Does the fleet industry have a high-speed future?
10.2m – that’s the number of vehicles on South Africa’s roads according to the National Traffic Information System (NaTIS ). Vehicle sales and their ongoing running and maintenance costs remain a valuable source of income to the industry and the country at large. But determining how many of these vehicles have the potential to AFFECT the growing fleet management industry proves difficult.
This January, new vehicle sales amounted to 52 306 units, with around 81.9% being dealer sales. The vehicle rental industry represented 11.3% with 4% to industry corporate f leets and 2.8% to government, reports Naamsa. The latter t hree sectors made up over 18%, essentially representing non-private or f leet vehicles. But dealer sales could also house corporate and commercial vehicles.
Unlike Naamsa and NaTIS, which record vehicle sales and registrations, there is no central database to manage, track and produce precise f leet sales data. Anti-competitive concerns also create a barrier to what data can be collected and by whom, restricting the ability of the industry to report information.
And f leet buying patterns have changed. Today, the majority of fleet sales come about through tender with stateowned enterprises and large corporations mostly driving f leet sales. Many of the country’s largest f leets are owned by government (estimated to be over 100 000), SAPS (approximately 80 000), state-owned companies like Telkom and the all-important car rental operators.
Despite new vehicles sales in 2014 ending on a strong note, David Molapo, head of f leet management at Standard Bank, believes that the increase in the sales of light delivery vehicles and heavy vehicles was the result of f leets simply having to replace ageing vehicles after stretching their replacement cycles to breaking point and expects sales of new vehicles to remain quite f lat during 2015.
By contrast, WesBank’s head of r esea rc h Rudolph Mahoney s ays WesBank’s records demonstrate average replacement cycles around 36 months, adding that the company is quite bullish about 2015, expecting a 3%-5% growth in the new car market mainly due to the f lattening of new car inf lation, the reduction in the oil price and the repo rate remaining at 5.75%.
Car rent al sect or
Once an industry that hired vehicles out on a casual basis, car rental is now highlydeveloped and the industry now offers a range of long-term and short-term products.
Many large f leets are car rental companies, and the number of vehicles they acquire is largely driven by tourism. Naamsa estimates that 14% of domestic new car sales in 2014 originated from the car rental sector. That equates to R27.5bn for the over 79 000 vehicles purchased by this sector during 2014, with demand expected to remain strong during 2015 on the back of further growth in tourism and business travel.
There is a slight disconnect in car rental f igures when comparing the Southern African Vehicle Rental and Leasing Association’s (SAVRALA’s) figures and Naamsa’s estimation for the car rental sector. Marc Corcoran, president of SAVRALA, explains: “There has been a steady increase in our car rental members who submit statistics. Our parc [total number of vehicles] has increased in line with the industry − about 3% − taking a different trajectory when you look at the Naamsa stats for car rental over five years. I suspect that may be due to a change in reporting by some of the Naamsa members where some of the smaller car rental members may be purchasing t hrough a dealership, therefore captured under retail rather than under car rental.”
SAVRALA, the representative voice of Southern Africa’s vehicle rental sector, manages the bulk of car rental operators, a vehicle parc last year of 63 000. But they do not represent every single car rental operator in the country. “There are hundreds of smaller car rental operators who typically would not be renewing
their f leet every year and would tend to run their vehicles longer. And some down in Cape Town for instance are seasonal operators,” says Corcoran. Reducing overall f leet costs is the main challenge for f leet managers. And f leet costs can purportedly be reduced by as much as 30% through f leet management programmes. “The t y pica l South African f leet, trying to contain costs over the last few difficult years, still has l ot s of r o om t o manoeuv r e by implementing precision-management tools; not only the latest vehicular te c hnolog y a nd te l e matics, but management systems and services as well,” says Molapo. “Fleet managers need to budget for an inf lation level of at least the current 6%, but can emerge with a stronger, more eff icient f leet provided they fully embrace the systems and methods available on the market,” advises Molapo.
But there is a difference between banking institutions − which, as well as lending money, also provide a range of f leet services such as fuel management − and specialist f leet management companies whose key elements are managing cost control, risk management and administrative efficiency on behalf of t heir clients, as well as vehicle maintenance and driver behaviour.
Appreciating that managing a f leet is often more effective through a specialist f leet management company, many corporates, government departments and those in the commercial sector are taking advantage of the savings that can be derived by outsourcing their f leets. Last year, the Innovation Group landed a fiveyear contract estimated to be worth R200m to manage maintenance on over 100 000 SA government vehicles.
In Europe, around 50% of vehicles sold end up in the f leet management sector. In SA, the growing and highly competitive f leet management industry houses key players l i ke Avis Fleet Ser vices and Eqstra Fleet Management, the latter managing over 40 000 vehicles and having a client base of more than 4 000 companies.
“The local f leet management industry is very competitive, especially when it comes to forecasting residual values, and exchange rates and new vehicle models inf luencing costs,” says Corcoran. The product, he adds, has also changed signif icantly as more players, l i ke telematic companies or intermediaries − who wouldn’t have been around 10 or 15 years ago – have entered the industry.
The number of vehicles globally is growing, bringing with it opportunities for the f leet management industry. The global f leet management industry, ac c ord i ng t o re s e a r c h c ompany MarketsandMarkets, is currently worth R12bn, forecast to be $35.35bn in 2019. If, as Molapo suggests, many of the local f leet operators have yet to fully utilise the modern tools and technologies available to them, the local f leet management industry faces an exciting future.
Standard Bank: Head of fleet management