In the first of a three-part series on fleet management, Mark Beyer looks at the changing profile of the industry.
FLEET management is by any measure a large and growing industry.
It has undergone rapid growth over the past six years, as organisations recognise the benefits of taking vehicles off their balance sheet (via leasing) and outsourcing the running of their fleet (via fleet management).
There has also been a major shift in financing patterns, with operating leases and novated leases growing at the expense of straight finance leases.
The total size of the industry has more than doubled over the past six years.
The 11 members of the Australian Fleet Lessors Association held more than 213,000 units (cars and trucks) at the end of 2002, up from 112,000 at the end of 1996.
In addition, they fleet managed a further 61,800 vehicles, up from 27,000 in 1996.
The ‘fleet management’ function involves providing services such as maintenance, repairs, breakdown and fuel cards, but not the funding of the vehicles.
Another sign of growth was that AFLA members financed just over 90,000 units during 2002, compared with 43,400 in 1996.
Interestingly, the average cost declined slightly over this period to $29,527.
National Australia Bank’s Custom Fleet is widely acknowledged as the biggest player in the national industry, followed by LeasePlan, owned by Dutch banking giant ABN Amro.
They are followed by the likes of ORIX, GE Capital Fleet Services and ANZ Banking Group’s Esanda Fleet Partners.
Other players in the industry include Commonwealth Fleet Lease and the financing arms of the major vehicle producers such as Holden, Ford and Toyota.
Across the industry as a whole, the most popular funding option is operating leases that include vehicle maintenance and other services.
Under an operating lease, the residual risk (i.e. the sale price of the vehicle at the end of the lease term) remains with the lessor and rentals are fixed.
This option accounted for about two thirds of all new vehicle leases during 2002.
The proportion was even higher for truck leases.
The other option that has become increasingly popular is novated leases, which accounted for about 15 per cent of all new vehicle leases.
Novated leases deliver a high degree of flexibility and can be written as fully maintained or non-maintained.
While employers are responsible for making lease payments to the financier, employees sub-lease the vehicle.
In practice, therefore, the employee must service the lease and is also responsible for making the residual payment at the end of the lease term.
Novated leases enable employees to select the make and model of vehicle, instead of having to take the standard vehicle in the company fleet.
The lease payments are normally included in the employee’s salary package and they are generally able to retain the vehicle if they change jobs.
Novated leases are used almost exclusively for passenger vehicles, as opposed to light commercial vehicles and trucks.
Operating leases with funding only (i.e. no maintenance or services) have become steadily less popular over recent years while finance leases, where the lessee retains the asset on their balance sheet and takes the residual risk, have always accounted for only a small market share.
The growth of novated leases could have eroded the market share of Australia’s big four car manufacturers, according to a survey by the Australian Fleet Managers Association.
The 47 respondents to its latest survey, which were mainly private companies and government agencies, were asked to nominate their purchasing intentions by vehicle make.
One third planned to buy Holden vehicles, 26 per cent planned to buy Ford vehicles, and Toyota and Mitsubishi each held about 12 per cent market share.
A further 12 per cent planned to buy vehicles from other manufacturers. The survey also found that auctions were overwhelmingly the preferred method of disposing of vehicles at the end of the lease term.
Internet sales, which accounted for a small portion of sales in the 2002 survey, disappeared in the latest survey.
While leasing is becoming more popular, the AFMA survey found that a substantial proportion of vehicles are still purchased.The respondents to its survey said 16 per cent of passenger vehicles had been purchased, 20 per cent of trucks had been purchased and 34 per cent of light commercial vehicles had been purchased.