COVID-19 delays fleet renewals

07 May 2020

7 May 2020

Autovista Group senior data journalist Neil King considers the impact of the coronavirus (COVID-19) crisis on fleet renewals. Beyond the economic impact on companies and employees, resulting in lower demand for company vehicles, there are implications of increased working from home and fewer face-to-face business meetings.

As dealerships look to reopen across Europe, activity will quickly resume. However, the economic impact of the COVID-19 pandemic will inevitably lead to subdued demand for new vehicles. Companies will have to contend with lower revenues and reducing their workforce, if not filing for insolvency, and so fleet renewals will be cancelled, or at least postponed.

The COVID-19 crisis means both larger companies and small and medium enterprises (SMEs) will struggle to stay financially liquid and so thoughts will turn to postponing vehicle replacement. Numerous companies will be considering the prolongation of three or four-year leasing contracts to four or five-year contracts and many have undoubtedly already done so. This may not always be the cheapest solution but, in addition to the outright cancellation of renewals, it will result in lower numbers of fleet registrations.

A reduction in fleet purchases would limit the supply of cars on the used-car market, potentially impacting residual values (RVs), especially for three-year-old cars. Manufacturers may introduce aggressive leasing rates to make renewals more attractive for fleet customers and, in turn, sell more new vehicles. Nevertheless, the combination of bolstered supply volumes and attractive financial offers would still potentially impact RVs.

Working from home – a ‘new normal’?

The impact of COVID-19 on fleet renewals may be further compounded by employees commuting less as they continue to work from home, leading companies to rethink policies both in terms of the size of the fleet and the vehicles themselves.

The pandemic has been a major driver of digitalisation and increased working from home. Many companies that previously resisted allowing employees to work from home have changed their position, albeit often through necessity. Others have opted to close for a period but the more relaxed approach towards working from home will inevitably remain after the crisis has ended.

The change will not apply to all companies, employees will not only work from home and sales people will not entirely stop meeting their clients in person – although business travel will be curtailed. However, a change in working patterns is certain and may influence fleet purchases as:

  • Companies review their policies and potentially cut allowances or pay more attention to total cost of ownership (TCO). This would limit vehicle choices more than now, resulting in downgrading and downsizing; and
  • Employees commute less and sales people participate in more online meetings and conduct fewer in person, reducing mileage rates and changing vehicle needs.

Autovista Group has previously highlighted the potential acceleration of electromobilty as pollution decreases and governments introduce new incentive schemes, which make electric vehicles (EVs) more financially attractive to both private buyers and companies. Range anxiety is a rather irrational fear and so will not entirely disappear but less congestion and lower mileages should make EVs a viable proposition for more people.

Aside from reducing the size and shape of fleets, companies may also embrace shared fleet solutions, which numerous manufacturers are developing, as an aversion to shared mobility, due to a fear of infection, dissipates. In conversation with Autovista Group, Alain Duez, international senior business advisor and partner of Fleetcompetence Group, quoted recent research that revealed one quarter of fleet managers were already looking more seriously at shared mobility and providing mobility budgets for their staff. We could, therefore, foresee a new trend, based around mobility packages, but a radical change is not envisaged – at least in the short term.

Cost-benefit analysis

The company car provides employees with practical mobility and is typically part of an employment package, and unpicking it is not easy. In Italy, for example, the national collective agreements mean that once an employee is entitled to a company car as a benefit, the company cannot simply remove it. The only option is to give the employee the same net monetary amount on top of their salary but this is much more expensive for the company, because of the higher taxes on salaries, and so is a rare occurrence.

There are also two types of fleet to consider:

  • Essential fleets. Tradespeople such as plumbers and electricians need transport to visit clients and cannot do this without a vehicle, let alone from home. The same rule applies to the logistics industry and for some parts of the sales function as telesales, or virtual sales, may not be appropriate for all types of transactions; and
  • Commodity fleets. Companies provide vehicles to employees, not necessarily to carry out their daily work, but as an incentive. This is cheaper for the company than offering the equivalent in salary, as discussed above, and is also more cost-effective than awarding a pay rise.

Some companies are indulging in ‘greenwashing’ – reducing the number of company cars and instead paying for employees’ public transport costs. This is naturally a risk for the automotive sector and an increasingly common practice for companies in urban areas.

The larger the fleet, the higher the fixed costs. This poses a risk if companies emerge from the crisis and seek to cut their fixed costs. However, there is a trade-off between lowering fleet costs and increasing wages, which are subject to higher taxes. The difference naturally varies depending on national income tax and company-car tax regimes.

In a situation where a family has both a company car and a private car, and the owner of the private car loses their job, the financial benefits of the company car would become even more important. Even in times of economic stability, a ‘commodity’ company vehicle offers benefits for the user.

For all the reasons outlined above, the cost-benefit analysis suggests that increased working from home will not heavily impact the number of fleet vehicles in the future. This assumes that both employer and employee continue to see the benefits – and that tax regimes are not amended to reflect the societal ‘new normal’ of working from home.

Autovista Group is, therefore, more concerned about the delay of fleet renewals, and the resulting impact on the used-car market and residual values, than a derailment of fleet volumes. 

Contributors to this article include: Roland Strilka, director of valuations, Autovista Group; Yoann Taitz, operations director, Autovista Group France; Sonja Nehls, managing director, car to market and consulting, Autovista Group; Andreas Geilenbrügge, head of valuations and insights, Schwacke Germany; Stefano Ferruzzi, country manager, Autovista Group Italy; and Ana Azofra, valuation and insights manager, Autovista Group Spain

Autovista Group’s latest thinking, insight, and data on the coronavirus pandemic and its impact on the automotive industry can be found here. Be the first to know when we publish something new - sign up to the Autovista Group Daily Brief.