Commercial vehicle values forecaster, Tim Cattlin, explains how brand perceptions trump product quality in future residual value prediction.
‘Why does a Skoda have a heated rear window? To keep your hands warm when you’re pushing it’. Jokes like this are concocted in seconds but it can take decades for a manufacturer to dispel a legacy image which, despite all efforts, can linger undeservedly.
I am responsible here at CAP for predicting future residual values for commercial vehicles. This involves regular meetings with all the major manufacturers who, along with illustrating future product development plans, sales and marketing strategies, will often challenge the CAP forecast position relative to their immediate competitors. It’s important to them because higher forecast RV’s = higher unit sales. There is also the prospect of less financial support being required to secure business and therefore a potentially enhanced profit per unit. Among the challenges we regularly receive are:
“Why are our RV’s lower than theirs? Ours is clearly a better van”
“It’s the same van but with different badges – how can you justify a lower forecast for ours?”
“We’ve suffered from low RV’s for years. What do we have to do to change this?”
“You’re unfairly perpetuating out-dated perceptions. We’ve turned a corner and have huge plans for the future”
“We’re number 1 in ‘x’ country – why is that not the case here?”
These are the kind of questions and statements that we regularly hear during the course of these meetings. Whilst it’s accepted that many of the people we speak to in the industry have differing agendas the genuine frustration shown by those who feel they are being ‘wronged’ or treated unjustly is sometimes almost palpable and usually understandable.
But who is really responsible for the residual values a vehicle commands now and in the future? Is it the retail customer, the independent trader, the manufacturer or CAP? There’s a scenario we ask people to consider when we are challenged. Picture two vans coming through the auction hall, one behind the other. Apart from the badges (i.e., branded by two different manufacturers) the vans are identical. Age, condition, mileage, colour, specification, all the same. In his mind the trader is working out how quickly he can turn a vehicle round into profit – he has no brand allegiance, a vehicle to him is purely a commodity, a profit opportunity.
The trader can picture both the vehicles on his forecourt being shown to a prospective customer. This customer has no real interest in vans but buys one or two used vehicles every three years. Although probably having done some research on the internet prior to his visit, his general van knowledge is limited. What he does remember however is the ‘Brand X’ vehicle his mate had which broke down on a regular basis before finally corroding into oblivion. He also remembers an episode of ‘Top Gear’ from many moons ago where a car made by the same manufacturer was pilloried and ridiculed by the presenters. Does he want this brand on his driveway when there is a readily available alternative?
Back to the auction hall and, although not agreeing with this sentiment and knowing full well that the vehicles are identical himself, the trader takes the easy option and bids more strongly for the brand with the better perception – the one he can sell more easily. He may consider the other van, but only at a price where he feels he will be able to offer a significant price advantage to the customer who will find the cost benefit difficult to ignore.
As forecasters, is it therefore our job to reflect these kinds of market perception or should we give the manufacturer a helping hand by immediately translating product improvements into higher future value predictions?
As absolutely independent information providers we would be out of business very quickly if we bowed to pressure instead of basing our forecasts on evidence from the marketplace. That is a bottom line position. It can occasionally lead to very uncomfortable discussions and sometimes we may have to change our view if fresh evidence we hadn’t taken into account is presented to us. But we do nobody any favours.
Evidence from the marketplace includes:
- Trade sentiment. We talk to the industry all the time at every level and sense any changes in trend very early.
- Changes in current values being achieved. We monitor prices on a daily basis from many sources. Whilst peaks and troughs can be expected due to supply and demand issues, if we notice a long term rise (or fall!) which is not being reflected by other brands in the same sector, a subtle change in brand perception could be responsible.
- A change in manufacturer and dealer branding and strategy. This is more than a ‘we’ve employed a van specialist in every dealership’. It’s a whole culture shift cascaded down from the manufacturer with genuine buy-in from the dealer network. Weak dealers are terminated, new ones showing potential, attitude, commitment and a willingness to invest are recruited. Long term, robust and secure plans are put in place to drive business forward at every level. Marketing specifically tailored to address brand image.
What’s not mentioned above? The vehicle itself. Why? Because at present there isn’t really a bad van out there. This doesn’t mean that a manufacturer can be complacent. Far from it – a good product is clearly vital. Rising brand perception will soon be reversed if an uncompetitive, poor vehicle is released. But the main factor affecting the strength – and therefore value – of a brand is human emotion, often rooted in a long history and not necessarily based on the strengths or weaknesses of current product.
The bottom line is, ultimate responsibility for residual values lies with the buyer, not the producer and certainly not CAP.
So, the next time you come up with a commercial vehicle version of the old ‘What do you call a convertible Lada with twin exhausts? A wheelbarrow’ chestnut, please bear in mind the poor van maker who has just invested millions in launching a brilliant product and is now just waiting for market perception to catch up with reality.
Tim Cattlin – Monitor Editor, Commercial Vehicles
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