leases from previous years (two and three years in the past). Back in 2009, SAAR was around 10 million units, down from a high of around 17 million; way fewer trade-ins, way less used inventory.

Also in that year, lease penetration was low. So the supply of off-lease vehicles in subsequent years was stunted even as new car sales and the resultant trade-ins were increasing. Much of 2013’s used-vehicle market is dependent on 2010 and 2011’s new-vehicle sales financed via consumer leasing.

“We’re not in for a crash in the used vehicle market,” Xamplas went on to say. “Inventories are increasing but they aren’t close to pre-recession levels.”

Why? There is an off-setting growth in the driving population and household formation. There will be some ebb and flow within models if gas prices spike or drop. But that will impact the vehicles at the extreme ends of the fuel economy spectrum.

“So no, the used vehicle market isn’t crashing. It’s actually returning to normal,” Xamplas concluded.

Knowing When to Cycle

Given that, when is the right time to cycle your vehicles? We asked three of our experts to weigh in.

“The proper fleet management strategy is to hold to your cycling schedule and be realistic regarding your depreciation rate,” said Xamplas. “Don’t minimize the expected miles driven when determining a residual; this will result in a big discrepancy between book value and market value at termination.”

According to Dave Lodding, Donlen’s Executive Vice President, Fleet Management Services, “Replacement strategies are set for a reason and it is not always advantageous to make a last minute change. Fleets typically want to cycle out a vehicle before they spend money on maintenance, and extending cycles can put you into a “need to have” situation. Take tires as an example. If your driver gets 40,000 miles on their first set of tires they may be in need of another set around 80,000 miles. If you hold off on ordering a new vehicle you may need to spend the money on those tires without the benefit of getting to use them.”

And finally, Rick Shick, Donlen’s VP Vehicle Acquisition & Strategic Sourcing, had this to say, “Taking advantage of early introductions can reduce your effective depreciation. However, there may be associated risks with new model introductions such as quality holds. Keep in mind quality holds can impact traditionally timed introductions as well, which could result in a late fall delivery – generally not a good time to remarket most vehicles. For example, if there are no major quality holds or associated delays and you were able to take delivery of a 2014 model early in 2013, you pick up about six months of depreciation. When it comes time to sell that 2014 unit, say in 2016, the used market doesn’t care how many months it was in service, just that it’s two model years old.”

In Conclusion

Cycle when it makes sense for your business. For example, if you were in the package delivery business, would it make sense to cycle equipment between Thanksgiving and Christmas? Not likely. The best strategy is to identify the optimal cycling period and let us work backwards to get the orders placed appropriately.

Donlen’s strategic consultants, acquisition team, and remarketing specialists can help you determine the best time based on your utilization. Once that date is finalized, we can determine the appropriate time to place orders based on lead time for both the vehicle and upfitting if applicable.

If you’d like to review your cycling opportunities or replacement strategies, please speak to your account manager.


FleetWeb® Tips

Use the CARE dashboard gauge to see a snapshot of your interactions with your Donlen customer service rep, located on the FleetWeb dashboard.

Don’t have the CARE gauge on your dashboard?

  • Click “Show Menu” at the top of the screen
  • Click “My FleetWeb” menu item
  • Set it to display by checking the box next to “CARE” in your Donlen Dashboard Preferences

Click on the gauge for full details and real-time status of all open, resolved, and pending CARE requests.

 

donlen-fleetweb-CARE


Hertz Value Lease® Deal of the Week

donlen-hertz-value-lease-toyota-rav4-base-05132012 Toyota Rav4 Base*

  • Estimated Mileage: 24,237
  • Exterior Color: Black
  • Hertz Value Lease Base Price: $17,000

*Vehicle was available at the time of posting to FridayFleet. The exact vehicle may not be available after this date. Photo of vehicle is for illustrative purposes only. Contact your Donlen Account Manager to learn more about Hertz Value Lease vehicles that may be right for your application.


Driver’s Corner

You start the car, fasten the seat belt, and all of the usual warning lights turn off – except one: Check Engine. But the car is running fine, so maybe the light is malfunctioning. You’ll have it looked at later. The problem is that this little light can signal everything from a loose gas cap to more serious engine trouble. Ignoring it can mean loss of productivity down the road. Don’t ignore the warning sign. > Read more about what the Check Engine light means


And finally…

And finally, did you miss International Bacon Day? (It was last Saturday in case it wasn’t on your radar.) Well, Ford has made it a bit easier for you to make every day bacon day. They are offering a bacon-wrapped Fiesta. Decals, that is…not the real thing. And the price of a full wrap? It takes about 10 full strips to cover the Fiesta, at a cost of about $3,300. That’s a lot of bread, er, bacon. > Check it out here

Have a nice weekend. Safe travels.

Have questions or comments? We want to hear from you.

Originally appeared in FridayFleet on September 6, 2013


About Donlen
Donlen is the industry’s leading provider of integrated financing and management solutions for corporate fleets. Utilizing a highly consultative and strategic approach, Donlen helps fleets reduce cost, improve utilization, and increase driver productivity. Donlen’s innovation has been honored with the Computerworld “2012 Honors Laureate for Economic Development” and the “2012 InformationWeek 500 List of Top Technology Innovators Across America.” Their workplace excellence has been recognized on the IAOP “The Global Outsourcing 100®” list for seven of the last eight years, and as one of the “101 Best and Brightest Places to Work For in Chicago” each year from 2007-2012. Founded in 1965 and headquartered in Northbrook, IL, Donlen is a wholly owned subsidiary of The Hertz Corporation (NYSE: HTZ). For more information about Donlen, visit www.donlen.com.