Fleet News

State of the nation: credit crunch

In the financial sector there’s a whiff of panic in the air. Banks are undergoing a crisis of confidence, triggered by the US sub-prime mortgage market.

Some experts are forecasting a recession while others think the storm will soon blow over.

But what does all this mean for fleet managers?

Is the credit crunch going to hit them, and if so, how hard?

What can they do to prepare themselves?

Fleet News spoke to leading industry figures to find out.

John Lewis 
Director general, British Vehicle Rental and Leasing
Association

“The impact for fleets of the squeeze on credit is at worst benign and could even be argued to be beneficial. In terms of contract hire it certainly is.

Fleet managers will need to review their policies and, if they don’t already, they should consider contract hire as the best available option.

You might think that I would say this but, in reality, at a time when companies are finding credit difficult, the leasing companies have more than adequate funding and at competitive rates.

Leave alone all the other benefits of contract hire and this one reason is enough to not only consider making the move, but to do it.”

David Brennan,
Managing director, LeasePlan

“So far, any impact has been minimal – fleet registrations are continuing to rise (albeit slowly) and fleet managers are continuing to place orders.

Looking forward, I don’t think anyone’s in any doubt that the credit crunch will have some impact on fleet managers, but we don’t see it being top of the priority list.

We’ve already seen the Corporate Manslaughter Act have a big impact on fleet managers this year.

The rest of the year promises similarly important milestones in areas such as congestion charging and emission targets.

With all of this going on, it’s likely that the credit crunch will not be at the forefront of fleet managers’ minds just yet.

Perhaps the most important thing for fleet managers to do now is to start pre-empting the questions that will probably come from their board in the future.

It’s important to have a ready-made answer for when the CEO asks you what to do next.

This means looking at your whole transport policy and seeing where inefficiencies may lurk.

Are your fuel cards working as well as they could?

Are you using the most appropriate funding arrangements?

Are you making the most out of your relationships with your key suppliers?

Seek out advice and make savings now rather than waiting for the awkward questions from on high.”

Paul Everitt,
Chief executive, The Society of Motor Manufacturers and Traders (SMMT)

“While undoubtedly the economic climate is a tough one and there are a lot of concerns about the possible credit crunch, the impact of much data we are seeing does not suggest the financial Armageddon some have suggested.

UK new car and light commercial vehicle registrations remain steady and SMMT forecasts only a modest decline for this year compared to 2007 totals.

Average fleet and lease values actually rose by 1.7% in the first quarter of 2008, compared to the last three months of 2007.

However, March was the weakest month this year.

This could indicate a mixed outlook for residual values in the future and it would be wise to keep one eye firmly on general and model-specific residual value trends.

For all fleet managers, the most immediate concerns are on cost control and they will need to hold a tighter rein on operational and unbudgeted spending.

Fuel costs and vehicle operating efficiency are areas that should be examined in detail in order to minimise on-going expenditure.

Other areas to take a look at in the near future are the effects of a more differentiated VED structure since the Budget, along with the growing spread of high and varied local parking and congestion schemes.”

Neal Francis,
Managing director, Pendragon Contracts 

“If you are a fleet manager working for a reasonably good business or organisation, the credit crunch should have very little impact.

If you have a strong set of accounts there shouldn’t be a problem.

In fact, if anything, the credit crunch could be good news in terms of securing value for money.

If your company is credit worthy you will still have a good line of credit and funding so any direct impact, particularly for medium to large companies, should be minimal.

My advice to fleet managers would be to drive a stronger deal with the manufacturers than they may have done in the past when buying cars.

Why?

Because, with the retail sector of the trade being under significant pressure, more manufacturers are looking to force cars into the fleet side of the business to make up for shortfalls in retail registrations.

Therefore, fleet managers should be able to negotiate better deals than in the past.

You should also get up to speed on the pending legislation announced in this year’s Budget that will come into effect in April 2009.

Get your people to drive the right cars as the costs of running your fleet could be set to rise significantly.

If you take the right action – and take it now – you should come out of the credit crunch relatively unscathed.

For those fleets running Employee Car Ownership (ECO) schemes the news might not be so good because lenders are tightening their belts.

They are demanding better credit standards and larger deposits from individuals in this market sector.

Employees may struggle to get underwritten or will have to find more cash for a larger deposit.

I predict that ECO schemes will become increasingly unattractive for employees and will decline over time.”

Kevin Griffin
Fleet operations director, Ford

“I think individual fleet managers will be asked to further review their fleet portfolio and ensure that they are getting the best value for their investment.

Key CO2 gateways of sub-120g/km emissions and sub-160g/km emissions will be very important.

Fleet managers should re-evaluate their investment and I would strongly suggest a robust wholelife cost model needs to be applied.”

Graham Avent
Corporate sales manager, Honda

“In these difficult times, strong residual values are the bedrock of a successful manufacturer.

As a consequence, those fleet managers who have really done their homework in this area should feel a measure of comfort that their research into protecting their company’s investment will really pay off.

However, strong residuals are only part of the story.

It’s up to us to become an extension of every fleet manager’s operation at every opportunity – keeping them informed about our immediate and future plans on product and brand direction.

Managing the next 12 months will, in large, be down to the medium and long-term thinking of every fleet operation.

Choosing the right manufacturer partners will be a key factor in running a successful fleet.”

Mike Pilkington,
Managing director, Manheim Auctions and Remarketing

“It appears that the current downturn in the market is earlier and harder than normal and this, coupled to the general economic uncertainty, may have the effect of unsettling the market over the next few months.

If ever there was a time for fleet and leasing vendors to pay particular attention to realistic pricing, vehicle presentation and full documentation availability, then it is now.

However, it is not all bad news as the market intelligence from our retail services businesses shows there is still healthy demand for used cars out there.”

Marie Jarrold
Fleet manager, British Car Auctions

“The credit crunch will have an on-going effect on fleets. The impact will be felt in respect of availability and cost of funds for acquisition.

"Increased running costs and the effect on vehicle disposal values remains to be seen.

All fleet managers should be keeping a close eye on the situation.

Fleet providers need to be reviewing debt and collection policies and applying strict control.”

Rich Green,
Managing director, GE Capital Solutions, Fleet Services

“The state of the economy is clearly going to have an effect on how fleets are managed, with a renewed accent on cost control.

Usually, when tougher economic conditions emerge, company car numbers fall.

However, our report Company Car Trends indicates that the majority of fleet decision-makers expect them to increase in the next 12 months.

We believe this is happening due to environmental and duty-of-care factors.

Putting drivers in company cars enables employers to take greater control over their carbon footprint and ensures more easily that they are meeting their duty-of-care responsibilities.”
 

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