Buyer’s guide to car manufacturers (March 2009)

Corporate car sales have not fallen as much as retail sales, but the entire motor industry has been hit hard by the recession, says Nicola Sullivan

A number of economic and fiscal factors are currently shaping the development of the UK’s company car manufacturing industry. Overall, 2008 was particularly challenging for the car industry as a whole, as well as for individual manufacturers. The new year has brought little reprieve for the industry as it continues to battle against turmoil in the financial markets, plunging demand and a falling exchange rate, which has made it more expensive to import cars and parts from Europe.

The continuing slump in used car prices caused by the economic downturn means many residual value predictions for cars are thousands of pounds above the actual value of the vehicles. This means it makes less financial sense to own a car.

According to figures from the Society of Motor Manufacturers and Traders (SMMT), new car sales in the UK fell by 30.9% in January compared with the same period last year. The market is expected to decline by one-fifth in 2009.

Mark Sinclair, director at Alphabet, says: “In the past year, we [have] had a massive crash in new car sales, which has affected all manufacturers. They are all holding on to a lot more stock then they would want and it has had a big impact on dealerships and dealers, so profitability of new car sales has gone down. Dealerships are struggling and the whole motor industry is clearly on its knees. That much is clear.”

In January this year, business secretary Peter Mandelson outlined the government’s rescue package for the car industry, which will unlock £2.3bn in loans for car manufacturers and suppliers for investment in lower carbon initiatives. Also, spending on skills and training for employees will be boosted to £100m from its current £65m.

But Sinclair says it is too soon to tell what impact the package will have. He is also concerned about how it will be delivered to benefit all sections of the car manufacturing industry. “I am not clear about who is going to benefit and what the criteria are for getting the money,” he says. “If it is ultimately going to give manufacturers a lifeline, but only if they invest in green technologies, then that is a good thing.”

Environmental agenda While the manufacturing industry concentrates on recovering retail sales by offering bigger discounts, the corporate sector, which has not seen the same drop in sales, is less likely to be offered the same kind of sweetener, says Sinclair. “Car manufacturers are focusing on retail rather than the corporate sector because retail sales are the ones that have crashed. Corporate sales generally have not slowed down that much yet.”

A further factor driving company car manufacturers is the government’s environmental agenda. As many suppliers, manufacturers and fleet managers will doubtless be aware, this is behind the changes to capital allowances, which are due to come into effect next month. From 1 April 2009, cars purchased or leased by employers will be taxed according to their CO2 emissions (see box right).

There is now a greater choice of environmentally-friendly models available to the corporate market. Fuel-efficient cars are also more likely to hold their residual value in the current climate.

Figures from contract hire and leasing company ALD Automotive, which operates a fleet of 50,000 vehicles, show that the average CO2 emissions of new company cars added to its fleet dropped to an all-time low of 150.6g per km in 2008, compared with 155.8g per km in 2007.

David Yates, marketing director at ALD Automotive, says: “We have witnessed a huge shift in the past six years in the make-up of our fleet in terms of both the type of company cars that are increasingly chosen by businesses and their drivers.”

Eco-friendly models Phil Robson, director of fleet and used vehicle operations at Peugeot UK, adds: “Practical, economical vehicles with low CO2 ratings have altered the perception of a traditional company car in 2009. More businesses are opting for smaller, fuel-efficient vehicles in an effort to reduce the overall environmental impact of their fleet and reduce the costs to employees.”

Environmentally-friendly vehicles now on the market include Volvo’s S40 saloon, C30 hatchback and V50 estate from its Drive range. Another popular choice is the VW Bluemotion, and BMW has just brought out its new Efficient Dynamics range, which uses stop-and-start technology and brake regeneration technology. In addition, Audi will bring out greener models in all its ranges this year.

The Toyota Prius hybrid model reportedly topped one million sales worldwide in 2008 and manufacturers such as Peugeot will continue to focus on developing this kind of technology. Having announced its new 3008 model, which is due to be released in 2009, Peugeot now intends to work on developing a diesel hybrid variant by 2011.

Better results However, Adam Pumfrey, fleet director at Fiat Group Automobiles, believes that existing technology, such as state-of-the-art petrol and diesel engines, plus a focus on low-CO2 emissions and good fuel economy, delivers better results than hybrid cars can.

Such issues mean those in the industry today paint a very different picture of it than they would have done in the 1970s when the company car first took off. Stewart Whyte, managing director at Acfo, explains: “We have gone from a situation where people did not care about the environment to one where people are very concerned about the environment, and not just because of CO2 taxes.

“Everyone needs to sit down and ask themselves the question: is the fleet we have got right for the business we have now as well as next year? If it is not, then change it. There will never be a better time in the next 10 years to change policies.”

Focus on facts

What are company car manufacturers?

These are all mainstream car manufacturers that actively sell to the corporate market.

What are the origins of the company car?

The company car has been around since the 1960s, but did not really take off until the 1970s, when statutory controls on wage inflation were implemented and, as a consequence, employers offered employees cars in lieu of a pay rise. Car manufacturers have been in existence for about 50 years longer, with Ford starting its production of the Model T in 1908.

Where can employers get more information about company cars manufacturers?

The Society of Motor Manufacturers and Traders can supply information on providers, as well as industry news and advice, at www.smmt.co.uk.

Euro NCAP can provide information on crash tests, reviews and advice, which are available through the AA’s website at www.theaa.com.

Safety information is published at www.euroncap.com.

In practice

What are the costs involved?

Corporate buyers will generally pay less than the list price for each model, but it all depends on the kind of deal that can be negotiated. Larger organisations are more likely to have a greater purchasing power than smaller employers.

What are the legal implications?

The sentencing provisions of the Health and Safety at Work Act 1974 have been increased under the Health and Safety (Offences) Act 2008, which came into force on 16 January and applies to a range of motoring offences. A breach does not need to have resulted in a death, and managers face prosecution if their failings lead to an accident. Under the Corporate Manslaughter and Corporate Homicide Act 2007, a firm will be held liable if gross corporate failings on health and safety lead to a fatal accident involving staff.

What are the tax issues?

From 1 April 2009, cars bought or leased by employers will be taxed according to CO2 emissions. Employers that buy cars with emissions of up to 110g of CO2 per km will be able to write down the full cost of these vehicles against their taxable profits in the first year of ownership. This compares to a 20% write down for cars that emit between 111g and 160g of CO2 per km, or a 10% write down for cars that emit 161g or more.

Nuts and bolts

What is the annual spend on company car manufacturers?

According to the SMMT 1,239,536 company cars were sold in 2008. The average cost of a car is £15,000, so the total annual spend on new company cars is about £18.6bn, according to the British Vehicle Rental and Leasing Association.

Which company car manufacturers have the biggest market share?

According to figures from the SMMT, Ford has the biggest market share with 18.69%, followed by Vauxhall with 13.92%, Volkswagen (7.85%) and Toyota (7.46%).

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Which manufacturers have increased their share the most over the past year?

Data from the SMMT shows Jaguar increased its market share the most over the past year, recording a 54.95% rise, followed by Corvette (50%) and Hummer (25%).