Fleet News

Facing the Future Conference special

Diesel utopia claim fuels fierce debate

A FIERCE debate has erupted over the environmental credentials of diesel-powered vehicles, with commentators positioning diesel vehicles either as cheap, clean motoring heaven or a lung cancer-causing menace.

Robin Woolcock, managing director of Volkswagen UK, argues that diesel will be the principal fuel powering cars for the next 30 years, citing independent research that said cleaner, more efficient and more powerful diesel engines could grab a 50% share of the market by 2008.

He attributed the 50% increase in diesel sales during the last two years in the UK to the 'happy coincidence' of improvements in engine technology and the benefit-in-kind tax advantage for fleet drivers.

'The internal combustion engine is here to stay. The solution is here and it is the diesel engine,' said Woolcock. 'We are looking at a 'diesel utopia'. You ain't seen nothing yet. The potential of even more fuel economy is still there.'

And he dismissed fears the particulate emissions in diesel exhausts could cause lung cancer, saying that: 'After 50 years, there is no study that has said there is a threat of lung cancer from diesel.'

However, his comment provoked an angry response from Ken Thompson, managing director of Fleet Review, a fleet management company based in Melbourne, Australia, who took issue with Woolcock's 'diesel utopia'.

Speaking from the floor, he said: 'Saying there is no link between diesel emissions and cancer is disgraceful.

'The World Health Organisation and a number of studies in the US have been extremely critical of the link between particulates in diesel exhaust and lung cancer. To say otherwise is like the safe cigarette argument the tobacco companies used years ago, that cigarettes are not bad for you.'

A report published in the US by the Environmental Protection Agency in September concluded that 'long term exposure to diesel engine exhaust emission is likely to pose a lung cancer hazard'.

And Martyn Pring, head of marketing and communication for TransportEnergy, added that for genuine clean air improvements, liquefied petroleum gas (LPG) was the current answer.

'At the present time LPG does deliver in terms of NOx and particulates. LPG does make a significant impact in terms of cleaning the air. Diesel in the long term does have significant opportunities though. From the next complete fleet cycle diesel can have an impact,' he said.

But Woolcock rejected this view, describing LPG as a niche fuel, adding: 'LPG creates compromises such as space and if it becomes popular the Chancellor of the Exchequer will increase tax on it.'

Excess diesel supply will damage fleet residual values

FLEETS face rising depreciation on diesel cars unless car makers significantly lower the new price premium charged for diesel over petrol models, according to used car market specialist CAP.

Ramesh Notra, CAP's chief economist, said the explosion in sales of new diesel models, particularly into the fleet sector where company car drivers are switching in their thousands to HDi, TDi, TDCi and dCi models to lower their benefit-in-kind (BIK) tax bills, will over-supply the used market.

He anticipates that the volume of used diesels hitting the secondhand car market will rise by 50% over the next three years, as sales have risen from 14% in 2000 to 22% of the new car market this year, upsetting the fundamental laws of supply and demand that dictate used car values.

'The new benefit-in-kind tax rules are not helping the situation because they are creating an imbalance and the new corporate cars are not what used car buyers want,' he said.

Notra claims too few used car buyers cover the annual mileage that justifies paying a premium for a diesel and forecasts the forecourt premium of diesel over petrol will narrow.

Residual value parity between petrol and diesel will mean fleets face higher depreciation for diesel because of the cars' higher list prices, which are regularly £1,000 more than their petrol equivalents.

However, CAP forecasts a brighter future for residual values by 2005 and 2006 thanks to key new models such as the Ford Mondeo, Renault Laguna and Vauxhall Vectra in the heart of the company car market, after a dip during the next couple of years.

The old Vectra, for example, will continue to hit the used car market for the next two years, suffering declining residual values, but then in 2005 ex-fleet models of the new Vectra will arrive on the used car market delivering a valuable uplift in residual values of as much as £1,000 per car.

Consequently, CAP forecasts that residual values will slip by 2% next year, and by a further 3% in 2004, although depending on the mix of models on individual fleet portfolios residual values could tumble by as much as 6% in 2003.

The good news is that the portfolio effect of newer models could actually drive residual values ahead by 5% in 2004 if fleets switched early to the new models.

Crash misery

A MOVE to treat fatal road accidents as crime scenes is increasing congestion, the RAC Foundation is warning.

As deaths on the road are treated more seriously, particularly with investigations into whether employers are culpable for accidents involving at-work drivers, police forces are closing roads to investigate. As a result, closures of major arteries are becoming part of everyday misery for the business motorist.

Edmund King, executive director of the RAC Foundation, said: 'Congestion costs £20 billion a year and to help reduce that, we want better incident management. There have been almost double the closures of major motorways recently.'

Congestion efforts may backfire

EFFORTS to relieve congestion may simply encourage more traffic onto the highways as road space is freed up, a leading industry expert told the conference.

Professor David Begg, chairman of the Commission for Integrated Transport (CfIT), warned that Britain actually reached saturation point on some roads up to 20 years ago. Since then traffic volumes have barely risen, but peak times have extended to as late as 11 o'clock in the morning.

'The main constraint of traffic volumes is congestion, so alleviating traffic may mean that volumes go up. To combat this, we would need congestion charging,' he said.

CfIT has proposed a new approach to car taxation that it claims would reduce congestion by 44%. Under the scheme, vehicles would be fitted with satellite tracking devices and 'black boxes' which record journey distance, time of day and the roads used. This information would then be used as a basis for charging motorists on a pence per mile basis, with higher charges for driving on busy roads at peak times, and no charges for quiet roads in off-peak times.

These charges would be offset by lowering fuel duty and Vehicle Excise Duty, so the overall tax take from motorists would not increase.

Begg said: 'The estimated current annual revenue from VED and fuel duty is £27 billion and the estimated revenue under the new system from fuel duty and congestion charges would also be £27 billion.'

He described this road charging mechanism as a vital step towards cutting congestion, but said it would not be a solution on its own and that it also required improvements in public transport. Yet even if the number of people using the train doubled, it would only be enough to account for two years anticipated growth in car use, said Begg.

He added: 'Good public transport is not a panacea on its own, but I have a concern that Britain is the most car dependent nation in Europe.'

Fleets are potential market 'powerhouse'

FLEETS could be the powerhouse to shape the future of car sales and servicing under reforms to the European competition rules governing car distribution.

John Wormald, founding partner of consulting firm Autopolis said that with its new block exemption regulation 'the European Commission has opened the door' and that the fleet sector 'will lead the charge through it.'

His comments at the Facing The Future conference confirm that every area of fleet business, from the acquisition of cars to service and maintenance and residual values, will be affected by the EC's reforms announced earlier this year.

The EC said its revisions are designed to improve competition in the retail world by giving dealers greater freedom to open multi-brand showrooms.

The new rules also establish guarantees that independent repairers can gain access to technical information and training from manufacturers so they can compete with franchised garages.

'This is a carefully devised and tough regulation, which seeks above all to ensure free and open competition in the sales and service of vehicles and which will be enforced. It is a compromise in that it could not satisfy everyone in every respect,' said Wormald.

He added that the new regulations give fleets freedom of choice over sales and servicing and other vehicle related provisions such as tyres and glass.

'The fleet sector hasn't been that interested in maintenance, repair and tyres, so far. When I put it to a large leasing company at the end of last year that it ought to think about the impact of block exemption on these costs, it produced a chart that showed residuals are far more important to it. But I don't think we've heard the end of it,' he said.

With regard to fleets sourcing servicing and repair work in future, Wormald said: 'Imagine a service chain with a thousand outlets across the UK, not the present small contenders with 100 or so garages. They would be properly sized, equipped and staffed stores, structured and chained like the fast-fits. Able to underbid dealers by 30% with better service quality. How long will fleets hold back from that? Might they even help these businesses into existence?'

He concluded that it was not a question of what impact the new block exemption regulation might have on the fleet market, but rather 'what impact will fleet operators and financiers have on the downstream sector of the automotive industry, now made more open and flexible'.

Government pledges diesel taxation review

THE Government has pledged to review its negative position on diesel fuel in light of major improvements in diesel engine technology.

Current tax and duty regimes discriminate against diesel, with the fuel incurring heavier duty charges than petrol, and diesel powered cars suffering a three percentage point penalty under the company car tax system because of their negative impact on local air quality.

However, the Government also has ambitious targets to lower the UK's emissions of greenhouse gases, of which the most common is carbon dioxide, hence its willingness to re-appraise diesel which generates much lower CO2 emission levels than petrol.

Minister of State for Transport John Spellar said: 'The subject needs to be revisited considering the improvement in output from diesel vehicles. While petrol cars can achieve 30mpg, diesels can achieve 39mpg on average and they offer a marked reduction in CO2.

'However, in urban centres there is a concern about emissions although work is being done on PM10s and other particulates.'

He advocated the benefits of hybrid petrol-electric vehicles such as the Honda Insight and Toyota Prius, which he described as impressive steps on the path to a hydrogen-based economy.

'In the interim stage, there is still a degree of uncertainty about fuels and some developments, such as hybrids, have generated real debate. Some can achieve 80-90mpg,' said Spellar.

Warning over new car pricing

MASSIVE new car pre-tax price differentials across Europe will continue despite the European Commission's best efforts to harmonise car prices.

Delegates at the Facing The Future conference heard that different taxation levels across Europe mean radically different pre-tax prices from country to country.

Malcolm Harbour, MEP and non-executive director of the International Car Distribution Programme, said individual member states oppose any suggestions they should alter their tax regime for new cars.

But Rick Yarrow, managing director of Eurocarprice, a business which tracks and compares the prices of new and used cars across Europe, said block exemption reforms were a 'key driver' of pressure on price harmonisation.

But he admitted its effect on prices in the UK 'was not yet known' because of this country's position outside the Eurozone and its right-hand drive car market.

He said the gap between pre-tax prices in EU member states remained wide and added that there 'is a long way to go before any harmonisation of new or used car prices'.

For example, average pre-tax prices in Denmark are just 78% of the European average because manufacturers have to cut the price to make cars affordable to Danish consumers after the Danish Government has imposed taxes of 174%.

At the other end of the scale, Swiss pre-tax car prices are 125% of the European average because the Swiss Government only charges 7.5% tax on new cars. In retail terms, UK car buyers face prices 11% above the European average, the result of one of the most expensive average pre-tax prices and lowest tax regimes.

Yarrow said the main forces against price harmonisation were commercial pressures on manufacturers, varying European economies, taxation differences and currency fluctuations.

Price harmonisation at Danish levels would cost the European automotive industry 40 billion euro a year, the equivalent of the turnover of Volkswagen, so any harmonisation is likely to be slightly above the current average.

This would mean sharp rises for markets such as Denmark and Greece, parity for Austria and Germany, and slight falls for the UK (although currency fluctuations would affect this).

The EC recently published a paper calling for a reduction or scrapping of registration taxes over the next five to 10 years (to be replaced by higher annual road and fuel taxes) and a move to environmentally driven taxation based on cars' emissions of carbon dioxide, as the UK has already done with Vehicle Excise Duty and company car tax.

Oversupply's delayed impact

RECORD new car sales this year and last will not have an impact on the used car market until 2004 and beyond, dispelling fears of a residual value crash amid an over-supplied market.

Glass's Information Services has analysed the flow of new cars onto the used car market and discovered that the supply is much slower than anticipated.

Adrian Rushmore, managing editor of Glass's, said that only 15% of new cars are resold as nearly new within 12 months of their first registration.

A further 10% of new cars return to the used car market aged between 13 and 24 months old, and 15% between the ages of 25 and 36 months.

However, the lion's share (60%) of new cars do not hit the used car market until they are between three and four years old, which means the bulk of the booming new car sales in 2001 and 2002 will not start to arrive on the used car market until 2004 at the earliest.

In real terms, Glass's has calculated that the used car market will cope with 2,272,713 cars next year, compared to 2,269,093 this year, an increase of just 0.2%.

'The rough prediction for 2003 is that volumes do not look too serious. Problems will come further down the line,' said Rushmore.

However, he is still forecasting a decline of 3-4% in residual values next year, and cautioned that the tremendous rise in the premium upper-medium sector of the market could depress their values as used cars from 2004 onwards.

And there are further negative influences on the horizon, with Glass's forecasting little new car price inflation, lower transaction prices and weaker consumer demand as disposable income falls as used car buyers face a rising tax take due to the change in National Insurance levels from next April.

RAC chief calls for charter for UK road users

MOTORISTS deserve the same consumer standards as rail users, including charters over the quality of the road network, the reliability of traffic flow, and the potential for compensation payments for delays, according to the RAC Foundation for Motoring.

Edmund King, executive director of the foundation, said motorists and especially fleets – essential road users - are missing out on an immense opportunity to influence Government policy at its earliest stages.

While minority interest groups, from cyclists to horse riders, are involved in grass roots meetings with Government transport planners, King claimed the overall fleet industry was not well represented even though it carried significant weight with Ministers.

'The voice of the fleet driver is not being heard out there at these early stages,' he said.

'Therefore, the outcomes of transport plans often favour minority views, rather than the view of 32 million motorists and millions of business drivers who should have their say.

'We are so concerned, we are trying to do something about this through the Road Users Representation Section, by setting up a network of experts that can make the feelings of the fleet and the motorist heard at these earliest discussions on future policy issues affecting transport and congestion.'

The campaign is one of a series of transport related issues the RAC believes need to be tackled urgently, including the appointment of an Independent Roads Inspector, who would set standards, monitor performance and assess the condition of the roads network.

King suggested the inspector could even consider compensating drivers for major delays or failures in the road network, in a similar way to compensation for users of the rail network following significant delays.

A key target would also be to ensure that a larger proportion of the £41 billion collected in transport taxes was reinvested in the roads, rather than the current £4 billion.

BVRLA in plea for end to pre-registrations

LEASING and daily rental companies have demanded an end to manufacturers 'dumping' new cars in the market, and called for greater transparency among residual value forecasters.

John Lewis, director-general of the British Vehicle Rental & Leasing Association, dismissed as 'ridiculous' the official records of pre-registered cars – cars technically registered without a buyer in mind.

New regulations force manufacturers to reveal the volumes of cars they pre-register, but industry insiders claim car makers are getting around the rules by registering cars as fleet sales, stockpiling them for three months, and then disposing of them through a variety of channels.

Beyond three months, manufacturers do not have to disclose pre-registered cars, and well-placed sources suggest the number of these cars could total 50,000 models per month which later appear on dealer forecourts with nothing but delivery mileage on their odometers.

'Dumping excess product in the market place is not an option,' said Lewis. 'It destroys the market for late plate, low mileage cars for the rental sector causing unnecessarily increased costs, which in turn means that the fleet user is having to pay more than he should for rental vehicles.'

He called on manufacturers to match production to demand, but warned that a slow down in continental European markets could prompt car makers to switch production to right-hand drive models and flood the buoyant UK market.

While welcoming the end to the days when car makers would launch a new model without giving any advance warning, Lewis said they still had progress to make in terms of longer lead times and no distress selling of run-out models.

With future residual values balanced on a knife edge, given the greater supply of used cars due to arrive in the market from 2004 onwards, Lewis said fleets and leasing companies had to treat residual value forecasts with greater scientific scrutiny.

'Residual value forecasting is often referred to as a black art. That's rubbish,' he said. 'It's a scientific process leavened with market knowledge. Look at the market today, understand the factors which have caused it to arrive at these values. Look ahead to establish the factors that will influence it in the future, and derive a set of future values.'

He said too many residual value risk takers rely on the market's guides, but advised that they should only be used when firms had produced their own set of values, and he called for greater transparency in the way CAP and Glass's establish their own forecasts.

'New poll tax on wheels' warning

OFFICIALS behind the launch of congestion charging should be made to sign up to a charter to guarantee that it will not simply degenerate into a 'poll tax on wheels', the RAC Foundation has warned.

The charter would state that the aim of charges should be to reduce congestion and therefore charges must vary in price, depending on the time and place of the journey made.

The charter also insists the charges should be set in a transparent, evidence-based way by technical experts and that national revenue targets will not be the criteria for setting tolls.

If motorway toll schemes are introduced, it says the cash must be used at least in part for road improvements and reducing motoring taxation, probably fuel duty.

Edmund King executive director of the RAC Foundation warned: 'If you have to pay to use the roads, but there is not improvement in transport as a result, then congestion charging is simply a poll tax on wheels.'

Air quality needs to be addressed

FLEET operators must look again at what vehicles they run and how they use them in order to help stem the tide of deaths in the UK from poor air quality, a senior figure at TransportEnergy has claimed.

Speaking at Facing the Future, Martyn Pring, head of marketing and communications for the agency, cited the Royal Commission on Environmental Pollution's figures that there are 24,000 premature deaths in the UK due to poor air quality and that 22% of all CO2 emissions in the UK come from transport, which is worsening the effects of climate change.

He added that fleets have to be involved in the process of cleaning up UK air quality, saying: 'fleets are facing an increasingly complex scenario, with rising fuel costs and environmental demands. Fleet operators will have to look at how vehicles are used and will have to look at curtailment of transport use if it continues at the present rate.'

Pring warned that firms will need green fleet management policies and alternative travel schemes in place. In order to put such measures into practice, he said fleets should be talking to TransportEnergy and its band of representatives about the benefits of LPG, CNG and hybrid petrol-electric cars, and the block grants available to subsidise the cost of converting vehicles to run on alternative fuels.

However, going green will probably not mean electric in the future, as Pring conceded: 'There is a realisation that electric battery vehicles are not going to make a significant impact on the world we live in.'

Diesel top of Schindler's list

PETROL will never catch up with diesel in terms of fuel economy, despite major developments in FSI direct injection petrol engines, according to a top Volkswagen engineer.

Klaus-Peter Schindler, who is responsible for the compliance of Volkswagen vehicles with emissions legislation worldwide, said new technology and improved (i.e sulphur-free) petrol would deliver significant gains to petrol cars.

'But the gasoline engine will never reach the same fuel performance as diesel,' he said.

Even the controversial issue of diesel emissions is being resolved, with Schindler claiming that Volkswagen can meet Euro IV emission standards with its PD TDI engines without recourse to particulate filters or exhaust after-treatment to combat nitrous oxide emissions.

Better engine management systems, better fuel quality and improvements in lubricants will all contribute to cleaner, more efficient engines. Moreover, he said the advent of hydrogen-powered fuel cell technology was at least 15 years away, and even then it will be a further 15 years before fuel cells have secured a significant share of the car market.

'That means that even in 20 years time petrol and diesel will be the most popular powertrains, and the development of petrol and diesel engine technology will go further than TDI and FSI,' said Schindler.

Euro MP voices concern on block exemption

A MEMBER of the European Parliament is urging the fleet and automotive industry to voice their concerns over the new car distribution block exemption.

Speaking via a live video link from Brussels, Malcolm Harbour MEP told delegates at the Facing The Future conference that he personally believed the new legislation was too complicated and pledged that he would be carefully monitoring its introduction.

His comments were supported by fellow speaker John Wormald, a founding partner of consulting firm Autopolis, who said the reforms were 'difficult to understand'. Harbour added that there was scope for trade associations to produce material that would help their members better understand the changes.

This is despite the European Commission producing its own document recently that aims to explain its vision for car sales and servicing directly to fleets and private car buyers.

It said its brochure was 'designed to provide the general public with information on their rights and obligations under the new, stricter arrangement that should result in greater competition in car sales and repairs.'

Harbour told delegates: 'People who are concerned should raise any issues with us.'

He will be seeking clearer guidance on the new block exemption from Competition Commissioner Mario Monti.

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