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Cost Trend Analyser 2013

By / 8 years ago / Features / No Comments

We asked many industry experts to rate on a scale of 1 to 5 whether they see each sector increasing or decreasing, and then averaged out the result to come up with a definitive figure. We’ve also asked some of the respondent for analysis on why they see the trends heading in the way they think they will.

We asked them to put a figure against key fleet costs:

1            Significantly lower compared to 2012

2            Lower

3            About the same

4            Higher

5            Significantly higher

NOTE: In the ‘Residual Values’ section we asked for numbers relating to whether prices would move relative to current values, not cost (ie ‘1’ would mean significantly lower residual values than 2013, not significantly lower costs).

 

Funding  2.5

‘We expect a number of foreign investors, including a major Australian bank, to come into the funding market in 2013, and the increased competition will lead to a slight fall in funding rates, which have themselves eased slightly during the year. This should have the knock-on effect of reducing contract hire rentals slightly, or at least ruling out substantial increases.’

Scott Lloyd, head of data and pricing, Tusker

 

‘There has been a general easing in the market and schemes like Project Merlin, in which the four main banks agreed with the Government to lend up to £190bn, have certainly had an impact and led to a wider availability of credit.

‘With banks starting to reduce their lending restrictions, and the economic concerns of the last two years beginning to subside, while we are not yet back to the levels we were before the onset of the credit crunch, we are certainly starting to get there.’

Martin Brown, managing director, Fleet Alliance

 

‘The base rate has been fixed by the Bank of England for some time. There are no positive economic indicators that suggest any change in the bank’s current strategy so we are not forecasting an increase in funding costs any time soon.’

Cliff Ainger, fleet manager, ARI Fleet UK

 

‘Probably better to avoid the somewhat obvious comments that could be made about the banks, suffice to say that, on the whole, the craziness of the past two years seems to be calming down and some degree of sense about funding rates is creeping in. Creeping rather than running I would say! More work still needs to be done on increasing funding lines to the wider business community in general and hopefully the Government will get on top of that. I would expect to see some stability generally with the main funders and that could well be transferred down to some of the smaller funders dropping their rates slightly too.’

Nick Hardy, sales and marketing director, Ogilvie Fleet

 

‘Last year I forecast the entry of potential new funding entrants to the leasing market with an appetite for healthy profit. This has come to pass with other financial institutions looking at the sector as good risk, some from as far afield as Australia. This bodes well for the sector which could grow next year as a result. The caveat is the ongoing Eurozone debt crisis, which may see further European financial institutions seek the exit door, especially given the torrid state of new car sales on continental Europe.’

Roddy Graham, commercial director, Leasedrive Group

 

Currently with base rates at an all time low and likely to remain at this level for the whole of 2013, and with increased funding providers entering the automotive sector, competition is definitely on the increase. As a result, lenders’ margins are starting to decline slightly -we expect this trend to continue.’

Neal Francis, managing director, Pendragon Contracts

 

Taxation (in all forms) 3.8

‘April 2014 will see Corporation Tax lowered by 1% – great news for businesses large and small. Kick starting economic growth by lowering VAT back to 17.5% would help too in encouraging consumer purchases. Simplifying tax structures across the board would help head-off tax avoidance and evasion. Amalgamating NIC and Income Tax would be a start. Given the Government’s record on U-turns, the latest being an agreement to consult on BiK tax bands to encourage adoption of ultra-low emission cars, anything’s possible. We still have to see a Plan B, which would inevitably have to jump start growth through lowering taxes. Frankly, as I only see fuel prices rising, I only see tax rates lowering with a greater emphasis on tax collection. Starbucks, Amazon, Google and plumbers beware!’

Roddy Graham, commercial director, Leasedrive Group

 

‘There is no greater certainty than taxation will continue to increase, in one way or another, over the next few years. Six more years of austerity I think the Chancellor said, and whichever way we look at it, digging ourselves out of the hole we are all in will mean that we have to continue to pay more taxes. However, even the Chancellor knows that we all still need to spend money to make the economy work so I believe the majority of the hard pain is over and we will see more modest increases in taxation only.’

Nick Hardy, sales and marketing director, Ogilvie Fleet

 

‘The Government is seeking to raise as much additional income as possible to replenish its coffers so taxes are likely to increase by more than inflation.’

Cliff Ainger, fleet manager, ARI Fleet UK

 

‘The Government’s decision to re-examine BiK rates on ultra-low and zero carbon vehicles is a welcome move. More clarification is now needed in terms of the level of taxation proposed and the duration of any concession. If BiK advantages are going to be removed for low and zero emission cars we would advocate a phased reduction, as any sudden cut in benefits will be very detrimental to a fledgling market.’

Chris Chandler, principal consultant, Lex Autolease

 

 ‘A further tightening of company car tax thresholds by 1% for cars emitting more than 75g/km of CO2, and the ending of zero tax status in 2015 for all zero and low emission cars, has completely undermined the Government’s claim to promote and encourage environmental benefits through stepped CO2 efficiency. By linking “tax-free” motoring to mainly small or hybrid-electric vehicles, the practicality of running such vehicles for normal fleet use has become ever more marginalised.’

Tony Hulatt, managing director, CLM

 

‘We know from the Autumn statement that fuel duty will not increase in the short term, the rate of VAT appears to be stable, but the impact of the revised Writing Down Allowances given the realignment of bandings based on the CO2 emission of vehicles will increase certain vehicles rentals if they have moved up within the three applicable bands. The immediate impact will be detrimental to those vehicles affected, however over time vehicle manufacturers will launch new vehicles with lower emissions so the fleets who adopt the new bandings quickly within their vehicle policy will experience little impact. We await any further news regarding the removal of the 100% Writing Down Allowance for the leasing industry.’

Neal Francis, managing director, Pendragon Contracts

 

‘Company car drivers are becoming much more P11d savvy and increasingly take CO2 and vehicle benefit-in-kind taxation into consideration when making their car choice rather than just being “wowed” by a particular model. Additionally, salary sacrifice schemes are becoming an ever-more popular method for employees to obtain new low emission vehicles.’

Martin Evans, sales and operations director, Jaama

 

Leasing rates    3.4

‘We have seen a definite reduction in rates in the last quarter of this year, especially for fleets of note, due to increased competitiveness in the leasing market. There seems to be an increased appetite for fleet business among almost all of the major leasing companies as they look to increase volumes. This level of intense competition will continue to drive down rentals for end users – and margins for leasing companies.’

Martin Brown, managing director, Fleet Alliance

 

‘Lease companies are at the mercy of external factors for the most part so as long as there is stability with the new and used car markets and with the costs of funding, there will be stability with lease costs. I would expect that to be the case through 2013.’

Nick Hardy, sales and marketing director, Ogilvie Fleet

 

Fuel    4.1

‘The decision to postpone the introduction of the 3p fuel surcharge is likely to be a temporary reprieve and in the medium to long-term fuel prices will rise. The hiatus gives fleet managers the opportunity to get to grips with their fuel budget. Rather than focusing on the pump price, they should monitor the individual pence per mile cost for each driver.’

Chris Chandler, principal consultant, Lex Autolease

 

‘Obviously a significant area of expense for all fleet operators and one that is only going to get higher as time goes by and oil runs out. Understanding the costs of fuel and how it should impact on vehicle choice is still often missed completely. We simply cannot understand why every organisation hasn’t moved to a wholelife cost model to determine their optimum fleet car schemes. I’m also still baffled by the number of companies that offer a carte blanche free fuel policy.’

Nick Hardy, sales and marketing director, Ogilvie Fleet

 

‘Despite the cancellation of the planned rise in the Autumn Statement, fuel prices look set to go still higher next year, making this the single most important area for fleet attention. For many companies, this will mean controlling fuel costs and cutting business miles.’

Jon Tandy, business development director,  Mycompanyfleet

 

‘As the wholesale fuel market is governed by world demand, as long as supply and demand continues to balance between the mature markets like the Eurozone and the emerging BRIC economies – Brazil, China, India, Russia – then the market will continue to equalise. As soon as there is any significant growth in the emerging economies or if the retailers decide to try and increase their margins then prices will go up.’

Neal Francis, managing director, Pendragon Contracts

 

‘Whilst we had a reduction in wholesale and pump prices towards the end of 2012, we do not believe that this will continue and extra burden will be placed on the cost of fuel. This means that controlling and managing fuel costs should be a key priority for fleets for the coming 12 months.’

Paul Gregory, head of country for UK and Eire, Fleet Logistics

 

 ‘The price of oil has continued to rise. It was hovering at the upper end of $108 per barrel in mid-December. Fuel at the pumps has risen by over 50% in the past five years and by an average of 18% over the last two so there is only one way for prices realistically to go and that is up. Any major hostilities in the Middle East region, or the threatened Iranian blockade of the Strait of Hormuz, the waterway to a fifth of the world’s oil supply, would certainly trigger a spike in oil prices.’

Roddy Graham, commercial director, Leasedrive Group

 

‘A small increase in fuel costs can be expected due to the increased price of crude oil caused by continued political unrest in the Middle East and increased demand from Asia. Additionally, while the Chancellor used the Autumn Statement to cancel January’s fuel duty increase he announced an inflation-linked duty increase in September.’

Cliff Ainger, fleet manager, ARI Fleet UK

 

Daily rental    3.3

‘In 2013, with demand unlikely to grow coupled with the increased supply of vehicles into the rental companies and funding becoming relatively easier, there will almost certainly be a pressure on suppliers to deliver greater service. 2013 innovations may well see the development of car club style rental by the hour products and hybrid or electric vehicles becoming more widely available. 2012 saw the continued renaissance of the commercial rental sector and we predict that, in 2013, there will be further new entrants and growth of the existing fleet, which will be further underpinned by a buoyant used commercial vehicle market. ‘

Mark Thompson, head of operations, Alliance Asset Management

 

‘Short-term vehicle rental companies could be at the vanguard of a radical change in vehicle mobility. In urban areas, constrained by lack of adequate parking, regular traffic jams and the high cost of vehicle ownership, town dwellers could turn to vehicle rental in droves as more rental companies offer rental by the hour and their technologies enable optimal vehicle utilisation by real-time vehicle positioning. Similarly, vehicle rental companies could take the car club concept to the next level. Vehicle rental not only offers the perfect test environment for ‘try before you buy’ but can offer the most suitable vehicle for whatever occasion. One thing’s for sure though, rental rates will rise.’

Roddy Graham, commercial director, Leasedrive Group

 

‘There have been no major casualties in the market despite the economic challenges. The increased cost pressures for suppliers on a non-risk fleet bearing basis will see a move to a risk-bearing basis because of the lower cost of operating vehicles.’

Neal Francis, managing director, Pendragon Contracts

 

Service & maintenance   2.9

‘The percentage of vehicles with a maintenance element to their leasing contracts may well reduce in 2013, as fleets consider whether the cost of inclusive maintenance and the peace of mind that often goes with it represents best value versus managing the costs directly or through a specialist fleet management provider. There will continue to be a sharp focus on vehicle and operator downtime in a bid to reduce the cost of replacement vehicles and savvy fleets may look to implement a year-on-year performance target with their chosen maintenance providers as a benchmark figure. Whilst the vehicle parc average age is still relatively young we anticipate SMR costs will remain low. ‘

Mark Thompson, head of operations, Alliance Asset Management

 

‘Significant marketplace competition means that, on average, fleets have not seen any excessive increases in core service, maintenance and repair vehicle spending during 2012 and we do not see this changing as we move into 2013. Workshop labour rates are not moving significantly and in many cases are static. Additionally, as more and more fleet managers take a greater interest in accessing online their own fleet data they are able to highlight where costs can be removed or reduced.’

Peter Hitt, senior business manager, operations, ARI Fleet UK

 

‘Costs of servicing and maintenance are increasing. Labour rates are rising, tyres are more expensive and bottom lines need to be maintained (or improved). However, the manufacturers have worked hard to keep a lid on these costs where possible and service intervals are increasing. The end result is that we could see some SMR costs reduce, though I would expect that the overall change for a mixed SMR budget would likely be neutral in the next 12 months.’

Nick Hardy, sales and marketing director, Ogilvie Fleet

 

‘Currently around two-thirds of our lease fleet is serviced, maintained and repaired by the franchised dealer network. We see this dropping to half over the coming year so the split will be 50:50 between franchised dealers and independent repairers. This is a natural consequence of driving better value and lowering costs.’

Roddy Graham, commercial director, Leasedrive Group

 

‘There is still significant ongoing competition between franchised dealers and the independent sector, so service outlets are unlikely to be in a position to increase their prices.’

Neal Francis, managing director, Pendragon Contracts

 

‘We believe that external factors, including rising raw material costs and cost pressure at dealerships, will bring higher SMR prices this year. However, a large fleet or a company using a fleet management company will contain increases by using tactics such as switching to independent garages for some elements of their SMR work.’

Paul Gregory, head of country for UK and Eire, Fleet Logistics

 

Residual values   2.7

‘In 2013 the supply of used cars will remain tight, although we may see some changes to the mix as emergent manufacturers – particularly in the fleet sector – such as Kia, Hyundai and Fiat see cars returning to market in greater numbers which could have a negative impact on their residual values. However, retail new car demand is rising and if that resurgence is further witnessed in the used car market then residual values could ease up and we might even have a situation where retail demand for used cars outstrips supply.’

Gerry Lynch, chief executive, Carcom.co.uk

 

‘With such a demand led market, prices have increased and leasing companies have subsequently increased their residual values too. However, those residual values have increased to levels that most people in the industry have never seen before and, perhaps, to an unsustainable level. The used car market is exceptionally volatile and affected instantly with unexpected changes in the economy. I believe that a greater degree of prudence is now necessary with the setting of future residual values and wouldn’t expect to see an increase in forecasts.’

Nick Hardy, sales and marketing director, Ogilvie Fleet

 

‘Values should stay relatively consistent over the coming year due to lower volumes of used cars coming onto the market for sale and with the unemployment figures falling and very early signs of an economic recovery a slightly higher demand for cars from consumers is likely in 2013.’

Jon Mitchell, Autorola UK sales director

 

‘We believe the traditional three-year-old market will see a slight reduction in value as the market continues to normalise, in part due to the increased supply of vehicles of this profile after the reduction in used vehicles caused by the lack of fleet registrations in 2009 and 2010. The 18-24 month profile should continue to perform well albeit the recent failures in the credit hire sector may see a short spike in availability affecting prices downwards, but these will recover once the market returns to a normal level.’

Mark Thompson, head of operations, Alliance Asset Management

 

‘We don’t see demand being quite as strong this year with the current gloomy economic conditions dampening demand from retail buyers. But we don’t see it being a bad year either, and although we think values will decline from the peaks of 2012, we think this will be a gradual and slight reduction, rather than a dramatic one.’

Scott Lloyd, head of data and pricing, Tusker

 

‘Following the sharp rise witnessed during 2012, we anticipate residual values remaining fairly static unless the economy improves significantly.’

Cliff Ainger, fleet manager, ARI Fleet UK

 

‘In the used vehicle sector, despite demand being relatively flat, the lack of stock is keeping values firm – which has generally meant good returns for business sellers. This stock shortage is a long term issue and is unlikely to change until new car volumes pick up significantly and the economy improves enough to generate a bigger churn of vehicles in the marketplace. Currently there appears to be little on the horizon that is going to change those wider market conditions, but with the continuing economic pressures and reduced consumer confidence we should not expect to see the same robust value growth in 2013 that was experienced in 2012.’ 


BCA’s director of communications, Tony Gannon

 

‘Our view is that used car values should hold out reasonably well based on simplistic supply and demand. With that in mind, we do not anticipate any major changes in residual values. Caution is always the byword.’

Roddy Graham, commercial director, Leasedrive Group

 

‘Until the supply of sub four-year used cars exceeds demand the prediction is that residual values will remain very stable. While new car registrations remain at two million or below, demand for used cars will continue to be higher than supply, at least for the next 18 months.’

Neal Francis, managing director, Pendragon Contracts

 

Damage repair   2.8

‘Of the many factors which determine the value of a used vehicle, the really critical one is condition. Mileage is no longer the “bogeyman” because buyers will accept a higher mileage car, especially in a situation of supply shortage, if condition is good and in line with buyer expectations. Professional volume and specialist buyers from across both independent and franchised dealer networks want to buy “oven ready” stock. It is therefore critical that the distinct 2012 trend for fleets to forego cosmetic repair prior to remarketing, is discontinued.’

Gerry Lynch, chief executive, Carcom.co.uk

 

‘We do not see any change in 2013, which is a continued reduction in the number of accidents. This is due to a range of factors including a continued improvement in safety features fitted to vehicles and drivers clocking up fewer miles due to the high cost of fuel. An overall reduction in accident frequency means body repair workshops are less busy and that will inevitably mean that more will cease trading. In the last five years the number of repairs carried out by workshops has dropped by more than 20% and there are no signs that this trend shows any signs of changing. We believe labour rates will remain static, however the cost of parts and paint is likely to increase.’

David Blacklock, insurance manager, ARI Fleet UK

 

‘More fleets should be insisting on a more detailed triage approach to channelling their vehicle repair into the most suitable route for the damage incurred, rather than a one route to repair fits all approach. It’s more cost effective for the bodyshop to be given the higher cost and more severely damaged vehicles as they will have the right equipment to do a high quality job. The smaller repairs should be channelled through smart repairers and mobile bodyshops that keep vehicle off the road (VOR) time to a minimum and reduce repair costs.’

Penny Stoolman, MD, Total Accident Management

 

‘Influencing driver behaviour is essential to reducing accident repair costs. 90% of road accidents involve human error so the more employers can do to influence driver behaviour the lower will be their repair and “absence from work” bills.’

Roddy Graham, commercial director, Leasedrive Group

 

‘Companies are now starting to understand the cost impact of a vehicle with damage. Employers are becoming more influential in this area by recharging the cost of the damage caused to their employees as a mechanism to reduce their overall costs to themselves and to encourage better driver behaviour.’

Neal Francis, managing director, Pendragon Contracts

 

Vehicle transaction prices   3.6

‘There’s no doubt that vehicle transaction prices have rocketed. However, there is good reason for that in that many of the word’s key manufacturers ran unsustainable businesses based on shifting metal rather than making money. Now that sense seems to have prevailed in most quarters, production volumes are down and prices are up. With ongoing increases in raw materials and instability of exchange rates, I expect prices to continue to rise, albeit at a steadier pace than we have seen.’

Nick Hardy, sales and marketing director, Ogilvie Fleet

 

‘We expect these will decline as motor manufacturers, especially those producing vehicles in the EU are already taking action to decrease their transaction prices due to lower demand in mainland Europe along with continuing over capacity. The good news is the UK economy is already showing the first signs of increased demand in the retail sector, and were the Euro Sterling exchange rate to improve further, exports to the UK will become increasingly viable.’

Neal Francis, managing director, Pendragon Contracts

 

‘There may well be further inflationary pressure in the new car market in terms of rising vehicle prices as manufacturers seek to recover their new model development and other costs. While we think that inflation in the economy will generally be on the low side as measured by the RPI, market forces will dictate a small increase in vehicle prices. This in turn will lead to the larger fleets demanding stronger discounts from suppliers to offset the rise in prices as they will be under huge cost constraints themselves and increases in acquisition costs will not be welcomed by fleet managers.’

Paul Gregory, head of country for UK and Eire, Fleet Logistics

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