INFLATION in the leasing market has hurt suppliers' profitability and led to rate rises for fleets, according to the British Vehicle Rental & Leasing Association's 1999 Industry Review. Contract hire companies identified the state of the used vehicle market as their primary concern during 1998, and blamed the depressed state of the used car market for the squeeze on margins.

More than half of the companies surveyed reported rate increases of 1%-6% during 1998, while a further 18% achieved increases of up to 16% in an attempt to offset projected shortfalls in residual values. But these gains in revenue were cancelled out by escalating depreciation and increasing maintenance expenditure: 45.6% of contract hire companies experienced increases in their maintenance budgets of between 1%-6%, and 61.4% predicted further increases.

The silver lining for contract hire companies is the growing demand for leasing and fleet management services, with year-on-year volumes up by 11% and 31.5% respectively. The BVRLA's review says UK plc is still concerned about the prospect of a boom-bust economic cycle, leading more companies to focus on their core business and outsource fleet management.

But this does not spell the end of the in-house fleet manager, according to Norman Donkin, director general of the BVRLA. He said the outsourcing of routine functions could enhance fleet managers' position within a company by freeing their time to become more strategic in outlook.