Fleet News

Pandemic has had fundamental impact on how business works

coronavirus

Conflicting factors serve to promote uncertainty among company fleets, reports Stephen Briers

Coronavirus has been devastating for many this year and the outlook is little better for 2021, according to high-ranking executives in the FN50. 

Highlighted by leasing companies as one of the biggest challenges the fleet sector will face over the next couple of years (see page 22-23), it is already heavily influencing key fleet decisions and future fleet policy.

Employment is one worrying issue with job losses starting to mount as employers anticipated the end of the furlough scheme in October and the introduction of the less generous Job Support Scheme.

However, the Chancellor’s announcement that the furlough scheme will now be extended until March could help to save some jobs.

Nevertheless, redundancies could leave fleets with unwanted company vehicles to reallocate or return, potentially invoking early termination charges – although some leasing companies are taking a sympathetic view on early de-fleeting.

Exacerbating the situation is the dramatic reduction in weekly mileage as many companies forbid non-essential business travel, resulting in employees working from home and ‘meeting’ clients on virtual platforms. 

The success of temporary agile working models is encouraging many large employers to consider making them permanent, helping to reduce property costs and provide employees with flexibility.

Home working has also accelerated the move towards online shopping with an inevitable increase in demand for home delivery, boosting the size of many van fleets.

Craig McNaughton, corporate director at the UK’s biggest fleet leasing company Lex Autolease, says: “These influences will have an impact on not only the volume and type of vehicles required, but also company car contract mileages and durations.

“Job-need cars and vans are a critical factor in helping the UK economy exit from recession and they will be a barometer of improved economic activity.”

Key, he added, would be for customers to select the right vehicles for the right roles and to work with their funder providers to ensure that contract mileages and durations are set to provide flexibility and support growth.

Re-contracting has been a major feature of the coronavirus pandemic, with several leasing companies engaged in talks with fleet customers.

Arval has yet to see any “catastrophic” impact on fleets sizes, with the brunt of any change primarily affecting perk cars.

However, UK managing director Miguel Cabaça reports a “significant increase” in requests for the re-contracting of vehicles by extending the contract term. 

“We’ve taken into consideration that a large number of vehicles are currently covering lower mileages since the pandemic started,” he says. “Going forwards, we don’t anticipate that the trend will change and, therefore, new contracts are being written to take that lower mileage into account.”

IMPACT OF MILEAGE REDUCTIONS

Widespread reductions in mileage will encourage some companies to sweat assets and extend leases, but for employees it could potentially go two ways: it could persuade them to give up their car and save the benefit-in-kind (BIK) tax – perhaps going from a two-car family to one.

Or it could encourage them to switch to full electric or PHEV at the earliest opportunity to benefit from lower BIK rates over the next four years as their reduced mileage brings alternative fuels into reach.

The former, according to Sarah Gray, fleet consultant at ALD, could result in a shift towards shorter-term replacement cycles with greater use of hire/pool cars. 

However, leasing companies are divided on the future size of the company car sector. Some, including Hitachi, Multifleet and ICR, believe that a reluctance for employees to use public transport and car share, might boost demand for the company car.

Thomas Ryan, senior manager at ICR Leasing, believes Covid-19 has “changed the working and economic landscape irreversibly”.

Remote working will lead to less driving and fewer cars on the road but, he adds: “People are avoiding public transport, which could lead to an increase in company vehicle uptake.”

Multifleet Vehicle Management expects a reduction in essential users, as mileages drop, but this “will be offset by an increase in non-essential drivers reluctant to use public transport”. 

Managing director Steve Whitmarsh says: “There has been a significant increase in BEV enquiries as commuters seek zero emission vehicles to drive into city centres.”

SURGE IN DEMAND

Meanwhile, other leasing companies anticipate a steady exit from company car, but a potential surge in demand for personal contract hire.

Liquid Fleet MD Darren Driscoll says: “We expect a reduction in company cars, but an increase in PCP/PCH.”

And Alliance Asset Management adds: “We are seeing a move from BCH to PCH and short-term flexible contracts. Flexibility will be the main consideration with consumers willing to pay a little more to have flexibility, i.e. a get-out clause.”

Cabaça also recognises the potential for contraction and change in the size of the leased fleet, but he believes the total number of vehicles required by its customers will not change.

Instead, companies will seek a portfolio of options for employees, incorporating leased vehicles, salary sacrifice, cash and personal contract schemes.

“Products such as our salary sacrifice scheme, Ignition, and personal contract hire often mean that the total number of vehicles financed by Arval stays consistent,” Cabaça says. 

“In addition, we may see an increase in the use of short- or mid-term rental contracts to support greater flexibility.”

Multifleet Vehicle Management also warms to the alternative funding method theme, forecasting an increase in demand for shorter-term solutions. 

“This will be made up of a combination of new subscription-based solutions, shorter leases or existing rental operators re-packaging rental as a subscription service,” says Whitmarsh. 

“Pay-as-you-go models will increase in popularity, but only for low mileage drivers as the savvy users realise that the model is not cost-effective for high mileage drivers.”

Robust and efficient grey fleet policies will be a prerequisite in any business where staff opt for cash over car, reminds Claire Evans, fleet consultancy director at Zenith. But she is confident that the company car still has an important role to play for many employees – at least in the short-term.

“As workplace restrictions ease, employees will need to consider their method of transport for their journeys, and we would expect to see a reliance on individual cars in the short-term,” he says.

“Longer-term you would expect local authorities to look at ways to promote cleaner forms of transport and may see a reshaping of policy to encourage electric vehicles (EVs), car share and public transport as a mechanism of travelling in and out of urban locations.”

FN50 leasing companies are unanimous in their view that electric vehicles will take a much greater share of the market over the next couple of years.

“Across all customer groups, the use of electric vehicles is increasing, driven by the Government’s positive BIK tax position for low or zero-emission vehicles,” says Cabaça.

Salary sacrifice expert Tusker agrees. Paul Gilsham, CEO, says: “Tusker has seen a consistent uptake in vehicles in 2020 particularly electric, which has remained buoyant throughout lockdown and beyond.

“The benefits of using salary sacrifice have increased thanks to the reduction in BIK for EVs to 0%, increasing the savings available for employees across the UK.”

The take-up of EVs has both put the brakes on people leaving for cash and is encouraging people back to the company fleet, either as a traditional company car driver or via a salary sacrifice scheme, says JCT600.

“In the mid-term, this may well balance out any reduction in fleet sizes due to businesses reducing their core fleet to become more financially and operationally efficient,” says Ben Creswick, its managing director.

Hitachi Capital Vehicle Solutions managing director Jon Lawes strikes a particularly bullish note about potential growth in the sector.

“More drivers will be looking to take up company car or perk schemes, partly because of more reluctance to use public transport, but also because of the attractive benefits 0% BIK brings when switching to an EV,” he says.

NOT THE END FOR DIESEL JUST YET! 

However, don’t sound the death knell for diesel just yet, according to Lex Autolease. 

While McNaughton agrees that lower mileage and a renewed focus on air quality will reinforce the benefits of EVs, he adds: “Despite the relentless drive for zero emissions, diesel cars and vans will continue to dominate the business need and essential user populations in the short and medium terms.

“As such, it is unlikely that replacement cycles will change significantly from the current three-to-four-year norm.”

The delay – in some cases, cancellation – of clean air zones (CAZs) in several cities around the country could further stymie uptake of EVs, particularly in the van sector, predicts ALD’s Gray.

She says: “This could have an effect on the fleet sector as organisations delay their immediate plans to switch to cleaner vehicles, especially LCVs which are the primary target for many CAZs.”

An accelerating uptake in electric vehicles could overshadow a decline in demand for mobility services, especially alternative modes of travel. 

Gray explains: “The process for moving to alternative mobility solutions could be delayed as it may not be an initial priority and feature in organisations’ and individuals’ short-term agendas.

“While ‘access’ not ‘ownership’ is likely to be an accelerating trend in the future of mobility, the car-sharing model has been temporarily derailed by the pandemic. There’s much less appetite to share personal space, or even to have someone ‘borrow’ that space.

It raises the question of whether there’ll be any car-sharing in the future.”

Nick Browrigg, CEO at Alphabet, one of the first leasing providers to introduce mobility solutions, also recognises that “mobility requirements have quite clearly changed” due to Covid-19. 

“Businesses need to build agility into their fleets to stay one step ahead,” he says. 

“This is the time to consider how to invest to meet the changing needs of employees and customers and prepare for a flexible future.

Shorter journey times and less day-to-day business travel present a significant opportunity for fleet managers to maximise the benefits of electrification, bringing a potential boom in business in this sector.

“While discomfort with using public transport continues, the value and continued need for the company vehicle has been solidified.”

Brownrigg adds: “Fleet managers have an important role to play now more than ever, in keeping businesses on the move and navigating mobility challenges in this constantly evolving situation.”

Chris Salmon, commercial director at SG Fleet UK, believe Covid offers fleets a chance to refresh their strategies, addressing changes in mileages, methods of procurement and alternative fuels.

“Covid could act as a catalyst to increase the modernising of fleet policies,” he says. 

“There is a fantastic opportunity in the medium- to long-term for the changes Covid has brought to flexible working to really drive fleets to a more cost
efficient and green solution by using a modern approach to policy delivery.”

 


FN50 2020 special report

Analysis and insight into the UK's contract hire and leasing industry

Read now

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