The fleet management industry has been through tough times in the past five years. The historically low cash rate has reduced borrowing costs, making it more cost effective for many organisations to buy fleets instead of leasing them.

A new accounting standard on leases, the much-anticipated IFRS 16 (or AASB 16 as it is known in Australia) also had firms worried about the longevity of the sector. Before 1 January 2019, car leases could be removed from an organisation’s balance sheet, even if they represented a future liability and asset. The introduction of the new standard meant operating leases (including vehicle leases) had to be recorded on the balance sheet, which many accountants thought would deter organisations from leasing car fleets.

Now, of course, business is reeling from the impact of COVID-19 shutdowns. But if the fleet management sector has bounced back before, it can bounce back again, say industry insiders.

Even with the negative effects of the COVID-19 pandemic, the fleet management sector is predicted to undergo significant growth and innovation in coming years. The rise of hybrid and electric vehicles, improvements in fleet-tracking software, and an expansion to “mobility services” are all set to change the shape of fleets in the future.

The major players in vehicle fleets

The major vehicle fleet players in Australia and New Zealand include LeasePlan, Eclipx Group, Custom Fleet, ORIX and SG Fleet Group, which compete with each other on quality of service, inventory and price.

A 2018 report by ACA Research found 19,000 businesses in Australia operating fleets with 20 vehicles or more, and 400,000 smaller businesses running fleets of less than 20 vehicles. In total, there were 2,162,000 vehicles on Australian roads managed by fleet companies.

These fleet players lease, hire or rent out passenger cars – including sedans, hatchbacks, station wagons, SUVs and minibuses – for use primarily in the health and medical sectors, as well as corporations, telcos, small businesses and government organisations including the police.

IBISWorld research estimated fleet vehicle leasing in Australia was worth A$2.8 billion in 2019-20 – globally it was valued at US$15.9 billion in 2018.

Chartered accountants are often the ones managing an organisation’s car-leasing budget. CA ANZ’s 2018 remuneration survey found that 10,449 CAs in Australia and New Zealand were in charge of car-leasing budgets of A$1.5 billion and NZ$4.5 million across their respective nations. 

Why is it better to lease than buy?

A business benefit of leasing, according to those in the industry, is it frees up capital and eliminates risk, as the volatility of the used car market sits with the lessor.

“You get access to state-of-the-art technology and enterprise-class solutions,” says Andy Mulcaster, managing director of SG Fleet in Australia.

“We provide all the reporting you need for compliance on your fleet. You get access to the discounts that a fleet management company has access to – for parts, maintenance, fuel. We have processes to manage all your administration.”

“You get access to the discounts that a fleet management company has access to – for parts, maintenance, fuel.”

Fleet management solutions also remove the uncertainty over how much you can realise from selling the vehicle once you have finished using it.

And in a cash-scarce, post-coronavirus world, Mulcaster argues, that case for leasing grows even stronger: vehicle leasing adds certainty to budgets and frees up capital.

“It’s significantly more cost effective for you to actually give that over to somebody else, and use your capital in another way.”

The push to greener fleets

In New Zealand, electric vehicles currently account for less than 5% of the national vehicle count, but with the government promoting electric vehicles as a way to reduce carbon emissions, that’s expected to change. Some experts predict that between 30-50% of national fleet could be electric in the next 10 years, although that might be optimistic.

Last year, Deutsche Bank analysts reported: “Our base-case assumption is that EVs [electric vehicles] will achieve 100% penetration of new light fleet imports by 2030 and 100% of used imports by 2035.

“This leads to an expectation for 15% of the light fleet to be electric by 2030, climbing to 53% by 2040 and 90% by 2050.”

In Australia, the predicted increases in electric vehicles aren’t as steep. Even so, many firms predict low-emission vehicles – powered by batteries or hydrogen – will become a bigger part of fleets. After all, in recent years major car manufacturers including Jaguar and Volvo have said they would stop research and development into petrol-powered vehicles by 2025, signalling that the end of gas guzzlers is nigh.

SG Fleet’s modelling already shows hybrid Toyota Camrys and Corollas are making sense for some customers. These models have similar purchase prices to petrol vehicles, with strong residual values and predictable maintenance. Such green vehicles “are now naturally becoming the vehicle of choice,” says Mulcaster. Within the next two years, hybrids will start pushing into the commercial vehicle sector, too, he predicts.

But while hybrids make sense, Mulcaster argues the higher purchase price for pure electric vehicles elevates their whole-of-life costs. “The take-up on electric vehicles is constant, but significantly slower than hybrid,” he notes.

How telematics improves the bottom line

The arrival of autonomous vehicles, once widely tipped for 2020, has been delayed by technological problems and the coronavirus-driven sales slowdown spreading across global markets. As one insider says, at this stage it’s just good marketing.

But none of that has stopped a flood of new technology into cars aimed at supporting and protecting both drivers and owners. Telematics – the installation of electronics and GPS to track, record mileage and monitor the speed of fleet vehicles – has transformed vehicle management in the past 15 years, with employers and fleet managers pinpointing the quickest and most fuel-efficient routes.

More detailed monitoring of drivers is reducing fuel costs, optimising routes and helping firms reduce insurance and maintenance costs. Mulcaster says identifying and training non-compliant drivers “can have a significant impact on your overall claims for insurance”. (Insurers have threatened to quit insuring some organisations with high accident rates.)

Chris L’Ecluse is a solutions specialist for Teletrac Navman, a provider of cloud-based GPS fleet tracking software. An expert in driver behaviour and former police officer, for many years he has worked with corporations using telematics to cut costs, analyse vehicle use and determine the kinds of vehicles that employees really need.

L’Ecluse says fleet-tracking data lets his firm monitor and analyse a fleet’s fuel costs in detail. Fleet operators can now infinitely customise the reporting data that systems spit out, he says, so that “we can understand everything about the way the vehicle is used on a second-by-second basis”.

“In one organisation in particular, they reduced their expenditure on fleet leasing dramatically because they realised that the only reason a large portion of their personnel wanted the four-wheel-drives was to drop the boat in the ocean on the weekend, not necessarily for work purposes,” says L’Ecluse.

Frequently, analysis discloses that more careful driving will cut fuel costs noticeably. “The majority of the fuel used is moving the vehicle from a standstill up to, potentially, the speed limits,” L’Ecluse says. Even a saving of 1-2% in fuel “ends up in real terms being hundreds of thousands of dollars for a fleet operator”.

Add in deeper changes in driver behaviour and the fuel cost savings can reach 5-6%. On top of that, gentler, more careful driving is much less wearing on items such as tyres, brakes and suspension components, lowering maintenance costs and extending vehicle life.

Car-sharing is the next big thing

In an era of on-demand everything, fleet management has expanded well beyond simple leases to include a menu of transport options stretching all the way from ownership to Uber.

“On-demand rental is going to be the next big thing,” says Canadian automotive broker Sean Lockhart, the author of 2016’s Fleet: A Guide to Simplifying Vehicle Fleet Management for Small Business. “You have an app on your phone and you go find the car and use it as you need it.”

Toyota Fleet Management launched an online car-sharing system in 2017 to improve the management of shared and pool fleet vehicles.

And SG Fleet’s Mulcaster says fleet management companies are offering a new spectrum of transport solutions, all solving problems for different lengths of time – minutes, hours, days, months, years.

“If you want to get across town, 10 minutes away, you use a taxi or Uber,” he says. “If you need a vehicle for a few hours... [car-sharing service] GoGet works perfectly.”

Once you’re talking a few days, the customer will switch to car rental companies. “They’ve been there for a long time; they’ve cornered that market,” says Mulcaster. It’s when you start getting into hiring for months that subscription models work best.

Traditional leasing, meanwhile, remains “significantly more cost effective” for longer spans, stretching into years. But Mulcaster says SG Fleet aims to offer solutions for each of these time-based niches.

As well as partnering with GoGet, SG Fleet has invested A$2.2 million in the parent company of car subscription firm Carly, which rents cars to customers from A$154 a week and up.

With such moves, SG Fleet is positioning itself as a mobility business. Mulcaster reports his firm has even told one major Australian client that in some situations their staff’s best option may be to take a bus and then walk a couple of blocks.

As Swinburne University urban mobility expert Professor Hussein Dia points out: most vehicles stay parked more than 90% of the time. “They’re under-utilised,” he says.

Fleet players are preparing themselves for an eventual future of “mobility services”, where people simply use whichever autonomous electric vehicle is provided in answer to their electronic call.

Product & Services Segmentation

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Major market segmentation

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2020 industry revenue in Australia - A$2.8 billion. Source: Fleet Vehicle Leasing in Australia, IBISWorld, July 2019.

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