Pendragon set for 2012 expansion
2011 was another good year for light CV registrations, with the market for vehicles up to 3,500kg continuing the growth trend that began in the second quarter of 2010. 2011 registrations for vehicles with gross weights up to 3,500kg grew by 16.7 per cent compared with 2010 and much of that growth was assisted by contract hire. With the Government offering assistance to small businesses, we spoke to Pendragon Contracts managing director Neal Francis about light CV business in 2011 and his hopes for 2012.
‘Our van fleet has been expanding for the last two years already’, he told VFW, ‘If you take our year-on-year figures, then last year our van fleet increased by 22%. We would expect it to grow by a similar, if not larger amount this year, because we will have a greater focus on our corporate client base among existing customers and those we are probably pretty close to capturing.’
Pendragon Contracts van fleet stands at around 3,700 and of these around 700 are light vans, 1,700 are medium vans and around 1,400 large panel vans. Neal Francis expects this pattern to continue into 2012, ‘More and more people are saying it’s better to have a large van than to be taking two small ones. So when people have looked at their business, they’ve gone for one large van and probably sacrificed two smaller ones, given what their workload is, or what they expect their activities to be moving forward.’
Mr Francis acknowledges that lenders have not necessarily wanted to get involved in financing business with small to medium enterprises. The Government picked up on the problem in the Autumn Statement last year, in launching the National Loan Guarantee Scheme, offering government support for up to £20bn in loan guarantees for small businesses and the Business Finance Partnership designed to deliver an additional £1bn. Pendragon will be re-launching finance packages for SMEs, which will include funding for partnerships, local businesses and trades people.
The ”Basel III” regulations announced in 2010 will increase the costs associated with lending money. This in turn is likely to increase the costs associated with leasing and finance for vehicle fleets and we asked Neal Francis what impact he thinks it is likely to have, ‘I think there’s a bigger picture’, he said, ‘While those considerations are important, the bigger picture within businesses at the moment is to have cash and capital on their balance sheet. So whilst there are slight differences in implications between what we do today and what we are going to have to do tomorrow, we don’t see any marked downturn in relation to the financing of fleets, whether that’s cars or vans. It’s a necessary evil in the endemic culture and the way we operate businesses in the UK.’ As Mr. Francis pointed out, tying up capital in purchasing vehicles is not necessarily viewed positively by investors or the broader financial community.
At Volkswagen’s round-table press event at the end of last year, many of the fleet management and finance companies represented made it clear that they believe the medium to longer-term future will be for vehicles powered by diesel engines. Electric power was not viewed as a viable alternative at the moment. What about customer demand? ‘We’re not seeing a massive demand for electric vans’, says Neal Francis, ‘Being brutally honest, we would like to see some evidence of how they perform before we as a business would go into that new technology with both feet. So we are being somewhat guarded until the product is proven and the economics get substantially better. Having said that, we do see niches in the market where we would expect that proposition to be quite attractive, once those two fundamentals are overcome.’
Although van registrations for January 2012 have dipped, most forecasters are expecting the growth trend to continue in 2012. How does Pendragon expect business to develop this year? ‘We’re not in the position we were in 2008-9, where a lot of people opted out and extended vehicles for a considerable period of time’, says Mr Francis, ‘People are running vehicles for slightly longer periods, but they are replacing them, so we see the market being relatively steady, I don’t think it’s going to take off and go mad. Equally, the people that have typically run vehicles for a considerably longer period have been local businesses, where finance hasn’t be as available as it previously was. There is evidence that there will be more capital available in that sector this year.’