John Lewis, chief executive of the BVRLA, reviews the year gone by for the leasing industry and the wider fleet sector it serves, and predicts what the industry will look like in the year ahead
The last few months have told us that all bets are off when it comes to predicting where the UK or even world economy is likely to go in 2012. Fortunately, like most UK businesses, the vehicle rental and leasing industry is now a veteran of this sort of uncertain environment, and has adapted well.
If you take the statistics about fewer new cars and less fuel being sold in 2011 at face value, you might assume that the UK car industry was in slow decline.
Well, part of it might be, but a more measured look beyond the headline figures tells a different story. The leasing industry and the wider fleet sector it serves has taken an ever more crucial role in the UK economy.
By taking an increasing share of the new car market, contributing an increasingly large portion of motoring tax revenues to Treasury coffers and providing affordable finance to cash-strapped businesses – the fleet industry has helped sustain the fragile recovery in the UK economy.
New vehicle market
As 2011 draws to a close, we have a new vehicle market that is being propped up by business registrations and this state of affairs is not going to change anytime soon. The traditional car market consists of a sustainable blend of fleet and retail customers, with the rental sector available to take up any excess production when the retail market slumps.
The prospect of all these manufacturers competing for the fleet market is great news for the vehicle rental and leasing industry. Fleet managers have never had such a variety of safe, reliable, fuel-efficient and stylish vehicles to choose from. Many of the more traditional fleet-suppliers have discovered that to their cost this year as they watched customers go elsewhere when confronted with unacceptably extended lead times or inflexible pricing.
Alternatively fuelled vehicles
Pricing is definitely hindering the move to electric vehicles. Take-up of the government’s £5,000 Plug-In-Car Grant has been woeful, mainly because manufacturers seem determined to make a profit from every vehicle from day one. While they can rely on a small group of enthusiastic early adopters who are attracted by the direct benefits, fleet buyers can do their sums, and most will walk away until prices are more realistic.
Having said that, some fleets are prepared to ignore the maths and blaze a trail. A large number of BVRLA members have already ordered or taken delivery of i-MiEVs, Leafs, C-Zeros, Kangoo Z.E.s and Transit Connect EVs. The next twelve months will see them continuing to work with their customers, testing out this exciting new technology and establishing the most relevant transport application.
One of the most obvious applications appears to be for well-defined urban delivery purposes. The BVRLA believes that electric vans have a lot of potential in this area and will continue to lobby for government EV incentives to be extended to vans.
Many leasing companies will argue that EVs are a currently a distraction, pointing to the tremendous role company car and van fleets have played in helping to reduce road transport emissions. BVRLA-member fleets, dominated as they are by highly-efficient diesel engine vehicles, continue to lead the way in cutting average CO2 emissions.
A virtuous circle
We currently have a very effective virtuous circle, with manufacturers conti_nuing to cut the emissions of their vehicles and the government providing the tax incentives that encourage fleets to choose them.
The BVRLA will be working hard to try and maintain this status quo in 2012, by lobbying the government to ensure that it publishes rolling company car tax bands that enable fleets to make an informed decision when leasing new vehicles on four or five year cycles.
We will also continue to push for the removal of the ridiculous three per cent surcharge on diesel engine vehicles. This glaring anomaly of the tax regime will seem even more bizarre when it is applied to the new generation of diesel-hybrid vehicles that emit well under 100g p/km of CO2 or reach Euro 6 standards for particulate emissions.
As well as HM Revenue and Customs, the Department for Transport will also be under pressure to continue modernising the services that are delivered via the DVLA and VOSA. There is still a great deal of work to be done in extricating them from their reliance on paper-based systems and pushing them towards delivering efficient, electronic services. The government has been bold in taking the first steps towards this goal, and our industry will offer all the support it can.
High levels of interest
Market consolidation was a large theme in 2011, with significant mergers in both the leasing (Alphabet and ING Car Lease) and commercial vehicle (Ryder and Hill Hire) sectors.
During 2012 speculation will continue to surround a number of major UK vehicle leasing companies, not least because the sector is increasingly seen as a low-risk, good-return investment.
Following an unprecedented exodus by more than half of the sector’s key funders in during the Credit Crunch, the industry is now witnessing unprecedented levels of interest from financial institutions seeking an exposure to this particular type of asset finance.
With interest rates continuing at historically low levels, potential funders are attracted to the healthy margins available on vehicle finance as well as the positive outlook for car and van residual values in the short to medium term.
The slump in new vehicle registrations seen over the past few years means that high quality used cars, vans and trucks are in short-supply, which is helping to maintain values for ex-rental and leasing stock.
We expect this vital stability in residual values to continue through 2012, helping to underpin the reliable, fixed-cost, low-risk access to motoring that BVRLA members provide to businesses across the country.
With growing economic uncertainty and an ever-increasing cost of motoring, demand for these services is likely to increase in the months ahead.
About the BVRLA
The BVRLA is the UK trade body for companies engaged in the leasing and rental of cars and commercial vehicles. Its members provide short-term rental, contract hire and fleet management services to corporate users and consumers. They operate a combined fleet of around 2.5 million cars, vans and trucks, buying nearly half of all new vehicles sold in the UK.
Through its members and their customers, the BVRLA represents the interests of more than two million business car drivers and the millions of people who use a rental vehicle each year.
As well as lobbying the government on key issues affecting the sector, the BVRLA regulates its members through a mandatory code of conduct.
For more information