'While the leasing and contract hire market in the UK has exhibited all the classic signs of maturity in recent years – relatively slow growth, supplier consolidation and growing customer sophistication – there are specific areas that will see growth in 2004.
The increasingly onerous implications of duty of care legislation have changed the rule book for many fleets that went down the cash-for-car route, only to be faced with a host of issues relating to driver safety and directors' liability. We are likely to see continuing growth in services such as incident management, short term rental and more innovative leasing solutions that provide staff with the cash-for-car option, while meeting the duty of care requirements of responsible employers.
The sheer number and complexity of options now facing fleet managers and company directors is becoming quite an issue and is leading to a more consultative approach by many fleet management companies. More sophisticated businesses are no longer looking for just an off-the-shelf product, but a much more in-depth service where both financial and softer issues are considered before final fleet recommendations are made.
As legislation changes, there will always be innovative suppliers developing new solutions to sets of business problems. We have already developed Alto, a structured employee car ownership scheme that avoids the tax implications of running a company car, while giving companies enough control to comply with new corporate manslaughter legislation.
No doubt, there will be a host of other developments as the leasing sector discovers new routes through the complex undergrowth of taxation, health and safety and human resources.
Every seasoned industry watcher knows that further consolidation in the leasing industry is inevitable.
With tight margins, increasing customer expectations, unpredictable residual values and a plethora of new legislation affecting the industry, it's no wonder that the kitchen's getting too hot for many players.
It's interesting to consider the future shape of the top end of the market. Currently, the top five players have approximately 42% of the market. If other industries provide any kind of model for consolidation, this premier league group could double their size in the next few years. This is likely to come about via acquisition of medium sized businesses. In the longer term, we are likely to be left with a handful of large, international players that can provide the full range of leasing services at one end of the market, with a clear step down to smaller, regional players that will generally compete on price.
Regarding the possibility of new entrants, apart from the AA, it's difficult to see why another major business would want to enter the leasing sector. In its current form, the leasing sector offers relatively low profitability and high barriers to entry for prospective new players. In the light of such well managed businesses as Alliance & Leicester leaving the market, I am not convinced that leasing will see any new kids on the block during 2004.
Big issues for 2004? We foresee the implications of growing duty of care legislation having the biggest influence on the fleet sector this year.
In simple terms, this will see an increase in the use of services such as short term hire as companies seek to minimise their potential exposure created by employees using poorly maintained vehicles for business purposes.
We will also see more businesses and public sector organisations looking to further outsource their complete fleet management operations. Large employers are increasingly seeing the benefits of outsourcing the complex activity of sourcing, delivering, maintaining and disposing of vehicles. The provision of add-on services such as short term hire – to fill gaps in fleet requirements, and even insurance – using the buying power of major leasing companies, are certain to be part of this trend.'
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