The FN50 breakdown

This year’s FN50 gives a revealing insight into the health and condition of the UK’s contract hire and leasing industry.

For the second year in succession, the FN50 fleet size has fallen due to the continued fall out from the recession, although the rate has slowed.

This year’s fleet size of a little under 1.3 million is 4% lower than 2009 which itself was down 9% on 2008 when the FN50 peaked at almost 1.5 million vehicles.

This brings the fleet size in line with the FN50 of 2001.

The five biggest leasing companies have seen their combined fleet size falling since 2006 – this year it has slipped another 4%, in line with the overall FN50 reduction.

However, the top 10 combined fleet size has fallen at a lower rate of just 2.7%.

Half of the top 10 grew their risk fleet size year on year, a feat matched by 15 other companies in the FN50.

The most notable, in pure volume terms, is ALD. The French bank-owned business is fulfilling its predictions of rising up the FN50 with a 20% year-on-year increase in fleet size. The top 10 company aspires to be a top three player within three years.

In percentage terms, the biggest year-on-year rise was achieved by Translinc.

Relatively small by FN50 terms, the company, which specialises in offering funding to the public sector, nevertheless swelled its risk fleet by a weighty 65%, taking it from 1,636 to 2,612, of which more than 2,500 are vans.

While the general feeling among the FN50 is that companies are starting to renew their vehicle fleets, a view backed by rising car and van sales, many leasing companies have yet to reflect this renewed optimism by growing their own risk fleets.

With bank-owned, dealer-owned, manufacturer-owned, venture capitalist backed and independent leasing companies making up the FN50, plus a couple of fleet companies that have moved into contract hire and leasing, no ownership model shows signs of greater success over any other.

However, interestingly, a larger proportion of dealer-owned businesses increased their fleet size last year.

Of the nine bank-owned companies, which account for almost half the FN50 risk fleet, just two increased their fleet size.

Likewise, only two of the seven manufacturer operations grew but five of the 11 dealer-owned businesses are running more cars and vans than last year.

Meanwhile, three of the five management-owned companies increased their risk fleet size, a feat matched by two of the three privately-owned businesses.

Bank-owned leasing companies now fill all the spots in the FN50 top five.

Liquidity continues to affect independent contract hire companies with a number of funders withdrawing from the market.

Funding is starting to ease but remains very expensive. This industry is, however, seen as a good risk.

No leasing companies have de-faulted during the recession which means banks are happy to lend – at the right price.

The issue remains their balance sheets and it’s leading some to consider syndication on funding which could improve competitiveness.

Most FN50 companies highlighted unprecedented demand from their customers to deliver financial enhancement while retaining or improving the operational performance of their fleet vehicles.
In addition, the management of a customer’s vehicle fleet has increased in complexity as a growing choice of new fuel and engine variants enter the market.

Fuel remains a significant issue, but residual values are no longer high up the agenda. In the two previous years, residuals were seen as the biggest issue for the future viability of the sector due to the significant volatility of values.

Views are mixed about the next 12 months with 40% expecting RVs to rise and 34% forecasting a fall. However, the overall movement predicted is less than 1%.

Funding and the state of the economy remain the big two worries for most FN50 companies.

Concerns are raised from one leasing chief about the Bank of England’s decision to remove Quantitative Easing, which will affect liquidity by taking money out of the system.

Business confidence has been shaken by the recession and it will take some time for it to be restored, according to another executive.

And then there’s the forthcoming lease accounting rules which will force companies to disclose all leased assets on their balance sheets, including cars and vans.

It has been played up in Europe via organisations like Lease Europe but the impact in the UK, initially at least, is expected to be minimal.

It only applies to companies that report to the International Accounting Standards Board. Most UK firms report to the UK’s generally accepted accounting principles – GAAP - and they will be unaffected until these converge with IASB standards. This is unlikely to happen for at least five years.

Possibly a couple of thousand companies will be affected in the UK but they should already be accounting for lease cars in the notes section of their annual accounts – the figures aren’t hidden from investors.

It’s unlikely to have much impact on company car funding methods in the UK, despite what some have been vocally saying over the past year.

But it will require some changes, not least for van leasing. Fees relating to maintenance, fleet management, and other service costs are excluded from the new rules.

With only the finance element having to be reported, leasing companies may be asked to separate the finance and maintenance charges.

That’s not a problem for a leased car, where the finance and maintenance are noted separately for VAT purposes, but this might not be as easy for a commercial vehicle.

Where the finance element cannot be separated, the customer would have to set out the full rental value on their balance sheet.

The IASB rules also raise an interesting question about salary sacrifice cars, which will also have to be accounted for on the balance sheet.

With a growing number of companies introducing salary sacrifice as a staff benefit, will they want to be burdening their P&L with these liabilities?

As one leasing expert told me, how the figures are shown is all about the quality of a company’s relationship with its auditor.