Supply issues impact German fleet market

25 October 2021

Germany’s  fleet market not only accounts for 25-30% of all new registrations but is also an important source for the used-car market, through de-fleets. Andreas Geilenbruegge, head of valuations and insights at Schwacke (part of Autovista Group), takes a look at what is happening in this sales channel.

Supply shortage and increasing residual values (RVs) of vehicles are interrelated and have serious implications for fleet operators and leasing companies in the current pandemic-impacted economic climate. Not least affected is total cost of ownership (TCO), the largest share of which (over 40%) is generated by depreciation.

Any business that regularly deals with larger numbers of remarketed vehicles faces the immense challenge of availability and timing. On the one hand, affordable replacements must be provided in the light of rising list prices and falling discounts. On the other, it can be lucrative not to de-fleet immediately, but to wait for the upward trend in sales prices.

Another question arises in the case of extended use and contract extensions. Is the expected loss in value, due to greater age and mileage, positively balanced with pricing developments? At the same time, shorter contract periods of new acquisitions can bring forward the time of sale time to the expected price peak in 2022-2023. It would also create sufficient volumes in these times of scarce supply of young used vehicles to achieve adequate sales and returns.

All of this, of course, assuming that the semiconductor production issues do not continue for years to come and that future replacements may not become uncertain and expensive due to a lack of discounts.

The work of fleet operators and marketers is made even more difficult by the fact that battery-electric vehicles (BEVs) and plug-in hybrid electric vehicles (PHEVs) have been entering fleets in large numbers since 2019 which further exploded in 2020 after incentives doubled. An innovation incentive, reduced company-car taxation and low-threshold risk due to manageable usage time and fuel/energy costs mostly borne by the company, make it attractive for company car drivers to switch to BEVs and PHEVs.

Autovista Group’s expectations of their remarketing prices were pessimistic until the beginning of 2021, when significant volumes were threatening to hit underdeveloped demand. But this year’s supply crisis means PHEVs and even BEVs are now being used as substitutes for prospective buyers of new and used internal-combustion engine (ICE) vehicles, thus removing the volume and price pressure.

In short, what is available now is being bought and sold, and increasingly at unimagined prices. How long this will last depends largely on the production and supply of ICE vehicles. It also remains to be seen whether a new federal government will manage to make the long-term use of electrically-chargeable vehicles (EVs) attractive, and not just the initial purchase and commercial use.