AFLA Panel: Portraits of the Fleet Markets in the UK, Australia and Mexico

They’re all the same, but different, speakers say

By Mark Boada, Executive Editor

Fleet managers around the world share many of the same frustrations, but at last week’s AFLA 2018 Corporate Fleet conference, a panel of fleet management association leaders from three different countries, while agreeing on that sameness, pointed to some marked differences in conditions in each of them.

The UK is plagued by a number of stressors, not least among which are rising taxes on fleet-provided cars, which is causing their number to decline, and uncertainty over the effects of Brexit, the scheduled departure of the United Kingdom from the European Union. By contrast, in Australia fleet car sales are growing, powered in part by a relatively novel form of lease. And in Mexico, fleet management is still in its infancy, with low levels of professionalism, while fleets are plagued by chronic difficulties in license and titling, the recovery of stolen cars, and many of the routine functions fleet managers handle in other countries.

Below are the highlights of the presentations made by each of the speakers during the conference’s session entitled “Understanding the Global Fleet Market.” The speakers were John Pryor, chairman of ACFO, the UK fleet management association, and head of fleet and travel for Arcadia, a major British clothing retailer; Mace Hartley, executive director of the Australasia Fleet Management Association (AfMA); and David Madrigal, president of both AMAV, the Mexican fleet management association, and Element Mexico, the fleet management company. All three of their associations are members of ALFA’s Global Fleet Networking Consortium.

UK on the forefront of change

John Pryor opened by noting that the UK fleet industry is undergoing the most dramatic and widespread changes he has seen in his career. Driving much of that is the fact that, like the rest of Western Europe, the UK is on the forefront of concerns over the environment and a shift away from car ownership and toward mobility.

“In my 30 years of working in fleet,” he said, “I’ve never known such a time of change, flux and indecision in the UK market. We appear almost to be in a perfect storm, where everything is blown up out of any recognizable system that we’ve operated before. We have political change, environmental change, taxation change, vehicle change, business operation change, usage and Millennial changes. And to round off everything in the UK, we have what is almost the cherry on top of the cake, Brexit.”

Among the issues he cited:

The benefit-in-kind taxes that fleet drivers pay on company-provided cars, based on their tailpipe emissions, have increased by more than 20 percent in the past few years, and are scheduled to go higher over the next two years.
Those higher costs caused the number of perk fleet cars to fall last year by 20,000, as managers and executives shifted to personal leased-vehicles, which work out to be cheaper.
A new method of measuring auto emissions – the Worldwide Harmonized Light Vehicle Testing Program, or WLTP – is going into effect that is both tougher and shows higher emissions for cars under the previous method. In the short term, the changeover has limited the number of approved models for sale, and threatens to cause benefit-in kind-taxes to rise further.
Fleet cars, whose equipment configurations have traditionally varied by driver preference, are become less individualized, as optional equipment adds weight and, consequently, tailpipe emissions. Instead of offering free choice by drivers, OEMs are offering a limited number of option packages that have been WLTP-tested.
New European consumer data privacy standards, known as GDPR, are raising questions about fleet compliance that are yet to be answered, just as UK fleets are entering the era of big data with connected cars and telematics.
Over the last 10 years, the number of parking fines in the UK has increased more than 10-fold, from under 500,000 a year to 5.6 million in 2017, adding to fleet operational costs.
As urbanization grows and parking becomes costlier, people in the UK’s cities and suburbs are beginning to question whether the personal costs of a fleet vehicle are worth it, compared to other mobility options.
Brexit may result in UK licenses may not be accepted in other countries of the European Union leaving fleet drivers to find other means of transportation on business abroad.

Pryor ended his presentation on a note of determination and commiseration. “Fleet is ever resilient, and whatever does come from this, we will cope. Perhaps we will have to change, but we’ve not been afraid of change and diversity before. But I have to say, in the end, running a fleet in the UK, Europe, or USA and the whole world is not that different.”

Fleet vehicle sales growing in small-market Australia

Unlike in the UK, the number of fleet vehicles in Australia is growing, AfMA executive director Mace Hartley told the audience. One reason is the growth in a type of financing contract not widely used elsewhere in the world, known as a “novated lease.” With a typical term of three to five years, the lease is a three-way contract between the employer, employee and the leasing company. Novated leases make the fleet driver the owner of the car, often at a discounted price. The key feature of a novated lease is that the employee makes the payments – which also include operating expenses, like fuel, maintenance and insurance — through payroll deductions from his or her pre-tax income, thus reducing the employee’s tax liability. Novated leases can also be structured for fleet drivers to avoid having to pay fringe benefit taxes, Hartley said, noting that an employee earning $50,000 a year can save between $2,000 and $2,500 a year though a novated lease.

When a driver leaves the company for another job or retirement, the driver can keep the car and assume the lease payments, buy or sell it, or enter into a new novated lease agreement with the next employer. The benefit to the original fleet is that it doesn’t have to dispose of the vehicle and is unaffected by its depreciated value.

“Today, novated leases make up 17 percent of all fleet sales [in Australia],” he noted. “The difficult part for the manufacturers is that with novated leases, every lease is decided by an individual, so they [the OEMs] lose control of their brand from a fleet point of view. But that’s why we see fleet growing and growing and growing. Novated leasing has been in place in Australia for several years and has seen growth of between 12 and 20 percent a year.”

Hartley described additional features of the Australian fleet and automotive market:

It’s a small but far more competitive market by comparison with the U.S. Total U.S. vehicle sales in 2016 were 17.6 million, spread among 51 brands, compared to total Australian sales of 1.2 million shared by 67 brands.
Toyota is Australia’s leading fleet vehicle brand, by far, and the Toyota HiLux pickup truck is the most popular fleet vehicle. Other leading brands among fleets are Ford, with its Ranger pickup, Mitsubishi, Nissan, and Hyundai.
Sales of SUVs, with slightly more than 40 percent of the new vehicle market, now outpace all other vehicle types. Sedans are second in popularity at about 33 per cent, light commercial vehicles account for about 20 percent of the market, and heavy duty commercial trucks make up the rest, at less than 10 percent of new vehicle sales.
There are 419,900 business fleets with at least two vehicles in Australia, but just 19,000 of them have more than 20 vehicles. Of those, there are 7,000 fleets with 50 to 250 vehicles and only 1,000 that have more than 250.
Most Australian fleets have part-time managers. Companies don’t have full-time fleet managers until they have 120 to 200 vehicles.

Few of Australia’s fleets have a global connection, Hartley said: “In Australia, we have only 100 fleet managers with a global presence. But the reality is everyone wants to be global. We have the same problems all over the world. The tax issues, the little nit bits are quite different, but the frustrations of fire management and jumping from one disaster to the next, as fuel cards aren’t working and toll passes aren’t working — all of that’s the same everywhere. The strategies are the same everywhere.”

Mexico’s fleet profession is in its infancy

The fleet profession in Mexico is very young, David Madrigal told the audience. “I would say,” he remarked, “it’s in diapers and still evolving.”

How so? He recited the following characteristics and practices:

While many of the same fleet management companies that operate in the U.S. are in Mexico, most arrived just in the last 10 to 12 years.
Only about 20 percent of business fleet vehicles in the country are under the wings of fleet management companies, compared to 80 percent in Europe and the U.S.
There is no formal fleet manager training or certification program in Mexico.
AMAV, the Mexican fleet management association, was created just three years ago and is only in the early stages of holding nationwide conferences and programs.
Mexico’s market is roughly comparable to the Australian market in terms of the number of fleet new vehicle sales, the number and size of fleets, but with even more vehicle brands than in Australia.
The leading OEMs among Mexican fleets are Nissan, Volkswagen and General Motors. OEMs offer volume discounts, and will generally respect a fleet’s globally negotiated prices.
The typical Mexican lease structure is a hybrid of a closed-end and open-end lease. The industry does not employ novated leases.
Mexican sedan fleet drivers do not have to report their personal use and mileage of fleet vehicles.
Telematics technology is a recent addition to the Mexican fleet scene and is less sophisticated than in the U.S. and Europe.
By tradition, Mexican fleet drivers buy their vehicles at the end of the lease, at a discount of as much as 20 to 30 percent of fair market value. While that makes leases more complex than in the U.S., it also explains why drivers tend to take very good care of their vehicles.

“AMAV grew out of an association of pharmaceutical fleet managers,” Madrigal said. “It’s now expanded to other industries and is now a group of 30 to 40 large corporate and rental managers. We all got together to make some noise with authorities and governments to help us do a better job in serving our customers.

“Now, there seems to be growing interest among fleet managers to discuss their experiences and common problems. I see fleet managers anxious to have more interaction with their peers.”

Browse Previous Globally Speaking Columns

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