Leasedrive Velo Group 2009 predictions

Leasedrive Velo Group, one of the UK’s largest independent privately-owned vehicle management groups in the UK, predicts ten key trends for 2009. And of its seven predictions for 2008, five were bang on target and the jury is still out on the remaining two.

Commercial director, Roddy Graham said: “No surprises that 2009 will be an extremely tough year but for those contract hire companies with secure funding lines for the short to mid-term, the future presents some potential great opportunities for organic growth and growth through acquisition. As never before, the better managed companies will be those that survive. The winners will continue to invest in systems and people, and not follow the ‘herd instinct’!”

1. Consolidation
“With some contract hire companies closing their doors to new business, others haemorrhaging money like there’s no tomorrow due to plummeting residual values, and others finding credit lines squeezed, inevitably there will be winners and losers. While there will be some contract hire companies following car dealerships and going to the wall, there will be the opportunity for well-positioned players to cherry-pick competitors. We will definitely see consolidation and maybe fewer bank-owned companies as finance houses concentrate on their core activities.”

2. Creative Car Schemes
“Contract hire companies will need to think more creatively with their ‘company car’ packages. Even before the belt really tightens, HMRC had already calculated that the number of company cars had dropped by 500,000 in the last nine years and, unless contract hire companies work smarter, the contraction is set to continue.”

3. Oil/Dollar Stability
“From a high of $147 in July the price of oil had dropped by over $100 in mid-December to a near four-year low. However, we should see less volatility in the oil markets next year with barrel prices expected to hold steady at around $50, mainly due to anxiety among the oil producing nations over world economic prospects. However, if China gets caught up in the economic woes of the US, Japan and Europe, barrel prices could fall by half according to some dire predictions.”

4. Climate Change
“Climate change will continue to dominate the world agenda, especially with the incoming ‘pro-Kyoto’ new US Administration. Expect Barack Obama to make his mark on the world stage by championing the green cause. For him, it’s much easier to make an impact with a total U-turn than trying to sort out the mess of the Bush legacy in Afghanistan and Iraq. The only concern is that economic woes will no doubt push some green initiatives onto the back burner. At least our own government seemingly still seems committed to halving carbon emissions and has adopted a CO2 emissions-based taxation regime when it comes to transport.”

5. Continued Focus on Low CO2 Emissions – Car Design/Taxation
“Given the above, no surprises here, with vehicle manufacturers focusing their attention on sub-120 g/km cars, with the target of achieving average emissions below 120 g/km by 2012 still in place. Already the most attractive vehicles in the UK are those with CO2 emissions of 120 g/km or less so employees can take advantage of the reduced ten per cent and 13 per cent Benefit in Kind (BIK) tax brackets introduced in the April 2008 budget. Going forward, the natural ceiling for the company car fleet will be a maximum CO2 emission level of 160 g/km.”

6. Death of the Dinosaurs
“The gas-guzzling four-wheel-drive will become ancient history except for those owners who genuinely need their practicality and mud-plugging attributes. Chelsea tractors in towns will dwindle through natural wastage, fuelled by their propensity to drink forecourts dry and their plummeting residuals. There will be a move by some away from luxury executive and high performance sports cars, which for similar reasons have seen sky-rocketing ownership costs. However, when the good times return, unashamed displays of success and wealth, and a desire to “drive the dream”, may still prove too big an attraction. However, this will come at a cost and may ultimately prove anti-social.”

7. Hybrid Growth
“Spurred on by vehicle manufacturer development, and no doubt the adoption by Formula One of the KERS system next season, hybrids will start making an entry into the vehicle mainstream. Don’t expect any revolutionary change, but without doubt hybrids will have a better cachet in the years to come, supported by strong residuals.”

8. Congestion Charging
“The world watched as Manchester voted. 11 December 2008 proved a major date in urban traffic management. Even Barack Obama and his team took notice of the free will of the citizens who “always look on the bright side of life!” Now the result is known, a resounding 79 per cent voting against, congestion charging will be quietly abandoned by many.”

9. Short and Mid-term Rental Growth Opportunities
“Tough economic times perversely can present good growth opportunities for vehicle rental providers. While business travel cuts will impact rental volumes, on the other hand a reduction in company car benefit and pool car costs will lead to greater demand for short and medium-term vehicle provision. Many are predicting higher rates next year due to poorer buy-back deals and restricted supply but with so many new cars unsold, expect vehicle manufacturers to perform a U-turn on responsible marketing and seek a short-term solution to their problems by flooding the vehicle rental market, assuming the rental companies can pay for them. With residuals in free-fall anyway, what have they to lose?”

10. Move Away From VM to Fleet Management Specialists
“Expect a move away from vehicle manufacturer as well as bank-owned backed contract hire companies and a steady rise in fleet management specialists. Over the coming years, we will definitely see a concentration by organisations on core activities, with the outsourcing of non-mainstream specialist services. Fleet management specialists are bound to benefit.”

And below we reproduce our 2008 predictions and show how we faired.

How did we fair with our 2008 predictions?

1. Credit Crunch
“No surprises here - the sub-prime loans crisis will see a credit squeeze in 2008. Large and medium-sized contract hire companies should ride the storm comfortably providing they are ship-shape but some of the smaller players may find it harder to keep afloat. Car dealerships however will be hit as private new and used car buyers find it harder to obtain loans.” [There will inevitably be consolidation but no major contract hire fallers yet. Car dealerships are being hit badly with several going to the wall.

2. Oil/Dollar Stability
“Despite the current weak US Dollar and high oil prices, analysts expect that global interests will be best served by a stronger US Dollar, which will recover some of its previous value during the course of 2008. As a consequence, oil prices, while close to the $101 barrel record of the late 70s, should drop once the dollar recovers its strength.” [The US Dollar is stronger and the oil price lower – in fact the lowest it’s been in nearly four years!

3. Climate Change
“Governments will have to wake up to the biggest challenge mankind has ever had to face. The proof is now incontrovertible, with peer-reviewed research of several thousand top scientists agreeing that the probability of global warming being man-made is greater than 90 per cent and if nothing is done about it average temperatures could rise by as much as six degrees Centigrade by the end of the decade. The findings are endorsed by all the world’s major governments without qualification. Future government action, post-Bali, will impact our daily lives including driving.” [Even the incoming US Administration has agreed to sign up to post-Kyoto, a total U-turn!

4. New Car Trends
“Given the above, vehicle manufacturers will bring out more sub-120g/k cars. Already they are under pressure to produce cars emitting on average less than 120g/km by 2012, a target they baulked at during the Frankfurt Motor Show without offering alternatives. With proposed congestion charging based on CO2 targets, there will be pressure from drivers for greener cars. The new retro-chic Fiat 500 is Car of the Year 2007. Expect more economical and smaller cars next year.” [And more and more, as people abandon their gas guzzlers in droves!

5. Congestion Charging
“The charges will go up and more towns and cities will introduce congestion charging. Only two do so to date but the figure will increase dramatically. And, as mentioned, CO2-based charging has to be just around the corner too.” [Much slower roll-out than anticipated with Manchester only holding its congestion charge referendum on December 11.

6. AECOPS
“The future of AECOPs is uncertain and we need clarity from government. However, we believe AECOPS has its place in the fleet mix. After all, it’s all about consumer choice and some employees will want to opt for this route.” [AECOPS now clarified by government.]

7. Sweeteners?
“2008 will be a tough year and there is nothing to suggest otherwise. The only glimmer is that the Bank of England expects the following year could be better. What might make 2008 more palatable is if Prime Minister, Gordon Brown decided to hold a General Election in 2009. Then expect the introduction of some vote-catching measures late in 2008 that could sweeten the end of the year. The bitter pill, however, is if we entered a worldwide recession.” [No General Election on the horizon, a tough year and a very bitter pill to swallow as we enter recession. The Bank of England got it totally wrong!]