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29 Jul 20

Car Remarketing Expert Track: Light at the end of the tunnel for fleets

Fleet and automotive industry experts see glimmers of hope in the residual values of company cars amid the turmoil of the Covid-19 crisis. Seven months into the global pandemic, economists have identified encouraging signs of recovery and a brighter outlook for the resale values of cars in 2022 and 2023. Their forecasts should boost the confidence of leasing companies supplying new cars to fleets this year.

In a first webinar of the Car Remarketing Expert Track, jointly organised by Fleet Europe and CARA (Car Remarketing Association Europe), delegates heard that large European economies were recovering ‘like a crooked smile or a Nike swoosh logo’ as countries regain lost ground after the dramatic decline in GDP during the most intense months of lockdown.

Watch the webinar here:

Macroeconomic indicators improve from 2021

Maarten Baljet, managing director of Bähr and Fess Analytics, said that at a macroeconomic level the factors that impact on residual values – unemployment, GDP and inflation – are all heading in the wrong direction in 2020, but will start to improve from next year.

Focusing on three key markets, Baljet said used car prices would be -5.2% lower in Italy this year compared to 2019, -4% lower in Germany and -4.8% in France.

“Used car prices are decreasing, but not as steeply as you might have expected,” he said. “But the figures do not show the full extent of the decline because of the barriers to sell cars. Cars were not offered for sale.”

With economies reopening, the stimulus of the European Union’s recently agreed financial recovery package, and national new and used car buying incentives, Bahr and Fess’s used car price index forecasts smaller declines in 2021, followed by positive growth in 2023.

“Many risks still remain but we see vastly improved economic data for 2023, and today’s residual value forecasts should be at least as high as you would have forecast without the pandemic,” said Baljet.

No oversupply situation

One of the factors protecting fleets and leasing companies with residual value risk has been the shutdown of car factories throughout the spring. This has avoided an oversupply situation in the new car market that might have undermined used car prices, said Marc Odinius, CEO Dataforce.

Coronavirus has already cost OEMs 2 million lost new car registrations in Europe’s five major markets (MM5 - France, Germany, Italy, Spain and UK), including half a million lost fleet sales. By the end of 2020 Dataforce calculates that these losses will rise to 700,000 fewer company car sales and 2.8 million fewer new car registrations.

Rent-a-car sales fall dramatically

This pain is not evenly shared across all new car channels, however, with Odinius identifying how true fleet and private car sales will be about 75% of their normal figure this year in the MM5, but sales to dealers will only be at 66% of normal levels, and rent-a-car sales will only reach 56% of normal, a fall of about 0.5 million registrations (although Germany is seeing a stronger recovery in rental sales). This at least shelters the new car market from the deflationary pricing pressures of an excess of 'nearly new' cars.

“The economic aftermath of coronavirus is still pending, with companies going out of business and employees being laid off,” warned Odinius. “That will continue into 2021 – it’s not over yet.”

He also highlighted how any recovery in the automotive industry will be linked to increasing sales of alternative powertrains as national governments offer grants only for sustainable technology.

Coronavirus accelerates underlying trends

The electrification of company cars is one of the areas where coronavirus is acting as a catalyst to accelerate trends, some of which challenge the size of fleets, said fleet consultant Yves Helven, managing director of Connector, who works with Fortune 500 companies. 

The digitisation of business models, for example, is speeding up as major corporates realise that working from home is achievable and productive.

“Company cars are less important to keep businesses running,” said Helven.

In addition, procurement departments that were already targeting under-utilised assets now have car fleets in their crosshairs as they seek savings across their businesses.

The future corporate fleet model

“The next corporate fleet model still has company cars, but fewer of them, and two new elements – flexible access to cars for seasonal or extra operational needs, and mobility solutions,” said Helven. “Companies are moving from asset-based to trip-based fleet management. The TCO (total cost of ownership) of employee movement needs to decrease.”

He forecasts a decline in fleet TCO in the short-term, both: “Because it needs to and because cars will be driving fewer kilometres. If a client decides to recalculate a lease contract they will make some savings, and they will also postpone the order of a new car, which they expect to be more expensive – they expect lease rates to go up in 2021. And in the long-term, TCO needs to go down as almost all fleet owners have savings targets, sustainability targets or efficiency targets. All these targets lead to fleets with fewer cars.”

The Car Remarketing Expert Track 2020 is sponsored by Macadam and Manheim Express Modix. You can find the programme and registration details of the upcoming webinars here.

Authored by: Jonathan Manning
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