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Falling pound to dominate fleet costs in 2017

Date: 19 October 2016   |   Author: Tristan Young

Fleets will see new car prices, lease rates and fuel prices all rise in 2017 as the pound falls against the euro and dollar, making imports more expensive.

The decline in the value of the pound on global currency markets since the Brexit vote has already led to an initial round of manufacturer list price rises, and a host of manufacturers have hinted that more are to follow.

The pound had slipped against the euro to 1.11 Euros, the lowest point for five years.

Fleets are experiencing a double whammy with regards to fuel prices, because not only is the cost of oil rising, but, because it's traded in US dollars, the weaker exchange rate also has an impact.

"The unexpectedly sharp fall in the value of the pound will make the wholesale price of fuel go up. Sadly, it's also happened at a time when the oil price appears to be rising again, so the combined affect will be bad news for motorists," said an RAC fuel spokesman. "We're likely to see the price of both petrol and diesel increase by around 3p a litre in the next fortnight."

Commenting on the outlook for fleet costs, Gerry Keaney, BVRLA chief executive, said: "Fleets and drivers are already facing a significant increase in their motoring costs next year with planned increases in VED and company car benefit-in-kind tax rates.

"An extended fall in the value of the pound will have an impact on OEMs, but they are operating in an increasingly competitive environment. I am confident they will try to protect their customers by absorbing the additional foreign exchange costs within their existing pricing structures, or perhaps by reducing the differential between their list prices and actual transaction prices. They will want to protect the embattled company car driver from a double whammy increase in car list prices that would just add to the incoming rise in BIK charges."

Keaney continued: "Whatever happens, the industry will continue to work with its customers to deliver great value and drive down the total cost of ownership. If the fluctuating pound continues to create uncertainty for UK businesses in the months ahead, the ability to fix motoring costs through leasing will become even more attractive."

However, the car manufacturers are already talking about losing millions because of the falling pound.

Speaking at the Paris motor show last month, Karl-Thomas Neumann, chairman of Opel Group, said: "There's a £400m risk in half a year, which Vauxhall is preparing for. We're more careful about pricing in some segments and it's difficult to make investment decisions at the moment."

BusinessCar sources at Mazda echoed the likely multi-million pound losses if nothing is done to new car prices, adding the impact would be around £80m for the second half of 2016.

Kia is planning to minimise the likely new car price rises expected next year, according to Michael Cole, Kia Europe's chief operating officer.

"We try not to worry about exchange rates," said Cole. "From a commercial point of view we don't ignore it - we're not blinkered. But we try not to make it our core thinking in terms of our pricing strategy. We look in each market, and it's not just the UK that doesn't use the euro, and aim for a competitive price position in the market, and to a degree we have to take that risk. It's swings and roundabouts. Some markets you gain on the exchange rate. You have some wins and some losses. if there's a serious devaluation then you have to factor that in.

"It's not the first time the pound has been at this level, about 1.15-1.20 Euros [at the time Cole was interviewed]. The Brexit vote may have been the cause of the current exchange rate, but it's probably about where it ought to be."

Cole added: "Who takes the risk also depends on which factory the car comes out of and it is quite complex. Sometimes it's the factory that takes the hit, sometimes it's the distributor and sometimes it's the sales company."

Honda's UK managing director Phil Crossman was hopeful that a strengthening of residual values on the upcoming Honda Civic would mitigate the falling pound in terms of monthly costs.

However, he admitted: "The exchange rate is a bit of a challenge because it puts our costs up. List pricing is less and less relevant. Our view is always to make sure we've got great residual values on our cars so that we can get our monthly costs competitive. The other issue is the costs for the new Civic against the outgoing one. Costs are higher because it's brand new - there's a lot more technology and completely new engines. You've got to expect a price rise just for the specification too."

Speaking at the end of September, Tony Whitehorn, president of Hyundai in the UK, said: "It doesn't matter what currency we buy in because if you're a factory in Europe you build in euros. The car then goes to the European office who then sells the car to the country. The European head office could be selling in euros or it could be selling in pounds. And that governs where the hit is. So somebody in the chain takes the hit.

"Already prices are going up. When we voted for Brexit we were at ?1.30. We're now at ?1.16. That is a loss of millions of pounds, so somebody has to take that.

"If you look at the French manufacturers, in August they immediately raised their prices as did Vauxhall, and now Ford is raising its prices and Toyota is raising its prices from next month [October].

"We are just raising our prices on the i30 - the old model. Are we raising prices across the board? We prefer not to and we have no plans to raise any more prices this year."

However, he cautioned: "When you have an exchange rate situation like we do now, you will definitely see more price rises and that will hurt the market. That's one of the reasons the [new car] market will be down next year."