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.
- 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.