A recent ruling by an advertising regulator could cause business car and fleet assets some residual values (RV) headwinds.
Consumers who bought cars from retailers who had not disclosed that these vehicles were formerly private hire or fleet vehicles could receive hundreds or, according to some reports, thousands of pounds back.
When it comes to the selling of ex-business use vehicles, in November 2017 the Advertising Standards Agency (ASA) published a seemingly straightforward update on selling ex-business use vehicles: “If you are a fleet operator selling ex-business use vehicles, the ASA will expect information about the ex-fleet nature of the vehicle to be included in your advertising.”
This position came about as a result of its ruling on Glyn Hopkin and Fiat Chrysler Automobiles UK (FCA) earlier in the year, when it considered it reasonable to expect FCA to provide records showing how vehicles had been used while under their ownership as a fleet operator, including whether they were driven by multiple users.
In this case, FCA provided evidence that the vehicles involved in the case had only been used by one user while part of the fleet. The ASA said the adverts did not state that the cars were previously used for business purposes while part of Fiat Chrysler Automobiles UK’s fleet and for that reason the ads breached the Code of non-broadcast Advertising and direct and Promotional Marketing (CAP Code).
While this case involved ex-fleet vehicles, the ASA said it was likely it would take a similar view for ex-hire vehicles to be identified as such in ads.
Law firm Harcus Sinclair is now seeking to bring a group action claim on behalf of consumers who purchase second hand vehicles but were not informed if it was used by a fleet.
“By withholding such information from the purchaser, we will allege that the purchaser was mis-sold their vehicle by the manufacturer or dealer and may be eligible for compensation,” the firm has said.
Speaking to the RAC, Damon Parker, head of litigation at Harcus Sinclar said any buyers who had been mis-sold a vehicle in this way could receive between 25% and 100% of the price paid if the vehicle seller was found to have violated the Consumer Protection from Unfair Trading Regulations 2008.
Regardless, those around the industry have agreed that this is just the latest example of why transparency, accountable sales and marketing process are so important.
Abe Smith, chief executive officer of Dealflo, said, for example: “While the ASA is encouraging all dealers to review and adjust their advertising, notably online, the threat of litigation still exists if it is deemed that dealers have breached the Consumer Protection from Unfair Trading Regulations (2008).
“While few if any dealers may be able to defend such a position, I urge dealers to act now to change their approach as directed by the ASA and to review their wider sales and marketing processes. They need to establish what other potential gaps in their processes exist, if any, and just as importantly ensure they have clear controls in place to evidence that the entire sales and marketing process has been undertaken in a manner that is beyond reproach.”
But there are some dealers who have not heeded the ASA since then and have paid the price.
In January 2018, a Peugeot dealership in Gateshead was fined £5,000 for failing to disclose to a customer a ‘one previous owner’ car had been used by a car hire firm.
Rupert Pontin, director of valuations at Cazana and director of the vehicle remarketing association, told Motor Finance that remarketers were still sizing up the issue and whether it would have an effect on residual values of business car assets.
“It would appear, from a consumer perspective, [the ASA] is making it a residual value issue, by pushing the fact that multi-user vehicle is not a good vehicle to buy, and therefore worth less money,” said Pontin.
“And the other side of the argument is the transparency of whether that is declared or not. In many cases, when someone is buying a car, they will go through the process of looking at a V5 registration document and they will see that there is a business owner to that vehicle. I am sure the majority of garages would provide all that information to the consumer as they are looking to purchase.”
Pontin said that due to the extensive contracts maintained that rental and hire businesses owe to car manufacturers, and the constant maintenance and management required by business car fleets, business car assets were often better value for consumers than privately-owned cars.
“A business car lessor has to keep its cars maintained, and must keep that car in a good, roadworthy condition for its company user from a health and safety perspective.
“And that still holds true when you look at a rental car… every time that car comes back from hire, it goes through a valet process, it has to be maintained to manufacturer’s service requirements,” said Pontin.
It might be that dealers could end up paying less for rental cars to insure themselves against a future drop in values, but Pontin was cautiously optimistic that the asset class can protect its RV from the ASA issue.
“I think perhaps for some rental vehicles there may be a possibility that the trade will try and buy vehicles for less money, but whether that is right or not is a discussion point,” he said.
“From a Cazana point of view I would say we do not expect to see a drop in any form of residual values for business owned vehicles.
“As the director of the vehicle remarketing association, we recently had this discussion with our members. While the industry is very concerned about what legislation or what decisions might have to be made going forward, I do not think there is anyone who is necessarily expecting to see residual values dip.”