Could the effects of Brexit bring growth to the leasing industry?
06 December 2016
Author: Debbie Wood
The vote to leave the European Union may have been five months ago, but the topic is still very much on people's minds. And now the effects are starting to be felt by the automotive industry, it's left many of us second-guessing what the market will look like in 12 months' time.
granitekitchen caught up with Ogilvie Fleet managing director Gordon Stephen to find out what he believes will be the key issues for the leasing firm and the industry as a whole moving forwards.
Congested used car market
Stephen is predicting that residual values will be a key challenge over the next couple of years as the recent growth in new car registrations subsequently oversaturates the used market.
"I think residual values will take a knock over the next 12-24 months. I think companies, including us, will not do as well with vehicles coming off fleet," he said.
The popularity of personal contract purchase and personal contract hire also means there's less desire for used vehicles, so leasing companies may find themselves making a smaller return when the cars or vans come back, and put monthly prices up as a result.
Personal leasing has, in some cases, offered drivers a more attractive proposition than the company car. Taking the cash allowance allows drivers to pick what model they want, and with some manufacturers offering low-cost deals, employees could even be left with change in their pockets.
However, if prices continue to rise and the exchange rate remains weak, Stephen believes these deals are going to prove more difficult to sustain, which could swing things back in favour of company cars.
"PCH has been the growth area. Potentially, that's going to take away from the fleet side. We need to be concerned that people will come out of company cars because they can get a better deal elsewhere," Stephen tells granitekitchen. "However if these prices go up because of the exchange rate, and the fact that the manufacturers cannot support it so much, then that could make PCH not as attractive, which could throw back into leasing's favour.
"If manufacturers keep putting their prices up," he continues, "it'll have to have a knock-on effect on lease prices. What it will also do is slow the market down and the number of registrations will start going down too. I think manufacturers will be less likely to want to put vehicles into the UK because it's not as profitable, so for leasing, it may end up being good for us ironically."
Another potential key issue for leasing companies could be that, because of the current economic uncertainty, their customers opt to keep hold of vehicles for longer, something Stephen is prepared for.
"It's the uncertainty which makes companies reluctant to invest. When customers don't know what's going to happen over the next 12 months, they're more likely to keep hold of our vehicles."
Plenty of funding
It seems the banks still view leasing as a growth area, as available funding for these companies has remained relatively unaffected following Brexit.
Rewind back to 2008 and Ogilvie found getting funding very tough and at a high premium, something that has improved drastically over the past few years. Last year, the firm secured almost £100m of funding from HSBC.
"I guess for the first time we've got no concerns about funding. It's allowed us to compete with other leasing companies on price, as funding is much cheaper than before so we're much closer to the competition," Stephen says. "But certainly, just now, the banks see leasing as a very good way of getting money out there. All the big leasing companies are expanding their fleets."
The privately owned company currently operates a fleet of over 13,500 vehicles and is growing at around 1,000 vehicles a year.
"We would like to grow to 20,000 vehicles and in the next three or four years. I think we will achieve that, but if we don't make it then it's not a disaster" says Stephen.
Customer service is key
Ogilvie has built up a good reputation when it comes to its customer service, winning numerous awards within the industry. According to Stephen, clear end-of-contract pricing is a key part of the firm's approach to keeping the customer happy.
In 2014, the company introduced its 'transparency policy' in respect of damage charges, by telling customers what they would pay at the outset of the contract if there was any repair work needed at the end of the term. Other leasing companies have followed suit; however, Ogilvie is one of the few to offer fixed pricing across all grades of vehicle.
"Everything is completely transparent in terms of damage charges. If you return a car to us and it has a scratch then there's a fixed price. You sign an appraisal when the car comes back and then you know how much you're going to be charged," Stephen explains.
"It's so difficult to get new customers on board, and once you've got them you need to make sure that you treat them fairly and you give them a good service. I think if you do that, you've got a really good chance of repeat business."
Getting connected with drivers
An important area of focus for Ogilvie moving forwards is online services to drivers, and once its Happy Drivers app gets going, Stephen believes it'll be up there as one of the most interactive driver apps in the marketplace.
"We want to get more connected with the drivers, so we're going to invest with that - we're spending a lot of money with our IT company so we can deliver what the customer wants. Ideally we'd like to offer something that isn't out there and push ourselves forwards."
Launched last month, the Happy Drivers app is also available to people who are not Ogilvie Fleet customers and is free for Android and Apple users.
The key features include:
- 'Find my nearest' fuel station, EV recharging point, tyre centre, car park or supermarket
- Breakdown and replacement glass service providers
- Driving tips, including for driving abroad as well as what to do in the event of an incident
- Company car benefit-in-kind taxation calculators
- Vehicle wear-and-tear checklists