Jo Tacon takes a look at
the findings of Arval’s Europe-wide Corporate Vehicle Observatory
survey.
Fleet contract hire is still the favoured
funding method for large companies across Europe, new research has
found. The current state of play in the international fleet
management and leasing market is the focus of lessor Arval’s
Corporate Vehicle Observatory (CVO) report, which looked at 12
countries and the trends which are shaping the uptake of vehicle
leasing in each one.
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The CVO found that 63 percent of UK
companies which use contract hire have over 1,000 employees, and 63
percent of these large companies plan to expand their use of
contract hire over the next three years (see chart 1).
Mike Waters, head of market analysis at Arval,
comments that this result underlines the fact that it tends to be
large companies which are more aware of their responsibilities in
the area of duty of care, and thus more willing to outsource fleet
funding and management to a specialist provider in order to ensure
full compliance with the law.
“Larger companies tend to have more resources
available to them to do something about duty of care and health and
safety compliance, and an operating lease contract allows them to
mitigate the risk associated with disposals, which I believe is
also driving the trend towards outsourcing,” he says, pointing to
the recent falls in residual values as one area where fleet clients
are likely to be relieved to have divested themselves of the risk
of disposing of end-of-lease vehicles.
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By GlobalDataThe relatively small number of firms with 10 or
fewer employees intending to take up operating leasing (10 percent)
can, Waters explains, be ascribed to such firms’ tendency to behave
“more like a consumer than a company – so, if only three or four
cars are needed, they will more than likely go to the local
dealership and arrange funding, or take out a loan to purchase the
vehicles outright.”
In addition, these firms tend to be much less aware
of contract hire as a viable funding option, Waters notes.
“There may be a perception that large leasing
companies and contract hire as a product are there for big fleet
customers,” he says, “not for a company running only three or four
cars. But the option is of course open to them, and the same
benefits apply – such as the transferral of RV risk.”
He believes that brokers and telesales are the best
routes to reach such potential customers.
Fixing costs
Compared with fleet customers in the
other countries surveyed, UK companies are, overall, keener to
develop their use of contract hire over the next three years, with
the exception being companies with between 100 and 999 employees
(see chart 2).
The most popular reason for this, cited
by companies which intend to grow their use of operating leasing in
coming years, is the ability to fix monthly costs, with 38 percent
of respondents noting this as a factor.
The CVO also found that 48 percent of companies
with 1,000+ employees which already use contract hire also
outsource fleet management, with 37 percent of mid-sized companies
(100 to 999 employees) and 22 percent of smaller (10 to 99
employees) doing likewise.
“What’s more, as a result of the credit crunch, 13
percent of respondents are outsourcing more services,” Arval
reports.
Waters adds: “The higher overall proportion of UK
companies intending to increase their use of contract hire is a
reflection of the maturity of the UK market.”
As for the slightly anomalous finding among
companies with 100 to 999 employees, he believes this could be
explained by companies looking to shrink their fleet and cut costs
– not necessarily moving out of contract hire altogether.
Another reflection of the UK’s relative maturity
can be seen in the higher numbers of companies which choose to
outsource their fleet without also using an operating lease
arrangement, compared to the other countries in the survey (see
chart 3).
“In the UK, there are a lot of companies which are
very efficient at delivering all the different outsourcing options
a client would ever need, and indeed contract hire providers can in
many cases provide the service without the funding, should clients
request it,” Waters observes.
Recessionary impact
The CVO’s research found that around a
third of UK fleet customers will change their fleet policies in
response to the credit crisis (see chart 4) – a smaller
number than might perhaps have been expected, and one which
illustrates again the maturity of the UK market, Waters
comments.
The CVO found that only 20 percent of the
largest fleets, however, do not intend to change their policy – a
sign, perhaps, of coming changes at the top of the market.
Smaller companies are likelier to opt for
stability in fleet provision, with 57 percent of companies with 10
to 99 employees and 61 percent of companies with fewer than 10
employees reporting that they do not plan to modify existing fleet
programmes.
Chart 4: Effect of the recession
on fleet policy (UK)
|
Due to the crisis, the vehicle |
% |
|
Has already changed |
5 |
|
Will change in the next few weeks |
0 |
|
Will change in the longer term |
31 |
|
Will not change |
60 |
|
Source: Corporate Vehicle |
|
The measures which companies are considering
introducing as a response to the crisis highlight both
opportunities and threats for lessors, with 13 percent of UK
companies considering outsourcing more services and 8 percent
looking into sale and leaseback, but with 14 percent prepared to
stop acquiring new vehicles, and 10 percent thinking of purchasing
rather than leasing vehicles (see chart 5).
Fuel usage is high up the corporate agenda, with 31
percent of UK companies surveyed saying they plan to reduce
consumption. Opting for smaller engines (20 percent) and
downgrading vehicle categories (10 percent) will also naturally
lead to lower fuel costs, Waters points out.
“The research was carried out at the end of the
first quarter when prices were not on the way back up, as they are
now, so the prominence of fuel consumption at the top of the list
of ways to reduce fleet costs shows that companies have not
forgotten the surge in prices from last year,” he adds.
Renegotiation of contracts with fleet providers is
creeping up the agenda, with 12 percent of UK companies (and 16
percent overall) saying they are considering this measure. But
Waters says that clients should not count on being able to wring
more concessions on price out of suppliers.
“Just because we have a recession, it doesn’t mean
that everything gets cheaper,” he says, pointing to the fact that
several manufacturers, including Ford, have recently raised
prices.
“People are looking at pricing and saying to
themselves, even if we price this more cheaply, we won’t
necessarily sell more units, so we need to protect the profit on
the ones we know we can sell,” he adds.
For fleets that are well-run, Waters says, the
factors listed by respondents “will not be too much of a concern,
as they will already be on the corporate agenda”.
And the most far-sighted of fleets will also be
planning for the future, he observes: “At some point we’ll come out
of this recession, and we don’t want to have companies which are
squeezed so hard they are unable to respond to an uptick in the
market.”
The relentless pressure to focus on costs which is
a consequence of the current downturn has, Waters believes, not
been all bad news for fleet lessors.
“Companies for which the fleet is essential to
business are looking for the most cost-effective way to operate
vehicles for employees, along with the way which exposes them to
the least risk. By outsourcing, they are future-proofing their
fleet provision, as well as getting good service, and providing a
robust audit trail,” he says.
And when the upturn comes, as one day it must,
those fleets which have shown themselves to be most responsive to
customers’ changing needs will be best-placed to benefit, without a
doubt.
Countries covered by the CVO
• Czech Republic
• France
• Germany
• Greece
• India
• Italy
• Netherlands
• Poland
• Portugal
• Spain
• Switzerland
• UK
Profile – Mike Waters, Arval
Mike Waters is director, Market Insight
and Planning, at fleet and fuel management specialist Arval.
A regular commentator on a wide variety
of vehicle fleet issues, he also contributes to the development of
policy in the sector through membership of a number of external
bodies, most notably the CBI road transport and transport policy
groups and Low Carbon Vehicle Partnership where he is the chair of
the passenger car group.
