Among the many industries impacted by the COVID-19 pandemic, fleet management has also felt the effects.
The industry has seen a reduction in vehicle sales across the world. Car manufacturers are exploring options such as contactless delivery through online booking channels.
As manufacturers return to production, global automotive sales forecast is revised to 20% reduction from the previous forecast of 22% , with sales of approximately 72 million units, according to Beroe Inc, a procurement intelligence firm. According to the results of a recent market intelligence report, Beroe found that car and alternate mobility manufacturers are experiencing high impact, while leasing companies not as much.
In terms of production capacity, car manufacturers in the U.S. and Europe are resuming production but with limited capacities and ensuring health safety measures are in place for employees. Fleet activities across the globe have been slow to resume. According to Beroe, the demand for fleet vehicles has reduced worldwide. As a result, OEMs are expected to offer high discounts, as the residual value is likely to reduce and lease prices are expected to rise as residual values and profitability reduce.
Demands from organizations have also reduced as there is limited business activity. The economic impact of the pandemic is visible with organizations preparing strategic cost saving plans. Organizations with vehicle assets are considering sale and lease back options to improve cash flow. The B2C segment is affected the most now, some of the organizations are engaging in new deals as they are able to obtain them. If the pandemic continues, leasing companies are expected to face payment default risk from SMEs and private lease portfolios.
The residual value of vehicles are expected to go down in the coming months as car manufacturers are expected to offer high discounts. Economic challenges are visible, which can stand as a hindrance to demand for fleet vehicles. Organizations are expected to extend their buying cycles by holding on to their assets for a longer period of time while leasing companies are expected to support this by offering contract extensions. OEMs are accepting new orders while production orders are being evaluated for delivery (units, timeline) adjustments.
Some Key Findings From Beroe’s Study:
- As new leasing activities are slowly resuming, there will be extended lead times, and leasing companies are also offering contract extensions to retain customers. Profitability is expected to reduce, and this in turn, will have an impact on lease prices in the future.
- Organizations can swap high mileage cars with low mileage cars, which can help them to extend the buying cycle. Carpooling and ride sharing programs to be minimized for the next few months.
- Once the pandemic is over, organizations can take measures to improve the total cost of mobility by adopting ride sharing, carpooling, mobility budgets and other alternate mobility models to reduce the overall fleet budget
- It is an opportune time for fleet owners/operators to begin or continue the direct negotiations with OEMs. Purchase agreements can be inked only in regions where production has resumed with pricing/rebates and availability of new models varying by region.
- Alternate mobility services like ride hailing, carpooling are suspended. Ride hailing companies are operating only to cater to essential services. A decrease in adoption of shared mobility is expected for a short term.
- Organizations to have a close watch on the TCO of the vehicles and utilization rates. Essential service providers and cash rich companies are preparing plans to benefit from the current market situation
Similar to the 2008 global financial crisis, the fleet industry is at the beginning of a cycle, which can extend for a few years. Discounts can be expected in the form of penalties for delivery delays in the 2020 program year and normalizing price increases for the 2021 program year. Higher discounts can be expected for large fleet orders, and discounts can go as high as 20 percent for direct fleet purchases. Delayed payments from the two critical segments – SMEs and B2C can have significant financial burden on the leasing companies.
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Tough times for the car manufacturing and logistic industries. Definitely need to find a way to adapt during this pandemic.