Remarketers typically try to turn used vehicles as quickly as possible rather than allowing expensive inventory to linger on lots.
But Mercedes-Benz Financial Services USA is keeping off-lease vehicles longer before selling them at auction and says the extra time spent on reconditioning pays off.
Many off-lease vehicles are snapped up immediately by Mercedes-Benz dealers who receive them from consumers, Mercedes executives said last month at the National Auto Auction Association convention in Chicago.
But those that the dealers pass up now stay in the finance company's inventory about 38 days, about 20 percent longer than they did before used-vehicle prices soared, said Horacio Trujillo, senior manager of national remarketing operations at Mercedes-Benz Financial Services.
Reconditioning minimizes the time and resources dealers must spend to sell the vehicle and increases the return on investment for the finance company, Trujillo said. The reconditioning is performed at the 11 auction locations where the vehicles are offered for sale.
Tight vehicle supplies and higher used-vehicle prices allow the company to hold vehicles longer without losing money because of depreciation, Trujillo said.
"We monitor return on investment on those reconditioning dollars and we continue to see very positive gains," he said. "So far it is better to hold it, repair it, and sell it in better condition."
Added Joe Bedwell, manager of auction operations for Mercedes-Benz Financial's East region: "Dealers are a little bit different from us. They want to sell it as quickly as they can."
Tom Kontos, executive vice president of customer strategies and analytics at ADESA Auctions, said dealers benefit from having the financing company do the reconditioning.
"The time you invest in that vehicle is time the dealer doesn't have to invest and time is money for dealers," he said.
Neither Trujillo nor Bedwell would say how much the company gains financially from reconditioning vehicles before selling them.
But Kontos said that, in general, every $1 spent on reconditioning yields $1.75.
Mercedes-Benz Financial uses that extra time before it sells off-lease vehicles mostly to repair items such as bumpers and wheels and to perform body work.
The company typically remarkets about 100,000 off-lease units a year. But that number tumbled as a result of the recession. This year the company expects to handle slightly more than 50,000 off-lease vehicles. Of those, about 28 percent will make it to a traditional auction. That is down 10 percent from last year.
In 2012, the total is expected to rebound to about 75,000, then increase to about 123,000 in 2013.