Motability props up Q3 as rental, true fleet fall

This editorial feature appears in the October 24, 2019 issue of Fleet News and is sponsored by Hitachi Capital PLC Vehicle Solutions

Vauxhall is holding true to its promise. After a rise in rental registrations over the first half of the year, general sales director James Taylor told Fleet News the company would be pulling back in Q3 and Q4 ahead of a much bigger withdrawal next year.

Subsequently, Vauxhall slashed almost a third of its rental registrations in the third quarter, according to data from the Society of Motor Manufacturers and Traders (SMMT), taking it to 6,678. Despite this, it is still up overall year-on-year, by 8.5%, and it remains the biggest contributor to the short-term hire channel, on track for 40,000 units by year-end. That could change in 2020 as an electric vehicle (EV) launch plan enables Vauxhall to adjust its sales mix.

Taylor explains: “It would be wrong to sell ICE (internal combustion engine) vehicles in low margin channels that we don’t know yet could be supported by BEV (battery electric vehicle) and FEV (full electric vehicle). So, we could be halving our (rental) volumes, but without a change in our overall UK market share.”

Read the sponsor's comment by Jon Lawes, managing director, Hitachi Capital Vehicle Solutions 

Vauxhall continues its tactical withdraw from courtesy cars, resulting in a reduction in sales to the fleet other sector. This has been partially offset by successful trading in leasing, with registrations up by 11.5% over the course of the year, albeit they slipped slightly in Q3.

Strong registrations in the private sector – registrations are up by more than 8,700 units to 20,887 in Q3, with big contributions from Combo Life and Corsa – have also enabled Vauxhall to exit low profit contracts without too big an impact on its total market share.

Across the market, rental registrations fell away in the third quarter by 2.5% although year-to-date (YTD) they remain up by 3.5%, or 5,568, at 179,538 units following rises in Q1 and Q2. Rental, which now accounts for 9.6% of total registrations (up half a percentage point from 2018’s 9.1%), is one of just two segments to rise year-on-year, with the fastest growth in Motability, up 8%.

In contrast, private sales are down 2.3% (but level in Q3) and fleet other has slipped by 14.4%. Leasing was up 3.2% in Q3 after two quarterly dips and is now flat year-to-date. Consequently, true fleet – as a measurement of leasing plus fleet other – is down 7.5%, or 48,103 cars.

The rental gap between Vauxhall and second place Ford narrowed considerably in Q3, after the latter increased its rental registrations by 90% to end just shy of 5,500 – only 1,100 behind. Over the course of the year to date, Vauxhall is still ahead by 12,000 cars, although the position will change if it makes good on its promise to potentially halve sales next year.

After a measured Q1, where it cut rental by 22%, Ford has now undergone two successive quarters of growth.

However, Q3’s increase was more about rephasing after a low 2018, according to the company.

A spokesman for Ford said: “This was solely down to 2018 Q3 Focus supply, which was unable to fulfil the rental demand. Q4 2019 is back on track, rather than reflecting growth/higher prioritisation.”

Nevertheless, Q3, which included the important September plate-change, didn’t produce spark-ling figures for Ford, which saw reversals in leasing and fleet other, plus a small dip in private sales.

Fiesta, C-Max and Mondeo have been hit particularly hard this year, but Focus provided a bright spot with fleet salesº up by a third as supplies freed up.

The fact that, overall, Ford was largely flat in Q3 was primarily down to its rental registrations, which accounted for 9% of total sales, up from 4.8% a year ago.

Year-to-date, Ford, which has just appointed a new fleet director, Neil Wilson, is running at 10.8%, a percentage-point above the industry average.

The premium manufacturers are on very different strategies when it comes to the short-term market.

Audi, guilty of pressing too hard in years past, has made a decisive move to limit its rental business. In Q3, it registered just 224 units, down 80%, almost slicing its YTD number in half, at 2,273. Rental now accounts for just 2% of its total volume YTD and that decision largely explains the fleet registrations reduction seen by its two biggest sellers, the A3 and A4, this year.

Some of that volume has migrated to the Motability sector (sales are up 88% in Q3), which, while lower profit, does at least operate a stable three-year replacement cycle with a well-managed remarketing strategy to control residual values. And, while the carmaker is struggling in the private market, leasing is up by almost 2,000 units at 9,877, marking a turnaround from the first half of the year.

In contrast to Audi’s rental reversal, BMW and Mercedes-Benz rental sales continue to rise. In BMW’s case, back-to-back quarterly increases have seen 5.3% more cars go to the short-term market so far this year.

At almost 11% of total sales, it is slightly above the market average – and the highest among the three German premium marques.

Rival Mercedes-Benz, while striking hard at rental in Q3 with a doubling of registrations, is currently running at 9.2% of business over the first nine months of the year. However, rental and Motability account for almost all of Mercedes’s 2% total sales increase this year.

After a first half of rental reductions, Volkswagen made a large contribution in Q3 with a 59% near-1,000-unit increase.

Despite this, the carmaker remains down YTD, with rental just 6% of its channel mix. But, with reversals in leasing, fleet other, private and captives, the only sector it is up in so far this year is Motability, following a 35.8% rise.

The fortunes of the French trio are markedly different.

Citroën has continued its approach of registering the majority of its rental business in the first half of the year, only in greater volumes as it ended the first six months up almost 42% at 5,587 – however, that was in line with targets.

In Q3, it pulled back year-on-year by 58% to 378, although the actual saving is comparatively low, at just 521 units.

Some 14% of its sales now go to rental, up from 11.7% a year earlier, as weakening performance in private and leasing knocked overall registrations. Citroën did enjoy some late quarter success in leasing, though, with Q3 up almost 22% on 2018, helping to mitigate some of the decline in the first half of the year. C3 Aircross and Berlingo MPV has been the biggest successes.

Come the end of the year, Martin Gurney, PSA director of fleet and used vehicles, says the rental mix as a percentage of total sales will return to close to the industry average of 9.6%, suggesting almost no rental business for the rest of the year (last year it only registered 591 in Q4).

PSA partner Peugeot has continued to put more vehicles into rental after its third consecutive quarterly increase this year, this time by 46%, taking YTD rental volumes to 8,582, just over 13% of its total sales.

Peugeot has also consistently placed cars into Motability in greater numbers, resulting in a YTD increase of 37%. Like Citroën, it is now selling more cars via Motability than in leasing, according to the SMMT data.

Renault is the Gallic manufacturer enjoying the greatest success in 2019. Leasing registrations are up 69% year-to-date, at 4,595, thanks to a 106% surge in Q3.

Meanwhile, after a big Q1 in rental, Renault has started to reduce its exposure with consecutive negatives, including a 6.3% drop in Q3.

It has benefited from a strong uplift in Zoe sales, partly buoyed by the electric version, and renewed fleet interest in Clio.

Demand for EVs from fleets is accelerating with most manufacturers enjoying success.

Excluding the Mitsubishi Outlander PHEV, which isn’t separated out in the SMMT data, the biggest increase year-to-date in fleet registrations was the BMW i3, at 2,014, overtaking the Nissan Leaf (down 5% to 1,839) to become the UK’s second biggest selling electric car (combined pure electric and range extender) this year.

Topping the table is the Hyundai Ioniq – available as pure electric, plug-in and hybrid – with fleet registrations up 16% at 5,762. It marks a successful year in fleet, so far, for Hyundai with increased sales in leasing (albeit, Q3 was down YOY) enabling it to reduce its exposure in rental by 32%, or 4,375 units, to 9,196.

The announcement of the benefit-in-kind (BIK)tax tables for the next three years from April 2020 will help to give some certainty to the market, allowing fleets to select the best models for their choice lists and advise company car drivers on their options.

Quarter four figures are likely to be strong compared with 2018, but the biggest increase will come next year when the new tax tables take effect, reducing BIK for a pure electric car from 16% today (£213 a month on a £40,000 car for a 40% taxpayer, according to Deloitte figures) to zero for tax-year 2020/21.

The option of having a car for nothing – or for potentially £100 per month for a plug-in hybrid; half that for a 20% taxpayer – should prove irresistible to any employee wavering about whether to take car or cash.

Mercedes-Benz sprints into fifth place

The LCV fleet market is up year-to-date by 4.24% with five manufacturers enjoying double-digit growth.

However, September was down 26%, blamed by the SMMT on regulatory changes (primarily the introduction of real driving emissions testing for all new registrations) and economic uncertainty due to Brexit.

Overall, Mercedes-Benz led the way with an increase of 45.5% thanks to strong performances by the Sprinter, up 56% to 14,709, and Vito, up 41.5% to 2,425. Citan, meanwhile, is down by 27.5% at 1,038 units, registering barely a third of the co-developed Renault Kangoo, which sits on 2,714, up 44.5%.

It puts Mercedes-Benz on 18,701 vans for the year so far, overtaking Citroën to move into fifth place in fleet. It is also enjoying a successful retail year – overall Mercedes is now the third biggest van manufacturer in the UK behind Ford and Volkswagen, despite a 42% reversal in September.

Vauxhall also had a substantial boost in fleet registrations, with a 40% rise year-to-date, thanks to Combo and Movano. It was one of the few manufacturers to also register an increase in September, up 8.5% on 2018.

Kangoo isn’t Renault’s only success so far; Trafic and Master are also up, helping the company to a 32.6% rise in fleet registrations, although it took a Q3 hit to the tune of 52%, close on 1,000 units down on 2018.

Fiat and Mitsubishi are the year’s other big winners. Fiat, with a 12.6% rise in registrations to 3,399, thanks to growth in Fiorino, Doblò Cargo and Ducato, and Mitsubishi with a 19% rise to 5,712 (no model data available).

Read the sponsor's comment by Jon Lawes, managing director, Hitachi Capital Vehicle Solutions 

Despite a modest growth in registrations in September, the past three months have seen a continuation of many of the trends that have come to define a turbulent year for the industry.

We are, however, seeing the seeds being sown for an eventual transition to alternative-fuelled vehicles (AFVs), underlined by the success of models such as the Hyundai Ioniq, and manufacturers now offering a wider range.

September saw good news for battery electric cars in particular, with the category posting the biggest percentage growth of all fuel types, up 236.4% as new models boosted registrations.

For fleets to truly adopt AFVs, the Government must review current policies, implement long-term incentives and introduce the necessary infrastructure.

The sector as a whole has struggled over the course of the past three months, but the September surge offers some encouragement for the rest of the year.

While the leasing sector has looked largely flat, manufacturers, including Renault, have seen notable growth although weak confidence and uncertainty is preventing many fleets, businesses and consumers from committing to big ticket purchases.

Overcoming Brexit uncertainty will be critical to building momentum. But, along with better petrol and diesel options, which still have a role to play, we’re already seeing how the new BIK rates, combined with our experience of introducing and running electric vehicles, provide a great opportunity to accelerate demand as we head into 2020.