Demand for new vehicles is rising
More confident companies look to refresh their stock, writes ANDREW GILLINGHAM
MANY large companies have operated fleet leasing solutions for a number of years and as such their fleets are under good maintenance and life cycle control.
Nicholas De Canha, CEO of Imperial Fleet Management, says other customers are not in such a good position and they do run their vehicles too long, to the point where the maintenance costs are high.
“Maintenance costs increase by 10% per kilometre, for every 10,000km over optimal life.
“At the moment there are a few companies buying new vehicles with a view to expanding their operations in the future. Most have fairly stable fleet sizes and they are replacing in accordance with lease life cycles or because they have owned the vehicles too long and the maintenance costs are high,” says De Canha.
He says vehicle finance is affected by Basel 3, as is every other aspect of bank lending.
Basel 3 has increased the amount of capital banks need and requires banks to consider the individual customer’s credit risk as well as the risk within that portfolio of business.
“This means banks have been raising more capital, with European banks engaged in rights issues and South African banks encouraging more depositors,” says De Cahna.
“There is no doubt that Basel 3 has pushed up the pricing of bank debt but as leasing companies such as Imperial own the asset that is leased out, the Basel rules allow us to hold less capital as there is less risk and leasing tends to outperform instalment sale in true cost of funding.”
Ryan Rittoff, head of fleet and asset finance sales at Bidvest Bank, says there is more interest in the market in acquiring new fleet vehicles and there is an overall increase in demand for vehicle funding.
“Demand is rising. During the tough economic times of the past few years many companies retained vehicles for longer than usual and now those vehicles really need to be replaced as they are costing too much from a maintenance perspective,” says Rittoff.
“In addition, companies are becoming more confident about the future and they are repositioning themselves as they shift from survival mode to a more growth orientated strategy and begin to acquire new and more efficient vehicles to support that view.”
However, companies moving to replace their fleet vehicles are finding this process more challenging than anticipated due to the strike affecting the motor industry.
“The strike has put the industry under some pressure from a supply perspective and the stock issues have slowed some companies’ fleet purchases,” says Rittoff.
David Molapo, head of Standard Bank Fleet Management, says companies responded to the international financial crisis and the resulting economic turmoil by holding on to vehicles a lot longer, so delaying the capital outlay in renewing their fleets.
“Companies appear to be more confident and they are retaining vehicles for a slightly shorter time — on average about 42 months — before returning vehicles they lease back to the bank and upgrading to new vehicles.”
John Edmeston, MD of Cartrack SA, says rising transport and fuel costs, toll fees, vehicle maintenance costs, hijackings and the challenges around managing driver behaviour are placing pressure on fleet owners and companies to find effective and sustainable ways of managing fleets, drivers and their driving habits and time management, risk and variable maintenance and operating costs.
“Vehicle tracking with full telematics features is an essential requirement to achieve optimum fleet performance,” says Edmeston.
“Hijackings of vehicles are being orchestrated by highly organised syndicates which make use of sophisticated technology, inside information and increasingly high levels of professionalism. Truck hijackings and the subsequent loss of valuable cargoes cost the economy and insurance industry billions each year.”
He adds that commercial trucks and trailers are being hard hit with their loads being redistributed into suspect retail channels while the empty trucks are then usually headed for places such as Swaziland, Mozambique and Malawi.
“The most popular loads are consumer electronics, IT equipment, alcohol, cigarettes and groceries,” he says.