Maybe I've finally figured out why fleet managers find it so much easier to worry about the initial cost of a vehicle compared to the net resale expense.
When you've finished negotiating with the manufacturer of your choice, you have solid assurance that the "red tag" on every car you ordered will carry the same agreed-upon price. Even the options all cost the same. Cut and dried, relatively easy.
But, at the end of the three-year lease or holding period there's no "Solomon" around at purchase time to ensure your residual value. Much can happen in a three-year period: used-vehicle buyers can change, there may be a new favorite color, or maybe there is now a preference for a crossover over an SUV.
There are not too many closed-end leases around without paying a premium for the FMC contract, because the FMC doesn't really know what the national economy will be at trade-in time. At best, it's still a calculated guess. So, a quick analysis indicates that you can't put a reliable handle on resale value.
But, as TV sportscaster Lee Corso inevitably says, "Wait a minute!" There are still some deliberate actions you can take that can rack up substantial savings, week after week and year after year.
With a relatively strong used-car market during the past four years, the experts still see strength with new-car buying remaining strong over the 16-million mark again in 2014-2015. With this, however, look for at least a 5-percent drop in used-car sales overall.
There's more afoot to alert people like you and me that the used-car market is pretty solid, growing, and profitable. What are those signs?
In spite of corporate fleet companies embracing strong employee purchase programs that are great deals for the employee buyer (buying direct and usually priced at a discount as the company just wants to get rid of them), more new-vehicle dealers became more active when the "new" market sank back in 2010. CARMAX started in 1993 and now has 35,000 vehicles on lots across the country.
Now AutoNation, one of the nation's largest auto retailer chains, is hooked up with Avis Budget and its retired vehicles. AutoNation Direct handles the sale of the off-rental units to Avis Budget customers, including warranty and F&I sales. Both are happy, so it must be a profitable program that works.
More recently, Hertz CEO Mark Frissora is now committed to a huge expansion of the company's own retail used-car lots. He expects his locations to grow from 40 as of October 2013 to 75 by the end of 2013. Hertz currently sells about 16,000 retired rental units each month.
Why this new-found expansion? Frissora identifies it clearly. He stated, "We typically always make money at retail — $1,100-$1,500 a car depending on the market."
This is clear confirmation that you can be successful in the used car business; and that's exactly what every fleet manager is in. If you don't take the opportunity to re-examine your program with your FMC, wholesaler, special fleet buyer, or whomever you are trusting to get you the big bucks, you might refresh the thought.
The saving grace for you even if don't delve too deeply into resale is the emergence of what's called "simultaneous remarketing on multiple online platforms." You'll have several more eyes viewing the vehicle and obtain a fairer residual, all with less vehicle movement and a shorter selling period.
Maybe then, no one like me will be able to take you to task for ignoring the complex used-car world.