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Mike Waters' Blog: 2 June 2009 - Not all prices fall in a downturn

Date: 02 June 2009

Mike Waters is head of market analysis at Arval

This month deflation appeared and UK unemployment touched 2.2 million. With figures like these there is no denying that we remain in the midst of recession. So with high street retailers cutting prices and the price of buying a new car being discounted through scrappage schemes, fleet managers could be forgiven for thinking that this is the situation across the board.

Unfortunately, while there remains the perception that things should be getting cheaper, often they're not. While there are discounts available on the purchase of some new vehicles at the moment it is worth bearing in mind that as some of the up front costs have fallen, in many cases vehicle running costs are going up.

For most suppliers in the automotive industry, whether they are leasing companies, tyre manufacturers or mechanics demand is coming under pressure. As a reaction to this, while many high street retailers are cutting prices to boost volumes, suppliers in our industry are putting their prices up to protect their margins.

For example, it has been well publicised in the media that some of the major daily rental companies have been forced to increase their tariffs as profits fall and they struggle to fund new vehicles as supply is squeezed.

This is a familiar situation across a range of markets as companies balance short term gains with the long term perception of the company. Tyres are another area where the cost is rising during the credit crunch. With a major impact on the safety of the driver and the performance of the vehicle, tyres are an area that can't be ignored, putting your maintenance budgets under increasing pressure.

What's more, while there is never a good time to have an accident, repairing damage to vehicles is costing more than it used to. It is also the case that recessions lead to increased levels of insurance fraud and this is filtering through as increases in premiums across the motor insurance market.

Inflation is falling but don't fall into a false sense of security. During times of recession many costs can rise as companies try to weather the storm. As a result, it is crucial to be efficient, ensuring that drivers operate in a non-aggressive manner which will keep running costs down. However, for those running costs that can't be avoided my advice is, don't cut corners. Vehicle management and maintenance have a direct impact on driver safety and vehicle efficiency so are an area that you must get right.