Fleet News

Profits warning signals end to windfall bonuses

A PROFITS warning from one of the UK's top contract hire companies has signalled the end to windfall disposal bonuses and sparked fears that the industry has become too competitive for its own good. Experts have warned that leasing companies are achieving cut-throat rental rates to win business only by artificially inflating their residual value forecasts, at a time when the market for used cars is flat and showing no sign of inflation.

The public company status of Arriva forced it to announce that its finance division, which includes Arriva Automotive Solutions' 80,000-strong fleet, was unlikely to match last year's profit performance. Reaction to the announcement was merciless as Arriva shares fell 70.5p to 441p, wiping 14% off the value of the group. And stock market concern influenced falls in other shares with Lex Service down 23.5p to 557.5p.

Len Clayton, managing director of Arriva Automotive Solutions, claimed the City had failed to understand the positive themes underlying the profits warning. He insisted Arriva's disposal proceeds per unit were only slightly down on last year, and that contracts continued to be healthily profitable.

The warning, he said, was simply a signal that the exceptional profitability achieved by the finance division over the previous three years would not be sustained due to a lack of vehicles coming off contract for sale and the flat used car market.

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