Positive signs as UK fleet sector up 42% in a decade

• Despite slowing in recent years, volumes at UK’s top 50 fleet operators grew 41.7% between 2009 and 2019, up from 1,196,053 to 1,694,812
• With more than 90% of new cars bought through finance and leasing options, B2C is as important for fleet management companies as traditional B2B
• Blended choice lists are set to become the norm, as we enter period of significant transition over the next five years

Fleet management companies and operators are continuing their diversification journey, reflecting changing demand for vehicles in the UK. That’s the view of leading global automotive services company Cox Automotive, which has released its latest commentary on the UK fleet sector following confirmation of a 42% increase in UK fleet volumes (for the top 50 operators) over the past decade. Arguing the next five years will see significant transition in the automotive sector, the organisation has singled out three key areas of focus: B2B2C, servitization and electrification. 

B2B2C – the era of personalisation

More than 90% of new cars are bought through finance and leasing options, with PCP and PCH continuing to dominate the private marketplace. With the rise in popularity and affordability of these flexible finance models, consumers are potentially becoming more accustomed to usage rather than ownership models, while the leasing share of the new car registration pie is growing.

Within this context, Cox Automotive argues the fixed term B2B proposition focused on contract hire and lease has migrated into a more fluid approach to contract terms, subscription demand and a focus on going directly to the consumer through propositions like Free2Move.

Philip Nothard, Customer Insight & Strategy Director at Cox Automotive, comments: “The market has changed and the days of relying on company cars to generate business growth are over. Indeed, the fleet proposition for many manufacturers has shifted fundamentally in recent years, with greater consolidation, cooperation and collaboration leading to a much more diversified picture. Fleet operators are talking directly to the driver, with multiple fleets within a fleet – drivers who all need to be serviced differently and with a personalised approach.

“Manufacturers need to balance shrinking margins with the need to invest in new technology and services. Much of this demand is being driven by a consumer segment which wants convenience and connectivity at its fingertips. The future of mobility is reliant on the fleet sector and the developments which move manufacturers from suppliers of complex metal boxes to customer-centric, flexible and scalable relationship managers.”

Servitization – MaaS & CaaS is here to stay

Fleet management companies and operators have diversified from the historical model of transactional model of leasing, SMR and tyre management; now providing much more in the way of driver-led services. Car sharing, car hailing etc. and vehicle-related mobility services, providing the consumer with a service of convenience and competitive price. This business model has been promoted by a customer’s centric requirement and enabled by new technological developments.

However, as the appetite for increasing efficiencies through connected services, logistics and vehicle services grows, this outcome-as-a-service approach will see drivers returning to the fleet company for more than the initial vehicle transaction.

Nothard added: “Whether you talk about Mobility as a Service, Car as a Service or Servitization, the principle is the same - the provision of a customer centric service which is both convenient and cost effective.
“These business models for the manufacturer and leasing companies are much different to selling a vehicle, as they rely on activating enough utilisation of the asset to make a profit. Fleet operators can’t just offer the vehicle and expect to win out against competitors who are offering drivers a plethora of value-add solutions and choice at an acceptable price point.

“However, there are a few things we need to bear in mind when it comes to rising demand for MaaS. Some commentators expect more than a third of all European mileage in 2030 to be in shared use vehicles. If that is the case, we are likely to see a new pattern of vehicles being taken out of commission more quickly due to their high intensity use and the requirement to look modern and professional for all users. Those vehicles are likely to have higher annual mileage but lower overall mileage when it comes to remarketing.”

Electrification – the expectation/reality gap

Orders for electric vehicles (EVs) are increasing month-on-month, particularly as new taxation rules approach on 1st April 2020. Organisations such as Zenith have already announced high profile initiatives including 100% EV fleets, while many manufacturers will be releasing novel hybrid or full EVs in the next 24 months. However, Cox Automotive suggests the increasing gap between expectation and reality is likely to cause problems in the fleet sector, as legislation drives growth and lead times grow ever longer.

Nothard continued: “The recent Government announcement to bring forward the ban on the sale of petrol and diesel cars and vans from 2040 to 2035, which now also includes hybrids, has caused a stir with manufacturers who now only have two development cycles to come up with their solution. This five-year period, from 2020 to 2025, is likely to be pivotal when it comes to manufacturers and fleet operators setting in place the structural foundations which will platform their future growth.

“In the medium term, we may well see EVs become cheaper than their petrol or diesel counterparts using whole life cost (WLC) or total cost of ownership (TCO) calculations. But that will be of little comfort to drivers who can’t get hold of the models because demand outweighs supply. Lead times remain a challenge and we are likely to see a transition period in which blended choice lists become the norm – multi-brand, multi-segment and multi-fuel.”

In summary

Nothard concludes: “Many of the key trends which were identified 10 years ago are still just as relevant today – electric, range concerns, connected/apps, autonomy and shared mobility. Indeed, with a 40% volume increase in the fleet parc over that period, concepts of innovation, personalisation, pay-per-use and sustainable mobility, are perhaps even more significant than ever. What has changed, however, is the practical application. Where we talked theory in 2009, we are now rolling out products and services which meet evolving customer demand and with that there is the required change of the business model for both the OEMs and fleet and leasing companies.

“Over the next decade, the pace of change will accelerate even further. One key issue is the question about real-time vehicle data. OEMs want to charge for it, leasing companies are not ready to pay for it and customers don’t know who they want to have access to it and data protection is increasingly becoming more regulated with the likes of GDPR. There will need to be a change in how data is regulated and used for the advantage of both the customer and also the fleet companies whether using this data to improve customer service or enhance profitability.”