CREDIT CRUNCH SPECIAL: Steer a path through the economic slide (continued)

Operation

In contrast to both acquisition and disposal, the actual running of a fleet has been relatively untouched. In fact, if anything things are looking a little rosier than they have for the past eight months.

That’s due to the falling price of oil, down from a peak of $144 a barrel this summer to less than half of that now, thanks mainly to a redressing of supply and demand with increased production.

That’s seen pump prices fall to as low as 98p per litre for unleaded at some supermarkets, while fuel card provider Arval now quotes average diesel and unleaded prices at 121.3 and 109.6p per litre respectively, compared with 133.2 and 119.5p in August.

Meanwhile service, maintenance and repair costs are so far avoiding the rapid rises seen in most other areas. Whole-life cots expert KwikCarcost is seeing “no evidence of SMR costs rising”, according to operations director John Williams, although he does point out that tyre prices are currently “quite volatile”, due to cost of raw materials, and as they make up a large part of the SMR cost may soon have an impact.

. Short-term rental

Like other areas of the business, short-term rental costs should be closely examined.

Nexus’s McCrossan reports seeing people downsizing to smaller cars and rent for fewer days.

“What was three or four days is now one or two. Businesses are getting in and out more quickly, planning their needs and doing it more efficiently.”

McCrossan advises that firms think about their internal systems and their inherent costs, pointing in particular to the authorisation process for getting a hire car.

“Of course you should have proper and sensible checks, but sometimes there are too many people involved in authorising a rental and how often do any of them say no?” he asks.

Traditionally, the short-term rental industry has benefited from any vehicle oversupply, but according to Frank Reynolds, corporate marketing manager for Europcar UK Group, rental isn’t the dumping ground for manufacturers it once was.

“If retail sales are down, the myth is that the steam from the kettle is daily rental, but it’s not any more,” he says. “It’s not happened since the 1990s, it’s the way things used to be.”

As a result, the daily rental firms aren’t necessarily getting cheaper deals, which means they’re not there to pass on to fleets. In fact, like everything else, the cost of short-term rental is actually expected to rise.

Meanwhile, sale and leaseback of owned-fleets is being touted by some leasing firms, but Rawlings for one isn’t keen in these times of plunging RVs.

“I find it a bit odd,” he says. “Why are they [some companies] doing it? To get a competitive margin, or is to get the money for next month’s salaries?”

Disposal

Disposing of cars, be they your company-owned vehicles or the ones leasing companies are trying not to lose money on, is difficult right now.

Residual value falls will, according to RV expert Cap, be worse than a normal year-end in 2008 – while November and December would normally bring 3% seasonal downturns per month, expect 4-5% per month this year.

The company also says that while values can’t keep falling indefinitely, it could be the middle of next year before the used market hits a baseline, and that the sign of a recovery won’t be a rise in values, but simply that the monthly falls level off.

The used market in particular is shifting away from drivers choosing to change their vehicle to swapping because of the need for a different type of vehicle, or through fear of VED changes and penalties for larger models.

Auction firm Manheim is also predicting further price falls.

“I’m not expecting rapid price falls like the ones we saw in the summer but we could see further falls,” says Mike Pilkington, the firm’s managing director, auctions and remarketing. “We saw meteoric falls in the summer.”

“Vehicles with fleets and leasing companies are only worth what the end user will pay for them,” says BCA operations director Simon Henstock. Both auction firms have seen average selling values slip below the £5000 mark for the third month running. That’s £1000 down on early 2008.

But that doesn’t mean he advocates deferral, not that you’d expect an auction company to be saying anything different.

“If I were a fleet operator with a fleet of vehicles that needed replacing, it would be a false economy to constantly defer,” he says. Older vehicles become more expensive to retain and the gap between the cost of old and new will get bigger. “If you’re willing to adjust values [downwards] according to age, condition and mileage, then fine. It’s a fallacy to say we’ll wait and see if the market picks up. The old adage that the first bid is the best one is more true than ever before.”

Henstock also believes dealers buying used cars from auction will become increasingly picky, and the gap between prices achieved by 60,000-mile vehicles and those that have hit 80,000 or 100,000 is going to widen.

Get further advice

Despite the financial misery, the good news is that people are at least seeking professional advice on how to cope.

“If companies get the right advice and talk to lease companies to get an educated view, there are things they can do,” says ACFO’s Jenner. “The next six months will be tough, but the bottom line is that fleets can do something.”

Jon Walden says demand for Lex’s in-house advisory arm, Momentum, has “never been higher”, and the emphasis has shifted from safety or environmental concerns to a more basic need to save money.

“Economics takes a higher priority when times are harder,” says Walden. “The advice might be to run contracts longer, look at the petrol and diesel mix or mileages, a whole host of things.”

The final message from our experts is not to panic.

“People forget that the car market is cyclical and there are weaker years to offset the stronger ones,” says Walden. “We were due some sort of decline but it’s been exacerbated by what’s going on in the wider world and the reduced levels of consumer confidence.”

Rawlings agrees: “People need to calm down and remember this business is cyclical. Fleets will always need cars, it’s just a certain percentage of business won’t be there any more.”

The final word, however, goes to GM Fleet brand manager Paul Adler: “The market is considerably larger than in the last economic downturn. Some segments are affected more than others, housing or estate agency for example, but there are lost of other industries still going well. We’ve had a downshift, but it’s not as if the market has collapsed.”

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