Bearing Point: Fleets going for
independents

The flow of fleet servicing business to non-franchised dealers
looks set to grow, Brian Rogerson finds
 
 
 

Dealer net profit as a percentage of turnover is predicted to
fall below 1 per cent this year. The forecast comes as new research
that shows that fleet servicing business is being increasingly lost
to non-franchised dealers.

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The most recent round of changes in Block Exemption which came into
effect in October 2003 loosened the hold that manufacturers had
over dealerships in terms of servicing. Despite the legal changes,
however, it was never going to be easy for independent vehicle
servicing garages to gain willing co-operation from the
manufacturers as they set up their operations.

Nevertheless, those independent garages that persevered are
prospering and starting to make an impact. Research by Professor
Peter Cooke, Professor of Automotive Management at the University
of Buckingham, in association with BearingPoint, Business Car
Perceptions 2007, reveals that 39 per cent of companies surveyed
late in 2006 already use non-franchised dealers for routine
servicing. (See chart 1.)

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Cooke says: “While the average figure is 39 per cent, response
levels peak at 67 per cent in the 500 to 999 groups, with just over
half of the largest fleets using non-franchised dealers. The
decline at the top end may be caused by the higher use of
company-owned workshops among the biggest players.”

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This number, 39 per cent, is set to grow as nearly a fifth (18 per
cent) of those respondents still using franchised dealers expect to
switch to non-franchised dealers in the future.

James Rodger, global automotive leader at BearingPoint stresses:
“This switch has a dramatic impact since spare parts are an
important source of profitability for the manufacturers – and a
healthy aftersales business is vital for the viability of their
franchisees. The fact that it is the larger fleet operators that
are most likely to make this switch in the future could have
serious implications for manufacturers and their dealers as
potentially large volumes of vehicles move outside of the
franchised networks for servicing.”

Contract hire still in pole position for fleets

Business Car Perceptions 2007 confirmed that
contract hire is still the funding method of choice for the
majority of businesses running fleets of 10 or more vehicles
(see chart 2).

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Outright purchase, however, remains popular as an acquisition
method. This is especially so among larger fleets where they can
often borrow funds at aggressive rates.

Cooke explains: “Contract hire remains the most consistently
popular acquisition method, except for smaller fleets. One might
have expected it to be more popular among smaller fleets given the
range of services it can offer.”

”However”, he adds, “there may be a downside in terms of cost of
management of small numbers of units. Leasing companies are
increasingly targeting smaller fleets as this sector offers the
largest potential for growth. New business models are being
developed to help penetrate this sector cost effectively – and new
tools are coming on stream for client management.”

Personal contract hire, and like methods of vehicle provision,
continue to grow in popularity although these schemes can have
significant up-front costs to get them started. More than 10 per
cent of companies claim to use one or other of the personal finance
methods.

Mileage allowance has become increasingly popular, probably driven
by the tax situation and employees’ urge to be independent of the
company car provision. More than 21 per cent of fleets reported
some employees using car-for-car schemes. However, there is always
a risk that this relies too heavily on trust and employees
recording the correct mileage. Cooke says: “It is all too easy to
round up the figures.”

Changes reveal a state of flux

Respondents were asked if they could foresee any changes in their
methods of acquisition over the next two years. The responses
suggest some dynamism in the market (see chart 3) with a
quarter of fleets anticipating some change in the way they acquire
company cars.

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ECO/PCO plans are seen as a key area for expansion in the next
24 months, together with a fairly active two-way traffic between
cash-for-car and moving back to the company car scheme. Growth in
the ECO/PCO segment clearly exerts pressure on vehicle
manufacturers to communicate with, and retain, those drivers who
opt out of their company cars scheme in favour of ECO/PCO.
“Perhaps,” Cooke says, “it would be fair to say that drivers and
companies are both keeping their options open and any change in
fuel price, inflation or tax could change the situation quite
quickly.”