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Forecasting the future in VERY uncertain times

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With Brexit on the horizon, diesel sales tumbling and a refinement of the company car tax system due, this year gives UK fleets and leasing companies plenty to think about.

If the UK fleet sector thought 2018 was challenging, the problems of the last 12 months may appear minor compared to the year ahead.

Leaving the seemingly endless permutations and combinations of Brexit to one side, businesses are still trading in uncertain economic conditions and selecting vehicles to operate in an uncertain environmental and fiscal future.

The BVRLA, which represents the UK leasing and rental sector, anticipates that the next 12 months will be ‘very challenging’, but argues that trading conditions also present opportunities.

Gerry Keaney, BVRLA chief executive, said, “Whether it is electric vehicles, prognostics data, last mile logistics or car subscriptions, members are increasingly willing to explore new business models, technology platforms and partnerships.”

New leasing products

Digital technology, for example, is opening up the leasing proposition to SMEs and private drivers, creating new marketplaces for leasing companies in market sectors which have traditionally used purchase-based vehicle acquisition methods.

There is also a growing interest in developing secondary leasing products for three-year old cars, with several leasing companies exploring used car leasing as a way to generate extra revenue from the life of a vehicle and support its residual values.

“We are predicting a desire for PCH [personal contract hire] in used cars,” said Ian Tilbrook, fleet director, VWFS. “There is an opportunity to extend existing car leases for a further three to four years.”

For other firms, however, forecasting service and maintenance costs as well as residual values for six-year old vehicles is a step too far into the unknown. Even the sale of new personal leasing contracts demands a fresh approach, with customers expecting retail levels of service and buying fewer value-added services.

On the demand side of the fleet equation, the political demonisation of diesel continues to cause concern for the both fleet and automotive industry. Sales of new diesel models fell by -29.6% year-on-year in 2018, and the SMMT, which represents car manufacturers, forecasts a further fall this year to a total market share of just 28.3% of car sales (diesel’s share was as high as 48% as recently as 2016).

Moreover, there’s little sign of a reprieve, because local air pollution, frequently attributed to older diesel vehicles, will continue to seize the headlines this year as London introduces the UK’s first Ultra Low Emission Zone in April.

For fleets and their drivers, a key issue will be the verdict of the Government’s review of how WLTP emission figures (which are typically higher) should be introduced to the C02-based company car tax system from 2020. The prospect of drivers choosing a vehicle today without knowing how it will be taxed in 15 months’ time is worrying for many.

Taxation

Tax uncertainty has prompted a number of drivers to investigate cash allowances as an alternative to a company car, and the government’s own figures indicate the number of company car drivers started to fall in the 2016-17 tax year after four years of steady growth. For other drivers, the tax situation has ignited interest in hybrid and electric cars, which will enjoy highly beneficial company car tax treatments from 2020.

“The important factor is matching the drive train to the duty cycle of the company car,” said David Bushnell, principal consultant, Alphabet GB. “How is that vehicle operating? What are its journey patterns? Answers to these questions should be dictating the right fuel type, whether electric, hybrid, petrol or diesel.”

While the long term trend is undoubtedly towards electric cars, Bushnell said that depending on their fleet use, there could still be one or two model cycles of diesel, petrol and hybrid models before zero emission technology takes over.

Interestingly, he also sees the UK’s current economic uncertainty supporting leasing and outsourcing propositions. Not only does this type of fleet arrangement allow companies to invest their manpower and financial resource into their core business, but it also offers peace of mind to employees who feel unsure about committing to high levels of personal debt when sourcing a private car.

Finally, whatever political debates take place at a national level, some things never change.

“Our role is to help businesses put in place the right funding mechanisms, the right vehicle choice, and, critically, give the right information to drivers so they can make an informed decision,” said Bushnell.

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