Remarketing Strategy With Thomas Webb: A Sneak Peek

In this month’s column, I’d like to give NAFAConnections readers a sneak peak at some of the fleet-related data and analysis that Manheim will be sharing in our 18th Annual Used Car Market Report, to be released in early February.

Looking back at the ups and downs in the used car industry in 2012, there were a lot more highs than lows for those of you in the fleet business. New vehicle sales into fleets continued to rise. End-of-service fleet vehicles attained record prices in the wholesale market. Fuel-efficiency efforts continued to get results. All in all, it was a year of positives from a fleet perspective. Here are some of the details.

With an increase of seven percent, new vehicle sales into commercial fleets rose for the third consecutive year in 2012. At just under than 570,000 units sold, the total was one of the best years ever, save the boom times of 2005 to 2007 when commercial fleets purchased, on average, more than 700,000 new vehicles per year. Meanwhile, government fleet purchase increased by a more modest two percent in 2012, but that was after falling in each of the four prior years as state and local budget constraints held down purchases. 


Fleet operators continued to shift their purchases toward fuel-efficient models, and within those models, they often selected the most fuel-efficient options. In fact, commercial fleets have been at the forefront of helping to increase the fuel efficiency of the total U.S. fleet. While corporate environmental sustainability goals often forced managers to acquire alternative-fuel and hybrid vehicles, fleet managers have also worked hard to determine, and place in service, the most fuel-efficient vehicles for each individual task. Their choices not only significantly reduced annual operating fuel expenses, but also supported residual values. In 2012, fuel efficiency still commanded a premium in the wholesale market. Although gasoline prices never hit the peak reached in 2011, on an annual average basis gasoline prices in 2012 were the highest ever.


During the recession, corporate fleet managers operating on tighter budgets were forced to extend the service life of vehicles in their fleets. Now, as the economy has improved somewhat, fleet managers can take a more analytical and unbiased look at the optimal hold period for each vehicle in the fleet. As vehicle quality has increased and routine service cycles have lengthened, the trend has been to extend average service life.

For midsize end-of-service fleet cars remarketed at auction, average mileage increased slightly to more than 75,000 miles in 2012 after averaging about 65,000 over the past decade.  The average mileage on end-of-service full-size pickups rose back above 100,000 miles in 2012, after being pulled down in recent years as some fleets de-fleeted early in the recession (no more need for the vehicle) and others cycled out early as manufacturers offered attractive incentives for new purchases.


Even with end-of-service vehicles hitting the wholesale market with higher mileage, fleet managers enjoyed record high prices for these units. That was true whether the vehicle was a basic midsize sedan, specially equipped pickup, or alternative-fuel vehicle. The strongest pricing was for midsize passenger cars, where, over the course of eight years, the mileage-adjusted price rose more than seventy percent.


The recent, accelerated run-up in wholesale pricing for end-of-service fleet vehicles is attributable to two special factors. First, the bulk of vehicles remarketed by fleet managers falls into what has been the strongest segment of the wholesale market – vehicles priced between $8,000 and $11,000. Second, and related, the significant increase in the availability of subprime financing has spurred the subsequent retail sale of these units and, thus, stoked dealer demand for them.

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Tom Webb is chief economist for Manheim Consulting. Contact him at Thomas.webb@manheim.com, follow him via Twitter at www.twitter.com/TomWebb_Manheim and read his blog at www.manheimconsulting.typepad.com.