Are fleets taking inflation seriously?

Published in Fleet World, April 2011 

We operate as consultants and inflation has not directly impacted our organisation at all. We tend to get paid according to the value we deliver for our clients rather than on a ‘day rate’, and this tends to take the pressure off our own pricing.

We have two groups of clients; leasing companies and fleet managers.

The work we have done with leasing companies suggests they are taking inflation very seriously. The main elements of lease rentals are interest costs (which are not directly impacted by inflation) and maintenance and tyre costs (which definitely are) and depreciation (which can be).

If tyre and maintenance costs rise by say 5% pa, that will have a marked impact on leasing company’s costs, and our work suggests they are all predicting inflationary rises in these costs and adjusting their rentals accordingly.

The effect of inflation on vehicle depreciation is a much trickier area. If the RPI rises 15% over three years used car prices may, or may not, rise by similar amounts. Inflation isn’t the primary determinant of used car values: they are mainly determined by demand and supply issues and inflation is only one factor. With so much uncertainty about the economy, leasing companies are finding it tricky to predict future used car values so there is currently a wide variation in the residual values they are setting.

The fleet managers we are working with do seem to be in the firing line when it comes to cost-control. Some of their suppliers have started pushing for price increases because their own costs are rising. This is putting fleet managers into a bit of a vice; squeezed between rising costs and under-pressure budgets.

That’s where a modern fleet manager really proves their worth. The name of the game today is to get the same value out of the fleet at lower costs, and professional fleet managers have lots of tools in their armoury to do this sort of exercise. Is it time to change financial products, look to leverage the tax rules to reduce fleet costs, outsource some areas of fleet management, use journey planning tools, reduce unnecessary mileage, etc etc? There is a lot a fleet manager can do to offset the impact of inflation.

Colin Tourick