Secure residual values in car leasing

Secure residual values in car leasing

Securing residual values in car leasing – Save costs with these tips – What you can do as a fleet operator!Leasing as an alternative form of financing has become very important in our economic world to this day. In leasing, the lessor becomes the owner of the object and lets the lessee use it for a certain period of time and under certain conditions. There are a few points to consider when taking back a lease, so you don't pay money unnecessarily and keep your car's residual value high.

There is actually nothing that cannot be leased in some form or another – these can be small, medium and large objects. Sometimes smaller objects are combined. Transferred into a leasing construct. This usually has tax advantages. Here creativity on the part of the leasing companies is in demand.

Car leasing makes up the majority of the leasing business. In November 2018, 77 percent of all leased objects were classified as cars and trucks. In contrast to the classic leasing contracts such as VA (full amortization) and TA (partial amortization), in the area of passenger cars and partly in the area of commercial vehicles up to 3.5t, a completely different form of contract has developed over the last decades, the kilometer contract. It has gained acceptance in Germany, today about 80 percent of all car leasing contracts are kilometer contracts.

Currently, over 40 million. Vehicles registered on our roads. This means that there is and has always been a flourishing used car market for passenger cars and commercial vehicles. This was also the reason why leasing companies started to think about taking over the residual value risk for these objects (cars) as lessors. With traditional leasing contracts, the residual value risk at the end of the term was always borne by the lessee. For example, for a 5 million. In the case of an expensive construction crane, there is certainly a secondary market, but not on the same scale as for passenger cars. Accordingly, the residual value is much lower here. For these properties, it was much more difficult to think about taking such risks.

Mileage contracts

In addition to the movables leasing companies, special vehicle leasing companies have also developed. The basis for calculating the new, rapidly developing form of contract was term and mileage.

Finally there were for each vehicle and each motorization it henceforth differentiated residual value classifications on the part of the lessors. The (financial) leasing rate was made up of the parameters discount, interest and residual value. These were fixed over the entire term. In this case, the comparability was based on the amount of the leasing rate.

The big advantage for the lessee was a clearly calculated cost figure over the contractual term. In order to do this, however, it had to adhere to the contractual parameters. On the one hand, these were the mileage. On the other hand the condition of the vehicle.

While higher or lower mileage was regulated quite transparently via the over/under mileage rate, there were always discussions about the condition of the car when it was returned. Note on the side: the settlement of the kilometers is nowadays unfortunately not very customer-friendly.

".. As a rule, the following is stipulated in the contract: "The car must be returned in one of the term. Mileage corresponding condition are returned". You don't have to be a specialist to quickly realize that this statement cannot necessarily be interpreted unambiguously.

First of all, a distinction was made between damage caused by use and damage caused by an accident. Normally, accident damage is settled via the vehicle insurance. In this case, the customer incurs costs in the amount of the deductible for comprehensive insurance, usually between EUR 0 and EUR 500. It became interesting if the lessee had taken out the insurance through the lessor. Then it could be attractive for the lessor to handle the claim through repossession claims instead of the insurer.

Because in the 1990s the return damages were often settled in the amount of the repair costs, at that time the above mentioned distinction could be neglected.

With the inclusion of insurance in the leasing contract and various rulings in the area of vehicle returns, the settlement according to reduced values became more popular. That was not less debatable. Now the question arose, how are the reduced values assessed and calculated?? Who pays the appraiser. The consequences on the assessment of residual values?Toward the end of the last century, automotive appraisers were increasingly being asked to document and evaluate these inferior values. As a rule, the lessor paid the appraiser. Accordingly, it quickly became clear: "Whoever orders and pays for the music also gets to determine what music is played". This again meant no transparent billing – from the customer's point of view – at the end of the term!

A field test, which I carried out at the beginning of 2000, confirmed my fears regarding the assessments of the appraisers. I had one and the same vehicle evaluated by four evaluators. I stated that I had to return the car to a lessor and wanted to know what the approximate costs would be. It should be noted that the vehicle had quite a bit of use damage.

With physicians one says probably, "four physicians and five opinions". That applied with my attempt 1 to 1 to the appraisers.

I found two things particularly impressive: the number of dents discovered by the appraisers was not identical in any of the four appraisals, and the assessments of the amount of damage were even more different. That is, I had not received a reliable indication of how much the back charge could possibly be, despite appraisers.

Catalogs as a guide?

In the early 2000s, the manufacturer-independent leasing companies came up with the idea of creating a more comprehensible basis for assessing damage and thereby accurately determining residual values. Without a doubt it was clear that a vehicle after three years of running time and a certain mileage could no longer look like a new car. But which impairments to the vehicle were acceptable and which were not?

One looked at common damage patterns more exactly. A dent is usually part of the damage pattern of a car return. But how do you define "dent? A way was sought and found to do this: the number of dents in the area of a component (side panel, fenders, bumpers, etc) was reduced.) or a defined area and in the end defined the upper limit of the extent of a dent.

For example, a defined size in the vehicle valuation documents was "dents larger than a two-euro coin". The name for this was the "Fair Vehicle Evaluation", which from now on would serve as the basis for returning the vehicle. From this arose a whole catalog for the vehicle evaluation.

Of course, the catalogs do not only evaluate dents for determining residual values. Scratches and damage, for example to the increasingly popular aluminum rims, also became part of this listing.

The right path has been taken. The manufacturer leasing companies also followed suit. In the meantime, VW/Audi hands out the catalog with every leasing contract.

But is that all good now? – By no means!

What had been achieved was a basis for deciding which damages were to be borne by the lessee and which by the lessor. Unfortunately, only the "Fair Vehicle Valuation" says nothing about the amount of damage to be calculated. Disputes can still arise here, especially because the same damage to one and the same vehicle of different ages can result in a different reduction in value.

In recent years, the number of full-service leasing companies has continued to decline. Some have disappeared from the market and sold their portfolio, others merged or were sold off. At the same time the competition became tougher. Every contract is fought for. This becomes even clearer if you look at the current leasing offers of various market participants.

The Internet in particular is becoming an increasingly serious competitor for traditional dealers. Companies like vehiculum, belmoto, but also leasing companies like Sixt have discovered the online business for the commercial and the private customer.

Leasing rates around 100 euros per month for a small car (for example, a Seat Leon 1.5TSI) over 24 months term at 10.000 km mileage is now the rule rather than the exception.

The basis is the merciless competition between the individual manufacturers. These outdo each other with ever higher discounts, more favorable packages and further additional discounts.

When I became part of the leasing industry in 1988, for example, there was a maximum discount of three percent for a Mercedes. Today, discounts of over 25 percent are no longer uncommon for this premium brand. However, it must be said, these discounts are usually only called in connection with a leasing contract. A leasing contract is easier to plan than a sold car. After 36 months the leased car comes back. If the customer was satisfied with the product and the seller, then there is a high probability that a follow-up contract will be signed. The return car goes simultaneously into the second or used car market and the manufacturer earns twice.

Back to the actual topic: How to secure the residual values.

Low leasing rates gnaw at the margins of the manufacturers and the leasing companies. In addition, there is uncertainty about how the diesel market will develop in the future. Accordingly, lessors assume increased risks. Must still remain profitable.

Therefore, increased attention should be paid to the return of the vehicles and the resulting final settlement of the use damages. I advise every lessee to take a closer look at the vehicle before returning it to us.

Check the condition of the vehicle BEFORE return

This is easier with private customers than with large customers or fleets. A fleet manager who looks after a large number of vehicles that are on the road throughout Germany often does not have the opportunity to look at every vehicle. Often the driver gets a new car. In return, returns the old car to the lessor.

A few days, often weeks later comes the final invoice including expert opinion and damage assessment. Pictures document the damage and, as a rule, the repair costs and the resulting reduced values are fixed. Nevertheless, at this moment the question is not whether the damage existed or not. It is about the amount of the damage to the vehicle and the question: Could one – as a lessee – have done something before returning the vehicle to minimize the costs and optimize the residual values??

You can do something!

TF FUHRPARK CONSULTING starts here with its considerations and services. We are not only concerned with the process of returning the car, we also look at the entire process. Who delivers the new vehicles and to where? What happens to the end-of-life vehicles? Can you get an idea of the condition of the vehicle before it is returned and possibly make decisions that will keep the timing of the subsequent process in check?

A current example – played out on my own vehicle: One week before returning the vehicle, an expert opinion was issued. This appraisal documented damage totaling 1.350 euros. The damages could not be denied. But my question was, can I do something in advance to minimize this amount?

I had the car reconditioned for 200 Euros; minor dents were pressed and the car was intensively polished, which resulted in a few scratches listed in the expert opinion no longer being visible. I myself was surprised by the change in the condition of my vehicle after reconditioning.

Just a few days ago I received the final invoice from the leasing company. I am charged 645 euros for damages. Including the 200 Euro investment for the reconditioning, I have to bear costs of 845 Euro. Compared to the estimated 1.350 euros, this makes a whopping saving of 505 euros. Don't you think it was worth it?? The residual values can be secured by small measures.

In cooperation with a professional service provider in the field of smart repair, TF FUHRPARK CONSULTING is able to show you an individual process adapted to your needs. We take over next to fleet-. Damage management also the leasing return for you.

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