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Shift to total cost of mobility pushes car usership to the fore

Date: 03 December 2015   |   Author:

The domain of the traditional company car is changing rapidly, with a shift from car ownership to vehicle usership, said John Saffrett, global chief administration officer for leasing firm ALD International, at the International Auto Finance Network Autumn Conference last month.

"The car is no longer considered an essential item," he stated. "People don't see owning a car as an ambition; we talk about driving a car, having access to a car."

That access for businesses varies from company cars, grey fleet and renting vehicles on demand to having a more integrated travel policy that helps employees make informed decisions on the fastest, most cost-effective and most productive form of transport, stressed John Pryor, Association of Car Fleet Operators national chairman.

Supporting this, Jon Burdekin, head of product management at leasing company Alphabet, added that the current generation of teenagers "don't go out and buy CDs and DVDs; they download them. It's a very instant, throwaway society and these are the guys coming forward to be the company car drivers or mobility users of the future. They will not need one car for one person."

Focus on efficient mobility

Questioning the value of having cars parked up "doing absolutely nothing but depreciating", Burdekin said that this could not be the most efficient way to provide staff mobility. Instead, it's total cost of mobility - getting people from door to door - that is key to successfully managing business costs.

Making this more challenging for most fleets is the fact that company vehicles are often managed by different staff to those who oversee company travel or expenses. This needn't be the case, though, Pryor continued, with the fleet manager's role offering the scope to take control of business expenses alongside car fleets to manage an employee's total cost of mobility.

To determine mobility costs businesses need to consider which of the many possible modes of transport to use: "You've got traditional company cars, drivers who have cashed out, employees who use their own car for business, employees who require car hire, taxis, bus and tube, rail and air travel," Pryor added.

And this is before considering the varying fares, with Pryor highlighting how travel for two employees from London to Birmingham can vary from £30 to £260 depending on the mode of transport - with trains, in this example, proving both most and least expensive depending upon when tickets are booked.

While life might get more complicated for fleet managers in moving from managing vehicle fleets to managing mobility, it should get simpler for users, with Burdekin envisioning a move to an overall mobility allowance: "We will help the drivers with apps, with mobility cards - one card for everything, perhaps even on a mobile phone - and each driver will have a mobility allowance."

The expense submission process could also be streamlined with new tech Mike Bell - Jaguar Land Rover's global connected car director - told the audience, with a JLR app able to log journey length and fuel efficiency data, which can then be exported to Excel.

New technology to simplify life

Connected cars, meanwhile, offer great scope to simplify life for users and fleet managers alike, according to Bell, with these machines featuring sophisticated media systems, black box telematics, connectivity with external devices such as phones and tablets, and networking, where vehicles can communicate with each other.

Consequently, in the future, should one vehicle make an emergency stop, it will broadcast a signal to others nearby to warn them, while roadworks could alert vehicles that a lane is closed ahead, explained Bell.

Additionally, JLR is developing InControl Protect, which offers the ability to transmit vehicle diagnostic data to roadside breakdown services so they are better equipped to repair the vehicle sooner.

The company has also started fitting built-in trackers in some of its vehicles, providing stolen vehicle tracking.

Meanwhile, car media systems in the near future will be able to provide more personalised information, tracking live flights as drivers head to the airport, for instance, providing information through the in-car system to encourage safer driving.

"We're trying to think driver-centric. Stopping that customer pulling out their phone and fiddling or making unnecessary calls," said Bell.

'Systemic risk in the market'

The shift from owning cars to renting them has had a huge impact on the car finance market, Richard Jones, managing director of finance firm Black Horse, told conference delegates. "You won't find any other financial services market that has grown like that - it is phenomenal."

Aligned to this, residual values for many cars have been raised - to as close to future guaranteed value figures as possible - stated Jones. "That means if there is a shock [to the market] it gives us a problem," he added.

"It gives the person who's got the residual value risk sitting on their balance sheet a problem. It also gives the consumer a problem because they'll no longer be walking back with some equity in their vehicle when they come to buy their next vehicle," Jones continued.

Should a manufacturer effectively become a bank - as is the case with so many customers purchasing cars through PCP - this can create a funding gap, where companies take less in deposits than they're lending.

Should any of these businesses come under stress - as has happened with VW, which has experienced plummeting share prices since September - they can experience extremely expensive liquidity. Allied to the fact that 65% of all UK car lending comes through captives rather than banks, Jones claimed: "We've got a systemic risk in the market."

While banks have had to adapt their business practices following the banking crisis, Jones questioned whether the industry is heading for a car company crisis.

VW scandal likely to 'blow over'

The long-running VW emissions scandal may be rumbling on, but Steffen Schick, chief strategy officer at car valuations experts EurotaxGlass's, expects this to be a "straw fire" that's soon to blow over.

To date, "not much has happened as far as residual values are concerned", he stated, but while it's possible that potential buyers will quickly forget the VW Group's misdemeanours - leaving little effect on used values - it is also possible the situation could escalate.

If public interest in the saga continues, or other brands were implicated, "that could obviously have more severe repercussions - especially if regulations are tightened". The third scenario of much stricter regulation, though, "could cast a big shadow over diesel as a technology", Schick continued.

Should this happen, Schick predicts the possibility of car manufacturers abandoning smaller diesel engines and others considering alternatives including hybridisation, which could see "massively dented" diesel sales.

However, Schick said: "We are very much in the camp of the straw fire, which will blow over." Despite this, he added: "In Germany there is a strong likelihood the tax authorities will actually milk Volkswagen in a major way."