Slow Disposal Of Company Cars Could Be Costing £10 A Day Per Car
27th February 2007
New Report from Professor Peter Cooke, Nottingham Business School identifies the risks of lack of Board focus on company car disposal.
BCA Vehicle Remarketing has published a new report, 'Rethinking Used Business Vehicle Disposal Strategy', independently researched and written by Professor Peter Cooke of Nottingham Business School. The Report focuses on the level of attention given to company car disposal in UK businesses. In particular it highlights that there is a high risk of financial losses where businesses have uncoordinated disposal strategies.
"Few boards have time to devote to company cars, let alone used vehicle disposal and the range of alternative disposal methods available", commented Cooke, the KPMG Professor of Automotive Industries Management at Nottingham Business School.
"And they have even less time to consider the option that might be most suitable for their business. The result is that often delays occur in disposal incurring unnecessary costs. Indeed, it is estimated that a car ready for disposal can cost a business as much as £10 per day. For a company with even a small fleet of vehicles, this is a huge burden. This report therefore aims to provide valuable insight into the options available and how each of those options can impact on the business as a whole."
The report presents the results of a survey among Finance Directors of attitudes at board level towards used vehicle planning and disposal. It interprets the findings and suggests implications and possible actions that decision makers might take to minimise risk and ensure best residual values are achieved for bottom line business profitability. Particularly focused on those organisations that manage their own fleets, the Report provides a valuable insight into the business risk associated with vehicle ownership and disposal. It doesn't just examine financial risks, but also reputational and employee safety risks.
"For those who have the duty of selling their company's used vehicles, it is often as an adjunct to their responsibilities and more often within an environment far removed from the motor industry" confirmed Jon Olsen, CEO, BCA Vehicle Remarketing. "The result is that it can be a confusing and conflicting task. There's no shortage of information, but sifting through it and deciding the right route for the organisation can be a baffling and unrewarding task.
"Doing it right is like awarding the company a pay rise. Doing it wrong, and an organisation may never realise how much company money slipped away! That's why we are very pleased to be sponsoring this Report by Professor Cooke to provide a valuable insight for businesses that own their own fleets."
A Snapshot of the Survey Findings
The survey conducted by Nottingham Business School sought to track some of the critical decisions through acquisition and disposal cycles. The results confirm that, in many cases, there is a lack of direction and strategy among boards.
How often is company car purchase policy and/or replacement cycles discussed at your company's board meetings?
At least quarterly 5%
At least six-monthly 15
At least yearly 22
Never 12 N = 73
Who determines the method of used car disposal?
Board decision 8%
Senior management 21
Financial management 3
Fleet management 25
HR management 1 N = 73
What disposal prices do you expect to get for your company's used cars?
Company written down value 10%
CAP/Glass's values 21
Best-achievable price 59
Own recent disposal prices 3
No predetermined value 7
Tax written-down value 0 N = N = 73 with multiple responses
Do you set objectives and/or offer incentives for achieving targeted used car values?
No 79 N = 73
Which of these method[s] of used vehicle disposal are used by your company?
Sell at auction 16%
Sell to franchised dealers 5
Sell to used car traders 18
Sell privately 26
Sell to employees 7
Trade in against new unit 21
Sell to public 7 N = 73 with multiple responses
The Centre for Automotive Industries Management at Nottingham Business School - CAIM/NBS - undertook a web-based survey in July 2006 to determine attitudes among senior management in organisations providing business cars for their own staff; organisations providing vehicles through leasing companies were eliminated from the sample.
"Essentially we are talking about a supply chain running from new car selection, through acquisition and operation to cost-effective disposal" confirmed Cooke. "But in the past I think many organisations have treated this process as a series of individual discreet exercises."
The report, therefore, examines issues of vehicle acquisition and disposal and stresses the importance of cash flow and minimising transaction costs, and the changing role of the board in terms of determining a thought-through strategy in the light of a rapidly changing fleet industry.
The report also proposes a best practice strategy for used vehicle disposal, which takes into account the importance of speed to sell the vehicle once it has been taken from its user, the security of the system through which it will pass, the ability to create an audit trail of corporate responsibility issues and protection of shareholder funds.
"A Used Vehicle Disposal Strategy should achieve the best possible residual value for an organisation's used vehicles" confirmed Professor Cooke. This should take account of the whole envelope of associated costs - including acquiring the appropriate new vehicle, most cost-effective means of used vehicle disposal at the lowest practical transaction cost - working within an acceptable risk management framework."
Professor Cooke believes it is essential, from the outset, to distinguish the difference between board and executive involvement in used vehicle disposal for cars on contract hire - where the lessor makes the relevant decisions and takes the risk - and those units that have been acquired directly by the organisation - where the business takes the entire risk itself. But the research suggests boards appear to have little involvement in setting the method of disposal. The implication of this is that, unless a company has firm board leadership, in terms of vehicle disposal, clear and aggressive target prices and focused management, it is unlikely to maximise the residual value opportunities.
"Used vehicle disposal is essentially a trading situation for the organisation - it is, after all, selling a heterogeneous product, each unit having a potential market value of several thousand pounds. It deserves either highly-proactive management or outsourcing to a trusted organisation" concludes Professor Cooke.
The 32pp report presents the survey findings and their analysis and suggests, both in narrative and checklists, the issues and possible solutions that senior decision makers might consider.
A copy of the report can be obtained from tnaylor[AT]bca-group.com