Average replacement mileage dips below 50,000 for first time

Covid-19 expected to impact future replacement cycles, reports Gareth Roberts

One year ago, cars were being replaced, on average, every 36 months and at 52,377 miles.

Figures from FN50 2020, show the replacement cycle has stayed the same at 36 months. 

The average mileage, however, has fallen below the 50,000 mark for the first time and now stands at 49,944 miles, 2,433 fewer. 

The shortest individual average replacement cycle reported by a leasing company in terms of mileage was 10,000 miles, while the longest was 100,000 miles.

Time-wise, the longest average replacement cycle was 45 months; the shortest 12.

FN50 2020 has come too early to see any changes in replacement cycles as a result of the impact of Covid-19.

But the fleet and leasing industry has reported that contracts are being both extended and terminated early to help employers try to balance the books.

A little less than half (45%) of fleet decision-makers told Fleet News in its most recent Covid-19 survey that they believe they will be operating fewer company cars as a result of the economic impact of coronavirus.

Of those, 48% predict a reduction of less than 10%, while 37% foresee a 10-30% reduction.

Tusker CEO Paul Gilshan says: “We have seen some of our customers extend their existing fleet for a further year while they take stock of the ongoing and potential impact of Covid-19.”

He believes that a “mix of funding mechanisms and replacement cycles” will remain important.

Will car travel reduce?

Volkswagen Financial Services, says that, with more people working from home and many businesses expecting this to continue, car travel will, inevitably, reduce.

“If fleet managers believe a 25% reduction in business and commuting mileage is likely, we may find 36 months and 45,000 miles becoming the new norm over the coming years,” says Mike Coulton, fleet product and policy manager at the country’s second biggest leasing company.  

“You may also speculate that if the mileage is reducing then the term may lengthen – so 60,000 miles would still be prevalent, but over 48 months rather than 36 months – at which point other factors such as manufacturer warranties, service plans and, of course, the residual value (RV) position will all come into play.”

Tusker also reports an increase in four-year arrangements in its salary sacrifice fleet which, Gilshan says, is in part to do with managing affordability with the move to electric vehicles (EVs) and ultra-low emission vehicles (ULEVs).  

He adds: “As EV technology and range improves, there is likely to be the adoption of more two-year arrangements for the salary sacrifice market to enable early adopters to renew in a shorter period and enjoy the benefits salary sacrifice brings.”

Improved battery technology and carmakers offering longer warranties on EVs, could also lead to longer terms.

David Bushnell, principal consultant at Alphabet (GB), explains: “There may be a temptation to extend these vehicles over a longer contract period.”

Bushnell also suggests fleets should start thinking about the Government’s anticipated ban on all internal combustion engine vehicles from 2030 or 2035.

“Employers and fleet managers need to consider aligning replacement cycles to meet these timelines,” he says.

“When reviewing replacement cycles, fleet managers need to assess and strike the right balance between the monthly cost versus the tech gain of newer models.”

Drivers ideally want to replace vehicles as often as possible to gain new features and economy figures, such as improved battery range. 

However, Bushnell says: “A shorter cycle ultimately comes at a higher depreciation curve, leading to increased monthly costs.

"This will dictate whether terms move away from the traditional 36- and 48-month contracts.”