Colin Tourick

A big mature industry?

Readers of this column will have heard me sounding-off in the
past about how difficult it is to tell people from outside the
industry what it is that we actually do – the ‘dinner party’
problem. Saying ‘I work in the fleet leasing industry’ is usually
greeted with a glazed expression, then a weak, questioning
smile.

I have felt this a bit more acutely recently, perhaps because
I’ve been going to more dinner parties but most likely because I’ve
been trying out different responses. I’m just finishing writing a
new book so my stock answer has become ‘I’m writing a business
textbook’. That answer satisfies many people – who must be thinking
‘I know nothing about business so I’ll change the subject’ – but
others have been more enquiring and when I’ve told them the book’s
about managing company cars that glazed expression and weak
questioning smile have returned.

So I have been looking for a killer line to come back to them
with, one that will make them realise the problem’s theirs – their
lack of knowledge of our big mature industry – rather than my
choice of career.

Which made me wonder; is this industry mature and how big is
it?

A stealthy colossus

The leasing and rental industry has a trade association and
dialogue with government. It has a stable set of products developed
over 40 years and there is a general appreciation in the business
world of what the industry delivers. Many very large institutions
are now involved. And many businesses have developed to serve the
industry, delivering systems, data, know-how, training,
recruitment, consulting and so on. These surely are good indicators
that the industry is mature. 

Then there’s the amount the industry spends. It’s colossal. But
just how much does it spend each year?

There are no definitive statistics but we can do some broad
brush calculations to get a feel of the overall number.

Contract hire and rental companies have fleet sizes of around
1.9m and 400,000 vehicles respectively and these are replaced on
average every 3 years and 12 months respectively. So the industry
must be buying more than 1,000,000 vehicles each year. Assuming
these cost on average £14,000, the aggregate purchase price is
£14bn pa. 

The industry manages a further 400,000 vehicles or so on fleet
management contracts and is involved in buying some of these too.
Let’s say half? That’s another £2.8bn. 

All these vehicles need servicing. If this costs on average
around £600 per year, that’s another £1.4bn.  Let’s say the
internal costs of these companies are around £100 per vehicle;
that’s another £270m.

Let’s ignore other expenditures such as road tax renewals and
the purchase of insurance products such as GAP insurance.

So using this very broad-brush unscientific approach, we can say
the industry spends approaching £20bn pa. Now that’s what I call a
big industry, and if the lady sitting across the table at a future
dinner party doesn’t know anything about it, well, that must be her
fault, certainly not ours!

Colin Tourick MSc FCA FCCA MICFM, www.tourick.com

Motor Finance Issue: 41 – March 08
Published for the web: March 28 08 11:51
Last Updated: March 28 08 11:56