Fleet News

Massive rental deals on hold until residual values improve

MANUFACTURERS face the deferral or cancellation of huge orders as leading daily rental companies delay the replacement of their fleets until prices strengthen in the nearly-new car market. The weakening residual values of ex-hire cars have severely damaged rental company profits throughout 1998, with lower and upper medium cars now fetching £1,200 less at disposal than in December.

One rental company has suspended all acquisitions from a key supplier until the used car market picks up, and others have warned fleets to expect a shake-up in the structure of car hire pricing. The trouble stems less from the supply of nearly-new cars than demand for them.

This year's nearly-new market is set to be no higher than 1997's figure of 400,000 units, although second-tier fleet manufacturers have been quick to take up the slack left by the reduction in fast-cycle business at Ford, Vauxhall and Rover, according to Mark Cowling, chief economist at CAP Motor Research.

But demand has fallen due to a raft of special offers - from 0% finance to free insurance and servicing - designed to stimulate the retail new car market. These have cut the price of de-fleeted rental vehicles in order to re-establish a price differential between new and used cars, but residual values are being further undermined. Dealer group Reg Vardy, for example, is advertising old-shape S-reg Vauxhall Astras with the catchline 'Registered but never used' for £4,075 below their official list price.

This type of offer has a depressive effect not only on the residual value of ex-rental Astras, but also on the prices of all nearly-new lower medium cars. The situation is now so serious that rental companies are deferring the acquisition of thousands of new cars, preferring to keep their existing fleets for longer.

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