'Perfect storm' approaches for fleets in 2019
11 December 2018
Author: Simon Harris
Supply issues affecting new cars are expected to fade in 2019, but WLTP could yet be hiding some nasty surprises for fleets. Simon Harris reports from the VRA seminar.
Fleets could be facing a 'perfect storm' of challenges in 2019, with demand for diesel cars continuing to fall, WLTP testing affecting vehicle availability and continued uncertainty over Brexit.
The warning came from VRA board member Rupert Pontin as he introduced the organisation's seminar.
Fleets are likely to have experienced delays or issues regarding withdrawals from sale for particular models as vehicle manufacturers rushed to certify cars under the new fuel testing regime.
Experts predict these problems will subside during the first quarter of 2019, which will see new car registrations stabilise.
Philip Nothard (pictured, left), customer insight and strategy director at Cox Automotive, said: "This year has been a challenging year for new car sales, with the biggest months of March and September down on 2017.
"With the VED changes that affected March 2017's registrations, we didn't expect March 2018 to be so low.
"We're predicting the new car market this year to reach 2.38 million registrations, which would be down by 6.3% on 2017.
"However, the challenges presented by WLTP this year [where some cars were temporarily withdrawn from price lists until they had been certified under the WLTP] will fade, and we expect January and February to be better, leading to a stronger performance in Q1."
Owen Edwards (pictured, right), associate director at accounting and consultancy firm Grant Thornton, outlined some of the current trends that could have an impact on resale values of defleeted vehicles, with diesel car registrations down by more than 30% during the first ten months of 2018, while premium badge cars now make up one quarter of all new car registrations in the UK, giving us a higher share than the European average.
There was a warning on Brexit uncertainty from Mike Allen, head of research at Zeus Capital, who said he had been asked to model various scenarios based on the different possible outcomes of negotiations to leave the EU.
Allen said since the referendum in 2016, a general fall in the value of sterling has caused price inflation, as the cost of imported foreign goods has increased, and Brexit is likely to sustain this.
"There are three main scenarios,' said Allen. "A disorderly 'no deal' Brexit would see sterling fall to a lower value than the euro, which hasn't featured in many businesses' plans.
"If there is an orderly 'no deal' outcome in the negotiations, sterling will still fall below its current level.
"An agreeable deal would most likely see sterling bounce higher than its current level. Many of sterling's problems in the last few years have been caused by speculators betting on a no-deal Brexit.
"But this leaves us with the problems of forecasting for a rate of ?1.21 to the pound, or ?0.97, which is such a wide span, it makes planning extremely difficult."
He added that while consumer confidence had been fragile in the wake of the Brexit vote, it had been broadly stable, with increases in average earnings being a mitigating factor in persuading consumers to continue spending.
Allen also pointed to the risk of high numbers of plug-in hybrid vehicles arriving on the market in the near future, with potential volatility around pricing because the numbers will be unprecedented.
Company car drivers in particular had been persuaded to choose plug-in hybrids because of the favourable tax position, and the availability until recently of the plug-in car grant to reduce the transaction price.
The advantage of plug-in hybrids for typical used car buyers is less clear, restricting their appeal, which is likely to make resale values difficult to predict in the short term.
Jason King, director of valuations at KeeResources, spoke of the chaotic transition from the old NEDC official fuel consumption test to the new WLTP, which was implemented for all newly registered cars from September 2018, following its introduction for new type approved cars (essentially all-new models) from September 2017.
He said that for some car manufacturers, the number of available models on price lists had reduced dramatically as they waited for slots at Europe's crowded testing facilities for certification under WLTP.
He said KeeResources had 879 individual Audi models in its listings in August 2018, but this had fallen to 144 by November.
WLTP produced new official fuel consumption ratings for cars, with a more arduous lab test than the NEDC. But CO2 emissions have not yet been produced using the new test, with an NEDC-correlated figure published using an algorithm called CO2MPAS.
This has resulted in higher CO2 emissions for many cars, particularly those with smaller engines that had appeared particularly fuel-efficient on paper.
CO2 emissions will be published from the WLTP readings for all cars from April 2020, and King warned that smaller, turbocharged petrol-engined cars could suffer most from the new regime.
He highlighted a 1.0-litre turbo in a small car that produced CO2 emissions of 102g/km under the NEDC test, with 112g/km in the current NEDC-correlated figure, rising to 132g/km in the WLTP test.
While we await the government's review of BIK tax bands for company cars in light of WLTP, which will report in spring 2019, there is clearly a message of caution for fleets who have re-evaluated diesel company cars and considered choosing a small petrol-engined car as an alternative.
WLTP also mandated testing of variants of cars with certain options that would affect the model's weight, and King said one of the benefits of this has been manufacturers simplifying car ranges and reducing the number of individual options available.
King said: "We could be witnessing a reversal of the trend towards increased personalisation, while there will be an increase in the number of options brought together in packs.
"This should reduce complexity in car production, and allow more manageable new car stocks, thanks to simplified model ranges."
He added that this could be good for used car values, as it would be easier to know what extras are fitted to the car and to give them their proper used value, but also suggested the possibility of greater volumes of particular derivatives could force down those values.
LCV operators will have to come to terms with WLTP from September 2019, and King added that for those car manufacturers with LCV divisions, it was hoped that some of the lessons from the last year or so could be used to create a smoother deployment in the new van market.
VRA seminar attendees were also given an outline of the hydrogen fuel cell market by Paul Marchment of Arval.
He said there were moves to increase awareness of hydrogen fuel cell vehicles, while initiatives such as the Swindon Hydrogen Hub would also help reduce costs.
Marchment said, "We currently have ten hydrogen refuelling stations in the UK, with 16 planned by the end of 2019."
He added that the latest hydrogen refuelling stations opened by Shell create the gas through electrolysis of water, so the process was greener, and there was also the possibility of using the gas delivery network for hydrogen to reduce the need for it to be transported by road.
Higher-profile adoption of hydrogen cars by organisations such as the Metropolitan Police, which currently runs 11 Toyota Mirais, also helps raise awareness, said Marchment, and while there were 61 fuel cell vehicles deployed on UK roads to date, continued government investment in making it easier to choose hydrogen would fuel its growth in the coming years.