Reasons to be positive
A new year brings a fresh start and reasons to be cheerful. For the rental and leasing areas of automotive it’s a case of keeping calm and carrying on
Toby Poston
Corporate affairs director, BVRLA
Despite decade-high interest rates, turbulence in the used car markets and a stagnating national economy, we have every reason to believe that 2024 will bring more positive results.
Looking at the results of the BVRLA’s annual Industry Outlook Report, leasing and rental companies are feeling bullish. There is a more positive outlook on virtually all key business metrics than this time last year.
Through 2023, the fleet sector has seen improvements in several areas, albeit from a low starting point after the turbulence of the year before. New car and van supply have improved dramatically, finance costs appear to have stabilised (although are still at historically high levels) and even the outlook for the used car and van markets is more optimistic than 12 months ago.
Growth is back on the agenda for the industry after two years of vehicle supply restricting expansion plans. That is not to say we can get carried away. BVRLA members are in no doubt that trading is going to be challenging in 2024 given macroeconomic conditions, but industry leaders are confident that they offer products and services that thrive when the going gets tough.
An uncertain economy drives demand for flexible products. Rental companies have always been able to offer such flexibility and move with market needs.
Such solutions allow business customers to avoid tying themselves into long-term lease commitments when a long-term outlook is unclear.
For leasing companies, there are hot and not-so-hot product lines. The Industry Outlook Report shows that demand for business contract hire cars and vans is expected to be stronger in 2024, with the sharp increase in prices underlining leasing’s ability to make new vehicles affordable.
“BVRLA members are in no doubt that trading is going to be challenging in 2024 given macroeconomic conditions, but industry leaders are confident that they offer products and services that thrive when the going gets tough”
Green shoots are being widely seen, but not everything in the garden is rosy. BVRLA members are almost universally reporting alarm at the levels of residual value risk they are carrying. That alarm is a blaring klaxon for battery electric vehicles. Prices of second-hand BEVs have been in freefall for a year, tumbling by more than 30%.
This situation has led to mounting calls among industry players for Government intervention to stimulate demand for BEVs among private motorists to avoid a glut of unwanted plug-in vehicles developing. Moreover, the Government’s recent decision to extend the deadline for the sale of petrol and diesel models until 2035 has diluted any sense of urgency among those needing a bigger push.
Cost remains the biggest factor. Data shows that only when used BEV prices fall to the same level as used internal combustion engine equivalents do they find buyers. If this trend continues, lease rentals of BEVs will need to rise sharply to cover higher depreciation costs, given their higher acquisition prices.
The green transition will enter a new phase in 2024. Despite the ICE deadline being diluted, the Zero Emission Vehicle Mandate should come into effect in early January 2024. It will force manufacturers to ensure an ever-rising share of their car and van sales are electric. This artificial stimulus is already seeing rental and leasing companies facing pressure to include electric vehicles within their orders, whether there is customer demand or not.
Where the Mandate should bring a positive impact is in the likely return of discounts and marketing incentives from OEMs seeking to stimulate EV sales. This is coupled with the continued rise of new, EV-only manufacturers entering the market, bringing more competition and choice.
As ever, the expectation for the coming year is to anticipate change. Some members are suggesting that maintaining current performance would mark a successful year, while others have ambitions to go further with revised services that meet changing fleet needs.
