Depreciation will most likely be the largest cost component of running a vehicle for any fleet.

Market analysts usually publish residual values (RV) forecasts by the time a new vehicle is launched, but just taking percentages at face value fails to examine the whole picture.

Jason King, head of market intelligence at Glass’s, outlines below how fleet operators should treat residual value forecasts and some of the factors that should be considered when analysing depreciation data.

"The setting of future residual values involves understanding the all-round ability of a new car today, and estimating its appeal to a used car buyer in the coming years.

"Emerging trends, such as ‘crossover’ models, provide great marketing opportunities, but will these vehicles represent good value over the standard segment models that they are based upon?

"RVs should always be set using actual values in monetary terms rather than as a percentage of the original list price. Nobody buys cars in percentages, and it is easy to lose sight of the relevance in real terms of the money paid for cars.

"This was especially pertinent during 2009 due to the huge number of list price rises issued by manufacturers. What a car is worth in pound notes remains the only accurate way of gauging a vehicle’s value – percentages are not reliable."

Petrol v diesel

Other complex issues may come into play with different variants showing variances depending on anticipated popularity on the used market or expected volume.

"The relationship between petrol- and diesel-engined models needs careful consideration," said King, "As one may be a stronger performer than the other but patterns are rarely uniform.

"It is also important to consider that engine outputs and the key items of standard equipment on each trim level can lead to differing values. Blanket percentages cannot simply be applied to whole model ranges as they are not a true reflection of the content of each model."

While some vehicles often have attractive forecasts when they are new, this often reduces over time; the original percentage only applies to those earliest models when they arrive on the used market, at which time there will invariably be fewest of that age.

'Life-cycle' effect

King said: "The 'lifecycle' effect means that a new model arriving in the used car market for the first time – even three years after introduction – carries a premium that will be gradually eroded as availability on the used-car market increases.

"Furthermore, the average lifecycle for a model is around six years, but there is often a mid-cycle facelift to ensure that the model remains fresh, leading to a reappraisal of RVs.

"Seasonality is a key contributing factor in determining what a car will be worth upon de-fleeting.

"Demand for certain types of cars increases at different times of the year: convertibles are the most obviously affected, but large MPVs and 4x4 models are not immune to seasonal shifts. So the time of year of de-fleet has to be taken into consideration."