For operators in the public sector, the summer will be a
nail-biting period as they await the outcome of the Treasury’s
Spending Review, due on 20 October.
George Osborne has said “it is a time
to rethink how the government spends our money”. For contract hire
and fleet management companies, this triggers an alarm bell.
Fleet costs rank at number five in the
list of direct spend in the public sector. The state spends an
estimated £2.5bn a year on fleet, of which 40% is vehicle purchase
or lease, and 60% fuel, management and other costs.
Top of the list is professional
services (£14bn), followed by ICT (£13bn), social services (£8bn),
and office solutions (£4bn).
October’s Spending Review Framework
will set spending limits for every government department for the
four years from 2011-12 to 2014-15.
Reductions in pensions, redundancy pay
and other public sector staffing costs will account for a
significant portion of overall savings.
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Fleet business is still likely to be
impacted. The use of framework agreements has introduced
efficiencies to public sector procurement in recent years, but
there are still savings to be found.
The 60% of spend accounted for by fuel
and management could be the portion that gets squeezed. Up to 15%
of cost could be taken out of this market segment.
Already councils are looking for
smarter ways to monitor mileage. This is partly a response to
concerns that staff will try to increase their fuel expense claims
to make up for pay being frozen.
Beyond this, a more fundamental
restructuring may be about to occur. The outsourcing of fleet
management that happened in the private sector could be repeated
for publicly-funded customers.
This means that state customers will
look to hand over management of fleet and ask for cost savings to
be made. Monitoring the efficiency of journey patterns will
certainly feature in this.
Small and medium-size lessors could
bear the brunt of this market realignment. If customers gravitate
towards suppliers with established outsourcing operations, larger
companies will be the winners.
Internet purchasing has revolutionised
other industries, and now it is happening in motor sales too.
Comparison websites, as well as websites where contract hire
companies advertise their offers, are among many forms this
revolution has already taken.
Some remarketing companies are going a
step further, with the likes of BCA and Manheim allowing buying and
selling to be done almost entirely online. And they never seem to
stop innovating. Manheim has just launched a new online trade sales
operation called Manheim Direct (see Manheim boosts web presence with online
trade sales service), which allows buyers to
purchase a vehicle immediately for the screen price.
As auction houses’ figures have shown,
this is not just an alternative to the traditional way of trading
used vehicles. Manheim Remarketing MD Mike Pilkington said “buyers
have become more comfortable with the technology” and so the online
business is growing continually.
So far, so good. But are the widely
trumpeted benefits of the internet (speed, automation) suited to
the needs of the entire industry? In his monthly column
(see The Arranger:
Websites are no match for skilled brokers),
Graham Hill poses an interesting question about how brokers are
adapting to the use of online technology.
His conclusions are enlightening. To
avoid becoming a dying breed, brokers need to embrace the new
economy and do what they are good at – providing informed, personal
advice, rather than allowing the internet to do the work for
Only then can they hope to win the
competition with bloggers who give free advice, but are “no more
professional than the guys down the pub”.