Remarketing

Remarketing ‘Green’ Vehicles

May 2015, Government Fleet - Cover Story

by Thi Dao - Also by this author

The City of Kansas City has had CNG vehicles in its fleet since 1996, and CNG units include light- and heavy-duty vehicles. Photo courtesy of City of Kansas City
The City of Kansas City has had CNG vehicles in its fleet since 1996, and CNG units include light- and heavy-duty vehicles. Photo courtesy of City of Kansas City
At a Glance

The following factors influence “green” vehicle resale value:

  • Current gasoline and diesel prices
  • State incentives for a particular fuel type
  • Fueling infrastructure 
  • Population density

When investing in “green” vehicles, do you take into consideration the vehicles’ resale value? What’s the best way to do so if the vehicle technology is so new, there is little to no data available? Many government fleets tend to keep their vehicles much longer than the average driver, making it even harder to predict what they can get when it’s time to sell.

Government fleet managers, remarketing providers, and other industry professionals weigh in on the value of hybrid and alternative-fuel government fleet units at auction and project their estimates for the resale of newer technologies.

An Upward Trend

Public agencies are still implementing greening plans today, but some of the early adopters have been selling off their vehicles, resulting in an increase in these vehicles sold at auction.

“Over the past three years, we’re seeing an upward trend,” said Roger Gravley, president of GovDeals, about the hybrids and compressed natural gas (CNG) vehicles the company sells. GovDeals specializes in online auctions of surplus government products, including vehicles. “It could be at the time or point of scheduled replacements,” he noted.

Tim Sowards, vice president of business development of Flexco, said about 70% of the government vehicles he sells in Colorado are flex-fuel vehicles. Flexco holds the contract for the resale of U.S. General Services Administration (GSA) vehicles in the Rocky Mountain region, and Sowards said the company sells about 750 GSA vehicles annually.

About 10% of the federal vehicles Sowards sells are hybrids, and “the hybrids are being sought out more and more,” he said. These mainly consist of smaller vehicles such as the Ford Fusion and Hyundai Sonata as well as Chevrolet Silverado 1500 hybrid.

 Where They’re Selling

Sowards’ department at Flexco sells everywhere West of the Mississippi with the vast majority being dealer sales. He sees more demand for hybrids in more densely populated areas — that is, California dealers are more likely to purchase hybrid vehicles than dealers in Texas.

While Flexco may have a clear base of buyers, GovDeals’ sales of these vehicles (mostly CNG and hybrids) don’t seem to go to a specific location. GovDeals sells nationwide to both dealers and end users, and a recent database shows seller and buyer locations range across the nation, a fact that even surprises Gravley.

“I thought I’d see more West Coast than what I do as far as where the asset came from,” he said.

Fleet and remarketing professionals agree that when it comes to buying hybrid or CNG vehicles, American consumers only look at the short-term value. Just as SUV sales increase as gas prices decrease, and vice versa, hybrids and CNG vehicles seem to sell better when gas prices are high.

Richard Battersby, CAFM, CPFP, equipment services manager for City of Oakland, Calif., has sold many light-duty CNG vehicles and hybrids at various fleet positions within California. He said CNG vehicles sell well in the state because it has more fueling infrastructure, and dedicated natural gas vehicles still get high-occupancy vehicle (HOV) lane stickers.

However, demand can shift quickly if policies change, Battersby said. He recalled that back around 2003, out-of-state auto dealers began snatching up CNG vehicles from the state auction.

“The price of natural gas vehicles virtually doubled over the span of a couple of months!” he recalled. “We thought, ‘What the heck’s going on here?’ ”

As it turned out, the State of Utah was offering a tax credit equal to the incremental cost for a natural gas vehicle that applied whether the vehicle was new or used, allowing buyers to pay more up front for the cars.

Sam Swearngin, fleet administrator for the City of Kansas City, Mo., said Utah is currently one of the biggest locations where his CNG vehicles are sold, and Oklahoma is another prime buyer base. He believes state incentives drive these sales, incentives the State of Missouri doesn’t have.

Kansas City has been running CNG vehicles continuously since 1996. The CNG fleet is varied and includes sedans, pickup trucks, vans, and heavy-duty trucks, and makes up 15% of the city’s total fleet. Swearngin began selling the vehicles around 2005 and uses GovDeals for sales.

What’s the Resale Value?

It can be difficult to compare resale value with traditional gasoline or diesel vehicles because data can be hard to collect. Either the technology is too new, or a limited number of similar sold vehicles make comparisons impossible.

For example, Swearngin said Kansas City keeps its CNG vehicles a couple of years longer to make up for the higher acquisition cost. This means replacing a gasoline-­powered pickup truck at eight to 10 years and a CNG truck at 10 to 12 years.

- Propane Autogas

Newer liquid propane injection (LPI) technology in propane autogas vehicles makes it difficult to provide actual resale value for the newest vehicles, according to Mike Taylor, autogas business development director for the Propane Education & Research Council (PERC). Because the first generation LPI technology was introduced in 2007, and propane autogas is often used by centralized fleets that keep their vehicles between 15 and 20 years, the group doesn’t have sales data on the newest technology. However, Taylor is optimistic about resale value.

“As propane autogas adoption continues to increase in the United States, we feel there will be a good market for propane-­powered vehicles when [agencies] elect to retire the assets. Much like conventional fueled vehicles, potential resale options for propane-powered vehicles may develop in the export market,” he said. Globally more than 23 million vehicles operate on propane autogas.  Korea, Russia, and Turkey are the largest autogas markets when it comes to fuel consumption, according to the World LP Gas Association.

Todd Mouw, vice president of sales and marketing for ROUSH CleanTech, said he gets the residual value question all the time, and he’s also optimistic. The company has been selling propane-autogas ROUSH products since 2009 to customers who also keep their vehicles longer.

“I suspect there will be a nice secondary market for these vehicles. I believe that when these things do start to hit [auctions] four to six years down the road, and gas and diesel prices are back to where they were — $3.50 to $4 a gallon — and you can get a depreciated propane vehicle and buy fuel for $1.50 a gallon, that’s going to be pretty appealing,” Mouw said.

- Hybrids & EVs

Hybrid vehicles have consistently had a higher remarketing value than gasoline vehicles, according to Black Book USA. As for public sector vehicles, this is true in some cases, but not others.

Battersby said in his experience, hybrids seem to command a better resale value than a standard gasoline vehicle, even if they’re high mileage vehicles and older than 10 years. It used to be even better when hybrids still qualified for California’s HOV lane decal.

“If we had a hybrid that had a decal and sold it next to one that didn’t, we would get $1,000 to $1,500 more for the one with the decal,” Battersby explained.

Riverside County, Calif. has had hybrid vehicles since 2001. Although the county hasn’t sold many hybrids, Ted Trujillo, CAFM, fleet services operations manager, said that after evaluating data from a group of sedans, he believes hybrid vehicles sold for a somewhat higher price at auction. The best hybrid sale recorded by the county is a six-year-old Toyota Prius with nearly 150,000 miles on it — it sold in 2010 for 25% of its original cost.

California might be an exception, however, as remarketers nationally and in other parts of the country aren’t seeing such optimistic numbers for public fleet vehicles.

Gravley said he sees less demand for hybrids because of battery life, especially since government fleets may keep their vehicles a decade or more.

“Most of them are coming to us right at the end of battery life, so the replacement battery will have an impact on the value,” he explained.

Sowards with Flexco agreed. The federal vehicles he sells are on a five-year life cycle, and mileage can range anywhere from 20,000 to 120,000 miles. He sees a drastic drop in hybrid vehicle resale value at about 100,000 miles, or eight to 10 years. “When we get to that age and get to a higher mileage, you see a definite difference in pricing. It’s not gradual — it’s a pretty drastic drop,” he said.

Brian Matuszewski, sustainable strategies manager for ARI, a fleet management company, said the company has seen lower residual values for hybrids and EVs. He also believes this is due to the uncertainty of battery life cycle. Replacing a hybrid or fully electric vehicle battery would involve a substantial cost, but Matuszewski thinks this may be alleviated in the future, at least for the full EVs.

“We’re starting to hear more utility companies come out and declare that they see a possibility of using EV batteries for backup and load leveling purposes for the utility grid,” he said. That means while used batteries may be useless in a vehicle, there could be demand elsewhere. And where there’s demand, there’s money.

“Once that market becomes instituted, I think that’s going to be a big factor that’s going to enhance the residual value of these vehicles,” Matuszewski said.

- CNG

Light-duty CNG vehicles bring in a lower price than gasoline vehicles at GovDeals, Gravley said. A majority of buyers are resellers, and he believes these buyers aren’t willing to pay high prices for a limited buyer base.

For CNG, tank expiration is a concern. The older tanks had a shorter life, about 15 years, and if a fleet kept vehicles that long, it had to replace tanks, which Swearngin has done. A new tank can cost a few thousand dollars, depending on size, but this price has gone down in recent years, he said.

That means some vehicles he sold had tanks that were about to expire, and he had to clearly mark that for buyers. If a buyer knows he or she has to spend more than $1,000 on a replacement tank, he or she might think twice about buying that vehicle.

- Flex-Fuel

Flex-fuel vehicles offer more flexibility, as drivers can fuel with both regular gasoline and E-85. Matuszewski at ARI and Sowers at Flexco said generally, these vehicles tend to sell for more than gasoline vehicles.

Fluctuating Gas Prices

Fleet and remarketing professionals agree that when it comes to buying hybrid or CNG vehicles, American consumers only look at the short-term value. Just as SUV sales increase as gas prices decrease, and vice versa, hybrids and CNG vehicles seem to sell better when gas prices are high.

“It shifts really quickly with the price of gasoline and diesel. If gasoline and diesel go up, we get more for [the CNG vehicles], just immediately. And if prices go back down, then we don’t get so much,” Swearngin said. “That’s the way it is. There’s no forward-looking to it at all.”

Sowards sees the same trend for hybrids. “As gas prices get lower, you tend to see less demand and [hybrid vehicle] prices drop a little bit. Over the past few months, we’ve been having great gas prices. The prices are on a downward trend, [selling] 5-10% lower versus when gas was at its high point,” he said.

Consider Resale Value When Calculating ROI

There are many reasons to go green, and for some fleets, the main reason may not be monetary. Still, fuel savings can far eclipse the incremental cost of a green fleet vehicle, and if the resale market is strong, a fleet may get even more back than it estimated. However, accurately determining that resale value can help fleet managers better plan their budget and replacement funding.

Bob Stanton, an independent consultant who previously managed the City of San Antonio, Texas, fleet, warned fleet managers to carefully calculate remarketing value when determining the return on investment (ROI) of CNG. Many municipal fleets are now purchasing CNG refuse trucks because of the vehicles’ heavy diesel use, which can mean a quick ROI. But once those vehicles are ready for resale, is there a market nearby to purchase them?

In 2012, when San Antonio was ready to sell 30 CNG refuse trucks, Stanton noticed that the city (before he started there) had made the same depreciation assumptions about the CNG vehicles as it had for diesel. This meant the trucks were estimated to have a value of double that of a diesel truck. The problem was there was no publicly accessible fueling station in the city, and moving a refuse truck to another location is expensive. The city instead chose to keep its CNG vehicles and still has them today. Stanton said there is at least one truck stop with CNG in San Antonio now.

An independent waste hauler is a good candidate to purchase a used truck, but switching to CNG is not a simple decision.

“It’s not an easy decision just to go out and buy a truck at the auction and expect that it’s going to work for you, because there are other considerations you have to make,” Stanton said. Examples include technician training and shop retrofit.

After reviewing numerous resale websites, Stanton hasn’t seen many listings for used CNG refuse trucks sales. A minimal sales history means it’s hard to say how these trucks will sell, but considering they came into the marketplace about 10 years ago, we won’t have to wait long to find out.

“This whole resale market thing, I think in the next 24 months, we’re going to find out,” Stanton said. 

Sales Tips

When selling hybrid and alt-fuel vehicles, consider these tips:

  • Clearly mark the vehicle’s fuel: Public knowledge has increased in the past few years about alternative fuels, but it’s still best to clearly identify which fuel the vehicle uses.
  • Provide full disclosure: Make it clear that a vehicle is nearing the end of its battery life, or its CNG tank is about to expire. 
  • Sell early: There’s higher demand for low-mileage hybrid vehicles, such as those with less than 50,000 miles, which can be placed in a certified pre-owned program.
  • Choose a better location if you have the option: An electric vehicle might have higher demand in a denser city, and a CNG truck might do better where there is more public fueling infrastructure. 
  • Switch it back: If buyers are hesitant to buy a propane autogas vehicle, remove the propane system and convert it back to gasoline when reselling.

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