Motor Finance asked a number of leading motor finance and fleet
industry figures to comment
on the threats, opportunities and changes which lie ahead in
2010
Fleet
Go deeper with GlobalData
Julie Jenner, chairman,
ACFO
Cost management was the key phrase for
fleet decision-makers in 2009 and amid the green shoots I hope the
dawn of a New Year is not marked by a reversal of policy.
While no-one likes recession, the economic downturn
has provided a major opportunity for businesses to closely analyse
their fleet operations; pull back from what many would consider to
be ‘boom time’ company car policies; and implement a best
practice-orientated ‘back to basics’ cost-saving strategy.
I hope as the UK emerges from recession through
2010 and into 2011 that companies will remain true to the
cost-cutting, low emissions, risk-averse measures they have
introduced, and not return to the corporate excesses of
yesteryear.
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By GlobalDataAs businesses looked to cut costs they realised, in
many cases, that providing cash allowances in lieu of a company car
was not always the most cost-effective strategy.
Therefore, I think 2010 will herald the return of
the company car in increasing numbers, particularly as motor
manufacturers introduce ‘cleaner and greener’, fuel-sipping
models.
Contributing to that swing will be a trend for more
employers to consider introducing salary sacrifice schemes as part
of their employee benefits packages.
Perhaps the big unknown in 2010 is what will happen
with residual values. While used car prices recovered significantly
in 2009 they remain below their pre-recession levels. In 2010, the
marketplace will have to ‘swallow’ not just those company vehicles
scheduled for replacement but those that are de-fleeted following a
replacement cycle extension.
The expectation is that used vehicle values in 2010
will recede slightly from the high point of 2009, but to ensure
that there is no collapse, the disposal process must be proactively
managed by fleet operators and the industry at large.
Keith
Allen, managing director, ALD Automotive
In all, 2009 was a challenging year, but
if we cast our minds back 12 months the UK was in the thick of the
worst recession since World War II and it was difficult to see much
light at the end of the tunnel.
A year on, however, and there is a lot more
optimism within the business and we are very positive about our
prospects for 2010. Indeed, we believe the leasing market is at a
watershed.
Nearly every leasing company lost ground this year
and now has a smaller fleet size. While ALD was not immune to this
fact it was not hit as much as the majority of players.
According to the 2009 FN50 list, there was a
recession-induced 9 percent reduction in the combined fleet sizes
of the UK’s top 50 leasing companies but ALD pretty much stood
still and even grew market share.
Not surprisingly, on the back of the turmoil in the
financial markets, there was a knock-on effect in the leasing
market which has led to continuing consolidation in a fragmented
market of which we anticipate more in the coming months.
The one silver lining in 2009 was the turnaround in
the used car market where residual values picked up by 19 percent
over a 12-month period which helped to take the ‘sting out of the
tail’ of a very depressed market in 2008.
So how are we, as an industry, positioned for 2010?
It is widely believed that the players who can source funding will
be those companies that come out of the recession the
strongest.
At ALD, we also believe this is the key to success
in 2010 and beyond.
More and more companies are reviewing their fleets
at the moment – 44 percent of fleets plan a review before April
2010, according to the recent Fleet Strategy and Insight 2010
survey – and one of the key questions they appear interested in is
the financial standing of their prospective fleet partner.
There is no point in completing a complex long-term
fleet tender if the chosen provider is not going to be around in
their present guise to deliver what they’ve promised.
That is another area where we feel our financial
strength, with Société Générale as our shareholder, is a key issue
within our overall proposition. Overall, we are bullish about our
prospects in 2010.
Mike
Waters, director of market insight, Arval
The economic downturn has affected all
businesses and the focus that we have seen on cost management this
year looks set to remain. This makes it crucial for fleet
management companies to take a holistic approach to managing costs
and we will continue to use our ‘true cost of operations’ approach
to effectively manage our customers’ cost base and make fleet
recommendations during difficult trading conditions.
The complexities of vehicle selection aren’t going
away as the range of models, and fuel types, grows. EU emissions
targets have forced manufacturers to focus new product development
on lower-emitting models so the speed of reduction in average new
vehicle CO2 levels will continue to increase in 2010.
This trend that began in the car market also looks
set to spread to vans next year with the likelihood that reduction
targets will be agreed by the EU.
Our own internal fleet policy now stipulates
160g/km as a maximum CO2 level and this kind of policy looks set to
increase in popularity.
The full range of vehicle taxes, at company and
driver level, has become clearly linked to environmental
performance. It will become increasingly more expensive to run
higher polluting vehicles as the government looks set to continue
this policy of environmental taxation, making considered vehicle
selection a must.
We can’t be certain how the economic environment
will evolve but it is likely that conditions will remain
challenging in 2010 and it will be crucial to select strong, secure
and reliable fleet suppliers.
John Lewis,
chief executive, BVRLA
Funding, or rather the lack of it, was
the biggest problem facing our industry at the beginning of
2009.
The situation has improved somewhat, but the era of
cheap credit is over. A number of funders to the industry have
withdrawn and many companies are having to look a lot harder for
new and often innovative sources of funding.
Don’t expect this to change over the next 12
months.
Fleet companies are looking forward to some form of
economic recovery in 2010, but any growth we do see is likely to be
modest and patchy, with some sectors doing better than others.
There will still be a massive focus on fleet cost
reduction and our members will help their customers by selecting
the most appropriate fuel- and tax-efficient vehicles or helping
them to extend the life of their existing fleet.
Despite the recession, 2009 saw the introduction of
a number of innovative new products in the fleet market,
particularly in the area of short and medium-term
‘flexi-leasing’.
Demand for this sort of product is likely to
continue rising in 2010 as companies look for a flexible, low-risk
way of growing their fleets as the economy tentatively
improves.
The VAT change back to 17.5 percent in 2010 will be
good news for the leasing sector because it will make outright
purchase vehicles more expensive, particularly when the VAT reclaim
benefits of contract hire are taken into account.
There are no other major tax or legislative changes
currently planned over the next 12 months, but in an election year
you can never take anything for granted. It is clear that both the
UK and EU authorities are itching to increase their fiscal and
regulatory control over the van market, but this is very unlikely
to result in any new emissions-based tax regime or tachograph laws
during 2010.
The BVRLA is working with the government’s office
for low-emission vehicles to try and leverage opportunities for the
fleet sector in the early adoption of ultra-low carbon
vehicles.
Some of the more forward-thinking fleet companies
are contributing to the debate and investigating this area, but I
don’t believe we are going to see any significant investments in
2010.
Stuart Menzies, sales and
marketing director, Grosvenor Contracts Leasing
It is unlikely that 2010 will be a repeat
of the ‘rollercoaster ride’ that we have experienced this year.
Instead the signs are that it will be will be ‘flatter’ with a
relatively stable used car market performing more in line with the
traditional seasonal ups and downs. However, as always, there are
opportunities for those contract hire companies who are willing to
go the extra mile.
With a number of fleet providers closing the door
on new business and others merging to become fleet ‘super tankers’,
clients are turning to established fleet providers who can offer
cost-effective solutions and a personal approach to service
delivery. Additionally fleet operators will be under pressure to
replace vehicles that have already been extended beyond their
original contract periods.
So, as we head towards 2010, I am sorry to say that
I cannot see a significant overall upturn in the immediate future
with a number of issues, including the availability of fleet
funding still appearing at the top of most contract hire companies’
agenda. However, I think we will see a steady strengthening in the
retail market sentiment and increased confidence in the sector as a
whole.
Phil Peace, director of sales, Hitachi
Capital Vehicle Solutions
Legislative: It is extremely likely that
there will be a change of government in 2010, but I am unconvinced
this will have a massive impact on fleet providers. Price increases
on fuel will be inevitable, regardless of government, as this is
the easiest route to raise revenue. Environmental policy is working
and driving down CO2 of fleets and this focus will continue.
Funding: Hitachi Capital Vehicle
Solutions uses a portfolio of funds acquired through its treasury
teams in the UK and Japan. As such it is funded by its own money,
which puts the company in a great position going into 2010. Many of
our competitors who are independent of bank ownership and fund
through undisclosed agency will continue to struggle to obtain
funding at competitive rates.
Customers: Head count pressures and
redundancies will continue to be a real problem for customers next
year. We have already experienced some fleet teams and roles being
outsourced and anticipate this continuing as well as organisations
tendering for their requirements and being prepared to change
supplier. This is a great opportunity for providers of outsourced
fleet management services.
Manufacturers: Manufacturers are facing a
potentially difficult time in 2010. The withdrawal of the scrappage
incentive scheme and the return to 17.5 percent VAT could combine
as a negative ‘double whammy’ and suppress volumes. The exchange
rates continue to force new vehicle pricing up, and this is
impacting fleet customers and forcing policy reviews.
Ian Tilbrook,
managing director, ING Car Lease
One of the major issues facing fleets in
2009 has been funding. The market has seen a lot of fleets
struggling to gain access to finance and this is likely to continue
into 2010. Even though many company car providers are backed by
substantial banks, we are seeing several large players still
working under constrained conditions when it comes to writing new
business. Banks are increasingly directing funds to areas they deem
‘core activities’, where they will see short-term returns, which
may not be vehicle leasing. While this is not the case with ING, I
foresee certain fleets facing continuing difficulties gaining
access to funding during 2010.
Elsewhere, in the second-hand market, we expect to
see a continued shortage of good quality used stock, which will be
good news for the leasing sector in 2010, bringing much welcomed
stability.
During 2009, we also saw a number of major fleets
putting a freeze on new car acquisitions. We are currently seeing
the emergence of more blue chip companies now reversing this
policy, and beginning to source new vehicles in significant numbers
once again. This should have a positive impact on new car sales
figures for the UK, slowly rebuilding confidence in the sector.
Roddy Graham, commercial director,
Leasedrive Velo
With some contract hire companies closing
their doors to new business during the current economic recession,
others losing money and some finding credit lines squeezed, there
will inevitably be more consolidation in the industry. And as
finance houses concentrate on their core activities there may be
fewer bank-owned companies. We therefore expect consolidation
within the fleet industry to continue, especially within the
mid-market.
Proactive, forward-thinking organisations will
focus on core activities as they prepare to take advantage of
improved market conditions as we gradually come out of recession,
which should see the outsourcing of non-mainstream specialist
services to the ultimate benefit of fleet management companies.
Fleet management professionalism should continue to
rise as a consequence, driven by the Institute of Car Fleet
Management, which is the UK’s only independent ‘not-for-profit’
organisation dedicated to furthering the education, recognising the
achievements and advancing car fleet management.
Organisations will need to keep on top of the issue
of the risk management of grey fleets. Changes to Approved Mileage
Allowance Payments (AMAPs) may also have an impact on grey fleets,
should government link future AMAP levels to CO2 fleet emissions
and age of vehicles. Drivers could end up being paid higher amounts
for lower-emitting and newer vehicles and, conversely, lower
amounts for higher-emitting and older vehicles, driving
cash-for-car drivers back to the company car.
David Brennan, managing director,
LeasePlan UK Ltd
The coming year has to be viewed in the
context of the last twelve months; one of the most economically
turbulent in history. A focus on supporting our clients to manage
and control costs in their fleets has been top of the agenda for
the year and will be vital in 2010.
The changes we saw last year are not likely to stop
in 2010. We expect a fragile recovery in the UK economy and a
general election that could usher in a new government. These will
impact on businesses in different ways and clients will continue to
judge leasing companies on how they support their particular
business needs.
At LeasePlan we will be striving even harder to be
proactive and offer great service. This is why we have recently
launched a new LeasePlan service style training programme that all
our staff will have completed before the end of 2009. We have also
strengthened the capabilities of our Consultancy Services team to
provide expert fleet policy and strategy insights to clients.
Product innovation will be key in 2010. Updated
products will be needed to provide solutions to fit the shifting
context, such as our salary sacrifice product, which will feature
heavily in our plans for the New Year.
As 2010 progresses, we will see many changes in our
industry – political and economic. The overall picture is likely to
be rosier than in 2009, but significant challenges remain. Leasing
companies will need to maintain an absolute focus on their
customers in this climate.
Nigel Stead, managing director, Lex
Autolease
The big issue of course is the economic
recovery and the speed at which consumer spending and corporate
profitability will increase.
The mortgage market is a barometer and if interest
rates and inflation can be kept in check, we will see the green
shoots extend to the automotive sector next year. The recovery when
it comes will be slow, unlike the downturn, but the industry will
arguably come out of this in a healthier, leaner state,
better-equipped for growth.
Production is now at a realistic level for current
demand, and that is just one of a number of positive signs the
market has learned from the recent downturn.
The changes to vehicle choices due to new capital
allowance rules are much less significant than many have
anticipated. Despite many customers adopting sub-161g/km fleet
policies, based on our recommendations, driver choices remain
consistent.
Manufacturers have replaced higher-polluting
vehicles with more efficient models coming in well beneath the
magic 161g/km banding.
Retail
Spencer Halil, director,
Alphera
Alphera’s focus for 2010 remains
resolutely on building strong and lasting partnerships with
dealers, brokers and others who, like us, have the ability and
determination to succeed.
While it is clear the credit crunch is far from
over, with some finance companies having to hold back, Alphera is
looking forward to 2010 with a healthy appetite for growth based on
mutually rewarding, sustainable partnerships.
At our recent Partner Forum, Alphera highlighted a
range of initiatives that we have put in the pipeline for 2010.
These initiatives will help our partners to win a greater share of
business over the coming 12 months.
We expect trading conditions to remain challenging.
The government will be looking to withdraw some of its fiscal
stimuli. We will have a general election to contend with, and the
impact of the Consumer Credit Directive changes.
But consumers are adjusting to the ‘new normal’
economy. They are rebuilding balance sheets, albeit slowly. As they
do so, confidence will continue to improve. I firmly believe 2010
will provide many good opportunities for enterprising and
innovative players. Alphera will be playing a very active role in
identifying those opportunities and working closely with our
partners to help them to develop their businesses.
Chris Sutton, managing director, Black
Horse Motor Finance
Although there are some positive signs of
a recovery next year, I think we need to be cautious about the
prospects for next year’s market.
There are going to be a number of factors which
will pose challenges for the industry, and I think the road leading
us out of recession will be bumpy and we should be prepared for a
long journey.
Increasing unemployment is a threat, VAT is set to
increase, interest rates will undoubtedly rise and the scrappage
scheme will come to an end, all of which places even greater
pressure on dealers and consumers.
New legislation is set to come into force around
PPI sales and the EU’s Consumer Credit Directive will place a
greater onus on dealers. As ever, Black Horse will provide support
and advice to dealers, helping them to negotiate this legislative
minefield.
Despite these challenges, I think there is still
cause for optimism in 2010. As long as there are consumers making
motor purchases, then efficient, positive and well-managed
dealerships will always do well. In tough times a positive mindset
is a key factor in helping to overcome external factors.
Point of sale finance continues to be an incredibly
attractive proposition for the customer, providing a convenient,
cost-effective and easy to arrange route to financing a motor
purchase.
We at Black Horse are committed to assisting
dealers so they can continue to be successful, regardless of the
environment.
Janet Wilson,
managing director, Close Motor Finance
The face of the motor finance industry
has altered radically from where we were 18 months ago. Yet it is
not all doom and gloom, especially not for companies like Close
Motor Finance for whom the current state of the market presents
real opportunities.
It is true that car sales have dropped, but to
combat this reduced demand, there are fewer players in the market
to compete with. Indeed, several of our biggest competitors have
joined forces and merged and many smaller businesses have left the
market place altogether. It is a similar story with direct lenders
too, as while banks focus on strengthening their capital position
they present no real competition to point of sale finance.
As we enter what is traditionally the slowest three
months of the year, arrears levels are stable, but the threat of
rising unemployment remains prevalent and marks out the next three
months as critical to the business.
Also at the forefront of our minds at Close Motor
Finance are the forthcoming legislative changes which require
costly system changes and can be seen as a distraction to business
with no benefit to bottom line.
With the coming of the New Year, we anticipate the
ongoing success of our newly launched Key Accounts division. This
new venture has received a very positive reception so far and going
forward we hope that it will further enhance our status as a
leading provider of point of sale motor finance.
All in all, Close Motor Finance has continued to
prosper throughout the recession. We are as strong as ever and we
remain committed to working with our dealers to increase their
profitability also. However, we recognise that there is still the
possible threat of a new entrant to the marketplace which could yet
alter our fortunes.
Don
Brough, CEO, First Response Finance
This year has been really great for First
Response, and 2010 is expected to be the year during which the
non-standard motor finance market will open up for those able and
willing to embrace the opportunities ahead.
It has been widely reported that significant
opportunities exist in this market (with the non-standard
population expected to increase to around 35 to 40 percent of all
adults) but it is said there is no one ready, willing or able to
offer sufficient lending facilities to match demand. I think this
view is a little misleading as you should not lend heavily going
into a recession (so we are not) but you can when you are coming
out (and we are going to, but not yet).
I have already agreed new funding facilities for
the growth years ahead, we are in the process of fitting out a new
building to meet our capacity needs, have started hiring new staff
and are upgrading our systems.
During 2010, when the time is right, we will
increase our lending appetite to meet the demands and needs of our
existing dealer partners in the first instance; as initially we
want to support those dealers with whom we have already built a
strong working relationship. As demand increases in general we will
pace our company growth in expectation of this to ensure we can
sustain and in fact improve the service levels we offer.
Frankly, I think 2010 will be a pivotal year for
First Response.
Dennis Foley, MD
– sales and marketing, GMAC
We are pretty positive as we go into next
year. Clearly the tough economic conditions will be with us for a
while – but that said, we have been able to increase volumes and
revenues in parts of our business this year, including in GAP
insurance. We are anticipating 37 percent volume growth in GAP
insurance this year and we expect to grow our GAP portfolio again
next year.
Our dealer sales proposition is all about driving
‘income per unit delivered’ [IPUD] performance – and we will be
driving that IPUD focus next year again. The new car retail market
will need to be campaign driven, but we are not anticipating a lot
of bank or direct lender activity in new car financing, and we
expect the growth in point of sale financing that we have seen over
recent years to continue, particularly on the back of strong
programmes. We will be continuing our ‘free involuntary
unemployment’ cover into the first quarter.
Our view on used car financing is that we want to
grow that side of our business next year, and we are structuring
our retail package for dealers to make used car financing appealing
to them through GMAC. So it is tough, we will have to work hard –
but there are still very real opportunities and growth potential in
this market for us.
Paul Caunter,
managing director, Ignition Credit
The weather is improving for us as a
local motor finance company – big is not always beautiful. Dealers
and customers are tired of the ‘computer says no’ approach –
whereas we have the advantage that, with our local knowledge and
in-house underwriting, as well as our access to funders, we can
lend on our own book or find the best provider in the marketplace
for a particular customer. What we are seeing is dealers and
customers like to deal locally.
We are writing business from customers who normally
would have gone to their bank, as the banks and the direct lenders
don’t appear to have the appetite for this type of business. It has
been a tough year but we are growing the motor finance business
month on month, and we are recruiting.
Legislatively it just gets worse over time. We are
authorised to sell GAP insurance, which obviously lends itself well
to the type of asset we are financing, and we have good sales
penetrations in this area.
There is a lot of pent-up demand out there, from
people who would have changed their vehicle 12 months ago but are
waiting, and, especially, from commercial customers who need new
vans in order to run their businesses and protect their image. Most
point of sale motor finance companies can’t offer leasing to
consumers, but we can. As a product for small business owners it is
great as it has low initial outlay.
We have spent an awful lot of time and resource on
our website; however, the bulk of our business comes from dealers,
introducers, word-of-mouth recommendations and repeat customers. We
believe we provide an excellent customer experience and with
customers coming back to us time and time again this really backs
up our model of offering a truly local motor finance service.
Doug Moody, sales and marketing
director, Mercedes-Benz Financial Services
As the UK emerges from recession, many
consumers, both private and business users will have postponed the
purchase of a new vehicle, and our role is to promote the
“surprising affordability” of our brands at point of sale. We
believe that the combination of the desirability of our brands, in
conjunction with a bespoke financial package, delivered
professionally at the point of sale by well-qualified finance
specialists, will ensure that we can attract many aspirational
first-time buyers.
Interest rates are only going to go one way in the
next 12 months, so locking in to fixed-rate funding at the point of
sale, combined with the guarantee of a future value on their
vehicle, allows true peace of mind motoring at a fixed cost.
The number of finance products available at a
retailer may be daunting to a customer, who may traditionally have
used personal loans from high street lenders, so the ability to
tailor a funding solution to match the needs of each buyer is
paramount. This is why we focus so much on training and are strong
advocates of the FLA’s Specialist Automotive Finance
initiative.
The introduction of the Consumer Credit Directive
in June 2010, which is supposed to offer greater customer
protections, is in danger of leading to more confusion with
customers as they will be awash with streams of paper that they
have never seen before.
It is absolutely vital that we ensure that
customers are not frightened by this new process and that they
don’t flee from point of sale.
Gary Jennison,
CEO, Moneyway
The turmoil in the lending market is unprecedented. None of us
have ever seen anything like this before, and I doubt if we ever
will again.
Many major banks and finance houses are planning to
reduce capacity across their lending portfolios next year, as the
tortuous process of rebuilding balance sheets continues.
Without doubt, motor lending volumes will reduce as
a result – significantly, I suspect – with the biggest impact on
the independents.
So why is motor lending under such pressure in the
big banks? Quite simply, the partn
