Fleet management in the UK
UK fleet managers will rarely have encountered such a volatile business landscape. TraXall examines the conditions of the market, the challenges faced and the opportunities that beckon.
The UK fleet market is set for a period of considerable change – from the drive to electrification and the advent of mobility management to advances in digitisation, connectivity and automation.
The coronavirus pandemic may have knocked negotiations over a post-Brexit trade agreement off the top of UK and EU agendas during the second quarter of 2020 – but we can expect both of these issues to also play key roles in shaping the future of the country’s fleet sector in the months ahead.
A spotlight on market trends
Against a backdrop of widespread political and economic uncertainty, fragile business confidence and confusion over issues such as clean air zones, the new car market in the UK has stalled in recent times – and not just in the wake of Covid-19.
According to figures from the Society of Motor Manufacturers and Traders (SMMT), annual registrations fell for the third consecutive year in 2019, with 2,311,140 units registered, representing a decline of more than two per cent.
The UK fleet parc has also stagnated with a year-on-year increase of just 0.8 per cent.
The industry anticipated a significant hit to new car registrations during the coronavirus pandemic, and indeed they dropped away by a staggering 97 per cent in April. Fleet orders during this period represented the bulk of these, taking 72 per cent market share, although delivery times were inevitably delayed.
But it’s not all been bad news. Despite the worrying picture that these figures paint, electric vehicle (EV) registrations have bucked the overall trend, experiencing a considerable growth rate during 2019 of 144 per cent, while the UK van market also looks healthy with registrations finishing 2019 on a high, enjoying a two per cent year-on-year rise. In fact a total of 365,778 new commercial vehicles hit UK roads during the course of the year, the third highest on record.
What’s more, the UK is still the second biggest car market in Europe, behind Germany, and remains one of the biggest markets in the world for vehicle leasing, with total leasing volumes of around £75 billion.
The prospect of an increasingly volatile economic environment over the coming months may lead to an increase in short-term rental and mid-term leasing as fleet departments look to introduce greater flexibility in their operations.
A rise in car usage
As the UK returns to work, many employees are likely to harbour serious concerns about using public transport. Research conducted by transport consultants Systra during the height the coronavirus pandemic found that public transport usage could fall by 20 per cent across the UK as a whole, and by as much as 40 per cent in London.
Social distancing-conscious commuters may consequently look to favour car transport over packed trains and buses. In the short-term at least, this may act as a boost to company car schemes, cash allowance purchases and the vehicle rental market.
But an uncertain future for the company car
In recent times, tax considerations, combined with the flexibility of cash allowances, have led to increasing numbers of UK employees opting out of company car schemes.
Some industry analysts believe that the availability of low tax electric vehicles (EVs) combined with uncertainty over the reliability of new technologies, may lead to a resurgence of company-managed vehicles. This, however, remains to be seen.
A new post-Brexit trading environment
Brexit has already been cited as a reason behind a short supply of high-range EV models on UK roads, with some believing that manufacturers have been prioritising more profitable EU markets facing tougher new emissions targets.
A Brexit trade deal that minimises new trade barriers is the main focus for the UK government, but regardless of how negotiations progress, the fleet sector is bracing itself for an abrupt change in trading conditions at the start of next year. We can expect to see, for example, requirements coming into force for new customs procedures and documentation.
In light of such changes, there may be an increasing demand from fleet operators for consultative advice and guidance from specialist service providers.
Electric will ultimately become the predominant fleet vehicle powertrain. Despite the hurdles that are having to be overcome in making this transition, demand for electric vehicles (EVs) within the UK market as a whole is continuing to rising. According to the British Vehicle Rental and Leasing Association (BVRLA), EVs are now responsible for 1.6 per cent of all new lease cars, and EV sales are predicted to rise from 80,000 in 2019 to 131,000 by the end of this year.
From 2021, following the Brexit transition period, things may change. The ability for the UK to import vehicles and parts from Europe could potentially be hampered by possible future trade barriers resulting from the EU-UK trade deal.
To date however, the trend is a relatively positive one and latest figures from the BVRLA indicate a drop in average CO2 emissions for new lease cars from 118.5g/km to 116.8g/km.
UK government policy has almost certainly had a significant impact on EV uptake – and it looks set to continue doing so.
A public consultation, for example, is currently taking place over plans to bring forward a ban on the sale of new petrol, diesel or hybrid cars, from 2040 to 2035. This move is regarded as crucial if the government is to meet its target of net zero greenhouse gas emissions by 2050.
Current barriers to fleet decision-makers taking the plunge into electrification include lingering concerns over driving range and limitations with the charging infrastructure network. During 2019 however, the UK saw a 54 per cent rise in the number of public charging connecters – there are now more than 31,500 – and a further £500 million has been set aside by government to support the rollout of new rapid charging hubs.
The programme of incentivisation doesn’t end there. In his 2020 Budget, the UK Chancellor removed Vehicle Excise Duty (VED) for zero-emission cars with a list price exceeding £40,000, while new diesel cars that do not meet the Real Driving Emissions Step 2 (RDE2) standard are now subject to increased first-year VED rates. In addition, more than £300 million was pledged to help tackle nitrogen dioxide emissions across England’s towns and cities.
The roll out of Clean Air Zones, delayed as a consequence of the pandemic, will further accelerate the transition to cleaner fleet vehicles, although there is currently a great deal of uncertainty over how these will be operated and administered.
Last, but certainly not least, the Chancellor also confirmed that company car drivers will face no benefit-in-kind (BIK) tax bills in the current financial year for zero-emission vehicles.
Tax clarity helping business planning
UK fleet businesses had found themselves operating in an environment of uncertainty for quite some time as they waited to discover the impact that the new WLTP emissions testing regime would have on benefit-in-kind tax liabilities.
However, with confirmation of new company car tax rates in the Chancellor’s budget, the longstanding fears of an increasing cost burden, as a direct consequence of this, were finally allayed. Decisions on future vehicle and fuel strategies can now be made with just a little more certainty.
The continued rise of tech and mobility solutions
The UK fleet market is a mature one in terms of its adoption of technologies that can digitally transform business processes and operations.
We are seeing increasing levels of connected tech systems being implemented by UK fleets to drive efficiency gains. While OEM (original equipment manufacturer) embedded telematics systems are on the rise, the penetration of aftermarket systems also remains strong.
The stringent nature of UK health and safety regulations has led to many businesses using fleet technologies to underpin risk management programmes and to meet their wide-ranging compliance obligations.
For the foreseeable future, the car looks set to remain the principal mode of transport for UK business, but this has not prevented interest in fleet mobility solutions from building.
Indeed while car usage may rise in the immediate aftermath of the coronavirus pandemic, some believe that we may also see longer-term changes to working practices, and that an increase in flexible working could accelerate both the introduction of employee mobility allowances and the uptake of mobility-as-a-service (MaaS) solutions.
When autonomous vehicles (AVs) eventually become a reality, we can expect the impact of more journeys made with fewer vehicles on business models and fleet costs to be even greater.
According to a report from SMMT and Frost & Sullivan, the UK now has the greatest mass-market potential for connected and autonomous vehicles (CAVs) of any country in the world.
More than £500 million has already committed by industry and government to CAV R&D and testing, and the country has the world’s first autonomous vehicles insurance legislation.
The government had set a target for autonomous vehicles (AVs) on UK roads by next year. The disruption caused by the coronavirus pandemic, however, may now delay trials.