Leasing industry strong after business confidence boost
Outlook for the sector is cautiously positive, writes ANDREW GILLINGHAM
WHILE it is difficult to gauge the fleet industry as a whole, Southern African Vehicle Rental and Leasing Association statistics show the funded and non-funded fleet units improved slightly from the first to second quarter of this year.
Dr David Molapo, head of Standard Bank Fleet Management, says the year-onyear numbers show a decrease in funded units and an increase in non-funded units.
“Latest trends in the fleet market are that up-to-date information is becoming more readily available and also more important for businesses. Fleet card transactions are now being authorised at point of sale and the effectiveness of this differs between the four banks.
“Companies are moving their fleet business to where their transactions can be more effectively and proactively authorised,” says Molapo.
He says the outlook for the fleet management market is cautiously positive, based on business confidence indices that improved slightly in the second quarter of this year.
In addition, the increased new car and commercial vehicle sales in the second quarter give rise to a medium- to long-term outlook that the market will see growth, albeit slow, for the remainder of this year.
Byron Corcoran, head of finance and leasing division at Bidvest Bank, says there is healthy demand for vehicle finance and leasing. He says that after the global downturn, many South African fleets put their vehicle acquisitions on hold.
“During the uncertain times following the international financial crisis many companies opted to sweat their vehicle assets for longer instead of following their normal replacement cycles. However, you can only keep a truck or car for so long before you start destroying its resale value or you start to incur huge maintenance costs, so there is a degree of pent-up demand,” he says.
He says the wheel has turned almost full circle and while companies are not leaping into the market, they are beginning to replace their fleet vehicles.
“In addition to needing to replace vehicles, many companies are feeling cautiously optimistic and they are prepared to invest for the future.”
He says National Association of Automobile Manufacturers of SA’s current vehicle sales and its forecasts for the future both support this more favourable, developing trend.
“There are several positive indicators for the leasing industry. Interest rates look set to remain subdued for the foreseeable future and inflation is showing a nice, steady rise, which is good from a resale value point of view, and the lack of sharp price hikes is positive in terms of containing maintenance costs. The industry is looking healthy and this positive state of affairs seems set to continue,” says Corcoran.
Murray Price, MD of Eqstra Fleet Management, says the industry as a whole saw some softening from leasing perspective in the corporate market during the recession and this was counterbalanced by an increase in demand from the government.
“The industry has seen a significant increase in demand for managed services from both the private and public sectors,” says Price.
As a consequence, specialist fleet management operations are getting ready to take advantage of this growing trend.
Eqstra, for example, is now part of the Global Fleet Services alliance, the largest alliance of fleet players in the world.
“We are all learning from each other and positioning ourselves to enhance the service offering component of outsourced fleet management solutions,” says Price.
“For example, the US alliance partner long ago focused on its services business, including elements such as accident management, managed maintenance and fuel costs. In other words, fleet management is moving beyond simply the provision of vehicle leasing.”
Price says the recession led to many companies opting to retain vehicles longer and there has been a significant increase in the average lease term.
“People are using assets longer and there has been some caution about committing to new expenditure in the present global business climate,” he says.
However, many companies are now beginning to move into a renewal cycle, though they are cautious about new investment.
“A lot of clients who used to buy their vehicles for cash are now opting to lease their vehicles as there is an opportunity cost if cash is not used in the core business.”