Fleet News

Research reveals ‘true story’ of contract extensions

A leading fleet expert has questioned the extent to which contracts were extended on vehicles in the wake of the recession.

Vehicle replacement cycles saw a small increase from 37.4 month average in 2009 to 37.6 months in 2010, according to the FN50 survey.

However, findings from Fleet200 – the top 20 fleets in each of ten key business sectors – revealed an average replacement cycle for cars of 43 months and 55 months for vans.

Professor Colin Tourick, chief executive officer of automotive consultants Aisby and Co, conducted his own research with the top 25 leasing companies in the FN50.

He discovered that where three years ago around 22% of their business was on a four-year contract, that had risen to 26% in 2010. However, three-year contracts had also increased from 63% to more than 65% over the same period.

“It bore out what I already knew. Three years and 60,000 miles is still the benchmark period,” Tourick told delegates at the recent Vehicle Remarketing Association (VRA) conference. “Yes, there had been a growth in four-year business, but that had been at the expense of two-year business.”

Tourick concluded that while there had been a number of extensions, this was not the ‘dramatic’ sea change the industry had perceived.

However, at the same event he revealed the results of a survey of VRA members, which showed that contract extensions was the third biggest challenge faced by the remarketing sector in 2010. Their biggest concern was uncertainty over vehicle supply.

Tourick’s survey of VRA members also reveals that supply remains the remarketing sector’s number one concern in 2011.

Epyx has been tracking the trend of extending contracts through its 1link Service Network, which is used by fleets running two million company cars.

It shows fleets extending replacement cycles with a few now running company cars and vans into a fifth year and more than 150,000 miles.

The company says that while this is not happening in large numbers – it couldn’t give precise figures because of client confidentiality - some companies have resisted replacing vehicles almost completely since the start of the recession.

Ken Trinder, head of business development at Epyx, says: “What is interesting is that from their maintenance records it seems as though these vehicles are bearing these high mileages pretty well.

“The cost of keeping them on the road is not yet becoming excessive and there are no indications that risk management compromises are being made.”

Trinder added that the move effectively meant that traditional fleet economics were being abandoned by these operators.

He says: “The running cost calculations that fleets normally make are being thrown out of the window because it appears that the residual value of the vehicle is no longer a consideration.

“The question now is – how long will these companies attempt to operate these vehicles for? Will they simply drive them into the ground?"

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Comments

  • ColinTourick - 16/02/2011 11:59

    I think it's important to draw a distinction between the three different samples : 1. We surveyed FN25 members and covered 65% of the vehicles in their fleets. It’s therefore hugely representative of the extensions arranged via leasing companies. 2. Fleet 200's sample covers the largest fleets in the land, but only those. Their statistics therefore include outright purchased vehicles which of course were excluded from our research. It may be that bigger fleets and smaller fleets behaved differently when it came to extensions. 3. The Epyx data would cover a mix of leased and outright purchased vehicles managed by leasing/fleet management companies for large corporates. Once again, a different sample. So these three groups will always have different results. Colin Tourick

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