Fleets already facing WLTP dilemma
29 June 2018
Author: Sean Keywood
A new testing regime for fuel economy and CO2 emissions is causing issues for fleets sooner than might have been expected. Sean Keywood reports.
The new World Harmonised Light Vehicle Test Procedure (WLTP) regime is already making its mark on fleets despite not having been fully introduced yet, according to industry experts.
The new test has been designed to provide a more detailed view of a vehicle's fuel economy and CO2 emissions, based on a more accurate representation of real-world driving styles. The new figures will begin being published in September, but the first key date for fleets is April 2020, when they are set to be adopted by the UK Government for tax purposes, including vehicle excise duty and company car BIK.
However, this puts them inside the time frame of a three-year lease starting now, which means fleets are having to plan with the new test in mind, even though - while increases in official emissions figures are expected - it is not completely clear what the impact will be.
Complicating matters further, new cars are currently being tested under WLTP, but then converted back to the old NEDC system; however, these correlated figures are showing average increases of 10% according to Cap HPI, potentially taking them into higher tax bands than they would have been in under the old regime.
Add in that fleets still have no idea what BIK tax bands will be in place from April 2021 - again, now within the length of a typical lease - and the confusion becomes even greater.
According to Shaun Sadlier, head of consulting at leasing company Arval, the response from many fleets is to delay major decisions.
He said, "Fleets find themselves caught in limbo. The government has yet to indicate when it will make a decision on how WLTP is incorporated into company car taxation, and the actual figures are some way off.
"For many years, BIK tax tables have been made available for three or four years in advance, so that businesses and their drivers have a good indication of their tax liability and can plan accordingly. But at the moment, we simply don't know what is happening.
"Because of this, we are seeing an increasing trend on the part of fleets, especially larger corporates that are generally better informed about WLTP, to sidestep the situation by extending lease contracts on a month-by-month basis.
"This, at least, will allow them to wait until there is an announcement from the government and make an informed decision on vehicle choice at that point."
Sadlier added that once a clearer picture does emerge, this will create a sudden burst of demand for new car leases - potentially causing further issues.
"It seems very likely that we are building up a logjam of demand and that, following a government announcement on WLTP and taxation, we will see a peak in car sales as everyone rushes in to place orders," he said.
"This, in itself, may create knock-on problems because we don't yet know what types of cars and specific models WLTP will make attractive from a tax point of view, and they may very well be in short supply in the medium term."
Once the impact of WLTP is known, it may affect not only the choice of vehicle, but how that vehicle is specced.
Kwik Fit GB fleet sales director Andy Fern said that the size of vehicle wheels, and consequently tyres, has a major impact on CO2 emissions and fuel economy, and that as such a trend in recent years for car manufacturers to fit larger wheels may have to change. He said, "Wheel rim size and width of a tyre have a direct correlation on a vehicle's rolling resistance and therefore CO2 emissions.
"As a result, we may see vehicle manufacturers end the trend for larger wheels, or company car drivers may think twice about ticking the larger-rim-size option when specifying a vehicle as it will ultimately hit them in the pocket."
Fern said WLTP may also lead to an end to the trend towards SUVs, with the official CO2 gap between them and conventional hatchbacks and saloons predicted to increase.
He added, "Businesses like certainty to make investment decisions. But fleet uncertainty exists as manufacturers review and change vehicle line-ups, equipment levels and option choices influenced by WLTP CO2 figures, and the industry waits for the government to announce its motoring tax plans, and specifically the company car BIK tax regime.
"Post-2020, fleet and company car drivers' choice of vehicles, and wheel and tyre configurations may be very different from today."