Fleet News

Editor's Comment

There’s a lot of uncertainty over residual value forecasting – leasing companies and fleets that take on the risk are playing a cautious game, having had their fingers burned by the collapse in values last year.

It’s impacting on lease rates – look at the spread from leasing firms – best to worse is commonly a difference of £60 a month or more.

But there’s reason to think all companies should be fairly bullish when setting values – as long as they get their replacement cycles right.

Fleet car registrations this year are down so far by 30%, which equates to an annual fall of 300,000 units. So that’s 300,000 fewer vehicles that will return to market, creating a huge shortfall which will push prices up. The question is, which year will they return to market? 

Traditionally it would have been in three years’ time, ie. the supply shortage would happen in 2012. But the latest research from Sewells points to a much longer replacement cycle.

Its Fleet Operator Attitude Survey reveals that the average age at which company cars are changed has lengthened to 4.6 years, with around 40% of businesses changing cars at four years and half leaving it to five years.

So will this supply shortage caused by the slump in fleet sales this year occur in 2013 or 2014? Get the prediction right, and you’ll save money and/or make money.

Of course, the flipside to contract extensions is that everyone is holding on to their cars for longer. Many of them will return to market next year, so will that cause a temporary glut, with inevitable downwards pressure on residuals?

Manheim doesn’t think so. Its group sales director, John Given, who spent much of his career in the leasing sector, reckons around 17% of fleet cars – or 170,000 units – contracted to be remarketed this year have been extended. 
But in a normal market, around 8-9% of cars don’t return on schedule, usually due to delivery delays. The normal lease runs on average three months past deadline.

That means there’s a net gain of around 80,000-100,000 cars. However, many of these will have been offset by early terminations caused by redundancies, companies downsizing and recruitment freezes that have seen lots of cars already return to market. 

Given believes this will level out supply and demand next year, creating stability for residuals.

Write to Stephen Briers

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