How Does Depreciation Impact Your Company’s Fleet Vehicles?
In a recent study of over 4.1 million car sales, vehicle research site iSeeCars has recognized the 10 cars sure to depreciate the most in a three-year time span. Spoiler alert: it does not look good for owners of American and German made vehicles. The highest depreciator, the BMW 5 Series, will plummet in value by 52.6 percent. The average rate of vehicle depreciation after three years is 35 percent. Ouch. Even the lowest on list, the Buick Enclave, is closer to 50 than 35 with a depreciation rate of 46.8 percent.
What caused this accelerated depreciation?
There are several factors that go into depreciation. A car line upgrade can cause resale value to plummet for cars of the same model but an earlier year. Vehicle markets also have a great impact on the level of depreciation. Crossovers are in high demand in the current vehicle market. Sedans are not.
What does this mean for you?
While owners of these vehicles may be wringing their hands at the thought of their plummeting resale value, there is a bigger loser in this situation: companies with company car programs that purchased or leased fleets of these vehicles.
Where does depreciation impact a company car program?
Depreciation increases the expense of the already costly replacement cycle and impacts companies with fleet vehicles, regardless of size. A company with as few as 15 vehicles will feel the bite of 50 percent depreciation, or even as little as 25 percent depreciation. But the decreasing resale value of fleet vehicles is far from the only concern for a company using a company car program. Manufacturers like Ford discontinuing lines may push companies into higher cost options. Companies can always prolong the life of their vehicles with preventative maintenance and additional safety measures, at additional expense. Unfortunately, if a fleet of vehicles is discontinued early in the lease, maintenance will also increase in price.
Is your fleet in the clear?
You’ve looked at the list. Your company doesn’t have any vehicles on that list. Your mobile workforce isn’t behind the wheel of a Ford Taurus. Can you breathe a sigh of relief now? Nope. Just because your company’s standard fleet vehicle didn’t make the list doesn’t guarantee its resale value. In fact, according to our Vehicle Capital Cost Trend Report, depreciation accounted for 36.8 percent of the total cost to own and operate a vehicle. This is an increase from the past few years and is predicted to increase with the rising price of vehicles.
What about controlling depreciation?
It seems like a simple out. Purchase or lease your fleet at an original cost that benefits your company, take care of those assets with preventative maintenance, and don’t sell in used-car slump seasons. Following these guidelines will protect your company car program from a significant loss, right? In a perfect world, maybe. But planning for the best possible outcome guarantees disappointment, especially in the current vehicle market. Given the rise in both depreciation and new vehicle costs, even the savviest fleet manager is likely to see big losses.
In our Vehicle Capital Cost Trends Report and this blog post we share information about the increase of depreciation. In the later piece we outlined the points of concern for companies with fleet vehicles, with a heavy emphasis on liability. The concern of accelerated depreciation, tied with the expenses of preventative maintenance and ever-more costly replacement cycles, spell a clear message for those businesses with company car programs: there’s a better option.