Neal Francis, managing director of Pendragon Contracts, considers the key fleet milestones of the past 30 years; their impact; and predicts what the next few years have in store for the fleet industry.
There are some topics that are continually in and out of vogue and vehicle outsourcing is definitely one of them.
Several years ago, as the number of company cars grew, most organisations had no information, inclination or commitment to fully understand the implications of running a fleet so they outsourced the task to experts in the field.
In a downturn, to cut costs, typically vehicle outsourcing has become more popular as the broader economic environment has grown ever more challenging. This is only likely to increase in the future as the requirements and investment required to run a fleet effectively and responsibly become more demanding.
Twenty or so years ago operating a fleet entailed ordering vehicles, organising their delivery, defleeting and signing invoices. Today, with changing legislation and taxation etc, the remit has become much more broad-based.
Now, we have to consider fuel cards, accident management, grey fleet, short, medium and long-term goals.
As a result, vehicle sourcing today and in the future is more about delivering packaged outsourced solutions rather than undertaking an administrative task.
Technology is also becoming an increasingly important dynamic in managing a fleet and for mid to large corporates this is an expensive exercise. As companies continue to focus on their core activity in challenging times, they will outsource to other organisations whose own core activity is running vehicles, with all the associated services this involves in an exhilarating commercial world.
The changes in the VAT rules introduced on August 1, 1995, had a major impact on the leasing industry. By being able to reclaim VAT on the purchase of the vehicle and pay VAT out of the disposal proceeds, leasing companies were able to pass on these savings to their customers. This made leasing increasingly attractive to the corporate fleet market.
At present, with vehicle reliability better than ever before, along with the Government CO2 emissions-based writing down allowances and Benefit in Kind tax structures, customers who adopt a targeted fleet approach can derive significant financial and operational efficiencies with the old capital cost benchmark being a distant memory. This makes writing down allowances much smaller.
As a result, the benefit sits with the lessor rather than the lessee and the leasing company bears the brunt of the cost.
Whether direct or indirect, taxation has a massive impact on running vehicles and this will only continue and broaden in the future with areas such as toll and road charges. Therefore, the tax burden on the leasing industry will be greater than in the past, as once a tax burden has been introduced it typically stays and increases!
Operational Running Costs
The increasing importance placed on the metal and the quality of manufacturer of the vehicles, along with the equipment, all impact on the potential operational costs.
Fuel economy is critical given the escalating cost burden to all motorists. Vehicle combustion technologies are continually changing, the challenge for the industry is to adapt and flex with the evolving technology.
There’s still a long way to go for electric vehicles to be considered as viable for the majority of corporate fleets, however once the vehicle range and battery elements are satisfactorily resolved along with evidenced resale values, demand will increase.
In the meantime, hybrids are with us and we must encourage the industry to keep developing solutions to these new manufacturing techniques. With only a finite amount of resource left in the world, how manufacturers behave and how cars and vans run in the future will influence the shape of the industry.
Like vehicle outsourcing, funding is cyclical. In a tough economic climate, funders exit the market blaming lack of margin, however when the economy improves, investment comes back into the sector and provides more opportunity, with increasing variations of the structure of the financial instrument used.
Over the past 30 years, banks have come and gone, they will continue to be in and out of the market, whether directly or indirectly, but manufacturers are entering the sector through their own financial operations and are more likely to play a leading role.
In the future non bank, manufacturer-owned and private equity funded operators are likely to dominate the market with different propositions. There will be more complex and flexible products being offered that will look to provide a broader mobility solution to both corporate and private customers.
In the past, the FN50 has featured a long list of names, today there are really no more than 35 or 40 true leasing companies, the remainder being intermediaries. The volume players will look to grow but at the risk of commoditising their proposition.
However, the specialist quality providers that charge a little more for a bespoke premium service will grow and be more sustainable in the long term.
The IT technology platforms that operators use in this sector have and will continue to be critical. Pendragon plc acquired CFC Solutions in 1998 and was one of the first companies to recognise the increasing importance of technology in the development of the industry.
Our investment in this area will continue to underpin our business proposition for all size of customer, with the small business and retail customer becoming a growing opportunity as car ownership for the younger generation becomes less attractive and desirable.
In the future, the in-depth insight gained from the overlap between the operation of dealer management systems and leasing packages will enable leasing companies to anticipate and cater for future products manufacturers are developing before they enter the market.
One of the most important elements of operating a leasing business is the ability to dispose of vehicles in the most economical way.
Unless companies can create a network of disposal routes they will struggle to cope with having to defleet vehicles on a continual basis – the days of using auction houses as the sole disposal route are already long gone.
At Pendragon, we have 235 dealerships that provide Pendragon Contracts with a distinct advantage and make the business hugely relevant to the long-term development of the industry.