The market for light CVs below 3,500kg gross vehicle weight (GVW) was a tough one in 2012, finishing the year down 7.9% compared with 2011 at 239,641 registrations. Yet more contraction in the economy, even if by a small amount does little to raise business confidence.
The virtues of contract hire – notably avoiding capital expenditure, so conserving cash for core business activities – can help an organisation with a definite need to operate vehicles to obtain them, even if the market is weak. In those market conditions, does that mean companies will opt for contract hire rather than outright purchase?
According to data from the Finance and Leasing Association (FLA), the answer appears to be ”yes”. Figures for the year to the end of November 2012 show that overall FLA members asset finance had risen 3% to £21,886m. Geraldine Kilkelly, head of research and chief economist at the FLA, said: ‘The figures show solid growth in finance for key asset sectors as companies invest in the tools they need to grow their businesses.’
Figures for the commercial vehicle sector show a sharper rise of 9% over the same period to £4,732m and for the three months to November 2012, an increase of 7% to £1,282m compared with the same period in 2011.
We asked Jon Lawes, managing director of Hitachi Capital Commercial Vehicle Services, how he thought the 2012 light CV market had affected demand for contract hire.
‘Contract hire demand normally rises in a recession and when the economy is tough, as it gets vehicles off the balance sheet and frees up working capital for companies who might otherwise be strapped for cash,’ begins Lawes. ‘Our large corporate clients in particular like contract hire as it enables them to budget quite accurately for monthly vehicle costs – other than with insurance and fuel. Overall we are offering a blended funding approach, so out of a fleet of 50 vehicles we may decide on three different funding options depending on the vehicles that are required – that may even mean outright purchase on vehicles, if that is the best option for the operator.’
One effect of reduced demand could be that operators are conservative and stay with the vehicles they know when it comes to replacement time, or with vehicles that they believe to be better value. We asked Lawes if that seems to have been the case.
‘Vehicle choice is very wide and there are attractive offers out there to buy new LCVs, but we continue to focus on providing the right vehicle for the job in hand, which drives the van or base chassis we buy and run for our clients. Our buying power and relationships with the van manufacturers are very good, so we can achieve a good value deal for our fleet clients.’
The continuing high level of Class 7 MOT failures suggest that maintenance may not always be a priority for all fleet managers. We asked Lawes how demand for maintenance contracts has been affected by the tight economy: ‘Other than for operators with their own workshops, we see the majority of contract hire contracts are underwritten inclusive of maintenance and this has not changed over the past few months.’
So what of 2013? How does Lawes expect the light CV market to develop this year? ‘Demand will be steady’, he reckons. ‘We are seeing some of the larger fleets beginning to buy vehicles again after a year or two of extending the life of their current contracts. However, until credit deals are more readily available for SMEs, who are the life-blood of our economy, they will be looking to buy used vehicles. This is in turn keeping the used vehicle market buoyant but not helping the new market.’
And what about the market for contract hire? ‘We still see it as the most popular purchasing route for the majority of fleets,’ says Lawes. ‘If companies are cash-rich they may want to buy vehicles, but these are more than balanced by the likes of public utilities, which have increasingly switched to contract hire on the back of the financial challenges they have been up against for the past two to three years.’