Vehicle asset management is facing an unprecedented time of change that is challenging operators, suppliers and funders throughout the UK.
Every vehicle category is experiencing disruption as a myriad of factors influence markets, ranging from legislation and economic change to the impact of new technology and digitalisation.
As the complexity of operating assets grows, operators are increasingly turning to suppliers to ease the burden through support, advice and new services.
At Hitachi Capital Vehicle Solutions (HCVS), one of the UK’s 10 largest vehicle leasing suppliers, this creates both opportunities and challenges.
HCVS has been leasing vehicles and providing fleet management services for more than 30 years and it currently operates 72,000 cars, vans, HGVs and specialist vehicles, including plant.
Its team of 370 leasing and fleet management experts works with some of the UK’s largest corporate and commercial vehicle fleets, including British Gas, Asda and DB Schenker Rail.
It has built up a deep level of understanding into the complexities of vehicle asset management in its customer sectors, which the company says leaves it perfectly placed to respond to the increasing demands for support and advice in the market.
Facing customer challenges
The challenge lies in the sheer breadth and depth of upheaval the markets are currently facing, with HCVS present in each one, from cars through to plant.
Even the traditionally benign company car sector has been undergoing unprecedented change in the past few years.
Among the issues facing the sector is the ongoing impact of the diesel emissions scandal that is reshaping customer fuel policies, accelerated by changes in legislation that discourage diesel and force a growing proportion of customers to investigate alternative fuels.
Furthermore, the introduction of WLTP has disrupted vehicle demand and supply, while there is also a lack of long-term clarity about future tax rates.
These issues are in addition to the traditional complexities of operating a car fleet.
Elsewhere, commercial vehicle fleets are grappling with the potential impact on town centre access of nationwide low-emission zones, while digitalisation and new technology is changing the way all assets might be funded, operated and managed in the future.
Responding to changing market dynamics
For Jon Lawes, managing director of HCVS, the solution is to nurture ever-closer relationships with customers to focus on long-term partnerships that enable the business to make significant investments in initiatives that will help customers manage the changing business environment.
In 2017/18, Hitachi Capital Vehicle Solutions generated profit before tax of £24 million, a slight reduction compared to the previous year, after ‘significant’ expenditure on IT infrastructure to support future customer initiatives and growth.
The business has grown significantly over the past decade, with annual business volumes rising from £100 million in 2009 to £370 million in 2017/18.
Lawes said: “Change creates opportunities for businesses that support their customers, and in this environment, it is important to have the right policy and strategy in place.
“All fleets need to look at how they can optimise their cost base to mitigate rising costs because of the uncertainty in the market.
“For us, this is an opportunity, because if we can help customers manage this complex environment, then that breeds loyalty.”
Growth in plant and equipment sector
An example of its strategic approach to markets can be seen in the plant hire sector, where its independent insight is highlighting critical savings in a market where managing cost is an issue for customers.
HCVS moved into the sector a year ago and now manages around 4,000 specialist vehicles and items of plant.
Lawes said: “We have developed a whole range of services around the contract hire model, covering issues such as asset compliance and improving asset utilisation to deliver significant cost savings.”
Traditionally, customers would hire their plant, but HCVS analysis proposes a different approach.
It analysed asset utilisation to establish a baseline demand, where long-term solutions such as leasing are more cost effective.
Lawes said: “There is a point where you could contract hire 60% of the plant and then top-up with hire to meet changing demand. That would remove the need for 10-15% of a company’s hire needs. It is not the right answer to contract hire everything, but it’s taking advantage of the potential savings where available.”
This ‘blended funding’ solution defines the HCVS approach to its markets, with customer needs taking priority when developing solutions.
Taking a strategic approach
It takes a similar approach in other sectors, including the increasingly complex corporate car market, which Lawes says is “undergoing phenomenal change”.
A consequence of disruption in the company car sector from rising taxes and ongoing legislative uncertainty is a reduction in the number of tax-paying company car drivers, as businesses shift to cash allowances or employees opt out.
HCVS is responding to this changing market with a focus on offering companies and employees a wider range of solutions.
The consumer sector is catered for with new personal contract hire products, including affinity schemes delivered through the employer and a stand-alone PCH offering that has already funded 16,000 vehicles for former corporate customers as well as private drivers.
HCVS is also predicting renewed interest in tax-efficient Employee Car Ownership schemes, which reduced the cost of vehicle operation for employers and employees.
ECO schemes effectively provide company cars, but with ownership transferred to the employee, so they are not exposed to benefit-in-kind tax, which has almost doubled in the past six years.
Employees are automatically reimbursed for their business mileage at Government-approved rates, while employees fund any personal mileage from their salary each month.
The new ECO scheme, called Car IQ, was launched by HCVS in August 2018.
HCVS works with The Miles Consultancy, which provides mileage capture and fuel management services.
The rise of blended fuel policies
An additional challenge is the increasing complexity of fuel choices facing car fleets.
After years of uncertainty, Lawes believes fleets are now becoming more serious about investing in zero-emission vehicles.
This is despite mixed messages from the government, which has announced a formal policy of moving away from fossil-fuel-based road transport, while simultaneously cutting incentives for the most popular zero-emission-capable vehicles.
Despite this uncertainty, Lawes says there is genuine business interest compared to the ‘box ticking exercises’ carried out by many fleets in previous years.
He said: “We are doing a lot of work managing fleet profiles around ultra-low emission vehicles and there are more serious trials of electric vehicles and the potential areas that might benefit.”
As with funding, fuel choice is increasingly requiring blended solutions, with the growing range of fuel choice being matched to specific roles.
Inner cities will experience the biggest change as low-emission zones take effect over the coming years, with options ranging from the cleanest Euro 6 diesels to electric and gas-powered vehicles.
Lawes says HCVS’s expertise in HGVs gives it an advantage over rivals in guiding customer strategies when it comes to policies, particularly for commercial vehicle policies where urban access is often business-critical.
He said: “We have a 100% retention rate for our HGV customer base and also we have a growing number of clients. That is because we have a strong proposition based on engineering; our capability is truck down, not car up.”
HCVS has seen a 200% increase in its compressed natural gas HGV fleet this year.
Lawes said: “It is important to focus where there will be the greatest business benefit.”
As part of this growth, the business has played to the strengths of the wider HC (UK) business, so that it can also arrange finance for CNG fuel storage through its asset finance division, allowing customers to extend the implementation costs across the life of the systems.
For cars, the impact of changing fuel choices will be radical, according to Lawes, effectively reshaping the company car market in the next decade.
Lawes said: “I think EVs will be really exciting for our industry. There will be a big shift to EV from 2020. As affordable EVs arrive with a 200-mile range, it could be the relaunch of the company car. It is very exciting.”
Technology provides crucial insights
Technology will play a crucial role in identifying which elements of the fleet will benefit most from different fuel policies, including insights from sophisticated telematics systems.
This is mainly around the commercial vehicle market, where the use of tracking systems is now almost universally accepted and allows for vehicle monitoring as well as proactive fleet management, such as identifying that a vehicle requires a service or that a mileage-based contract requires a change.
For car drivers, the use of telematics remains a controversial issue, but HCVS has developed a smartphone-based app for drivers that delivers personalised insights to employees, so they are more readily accepted.
Lawes added: “If fleets really embrace telematics and safety, then accidents and costs will go down.”
Insights from the HCVS telematics service highlight that most incident costs occur within a small proportion of the fleet, typically 5-10%.
While driver training can have an impact, modern vehicle technology can also pay dividends, such as autonomous emergency braking, which automatically brakes when it calculates that a collision is imminent.
This is typically used in slow-speed environments and prevents easily avoidable collisions, such as rear-end shunts in traffic jams and stop-start urban traffic.
Lawes said: “One customer saw a 25% reduction in accident spend when they introduced active braking.”
The result highlights the benefits of obtaining broad fleet insights that drive strategic behaviours, Lawes says, adding: “A total cost of ownership approach is important, which involves using the right vehicles and the right technology together.”
With this strategic approach in place, Lawes is targeting long-term growth for HCVS.
He said: “We don’t win long-term contracts or loyalty by just delivering KPIs for customers. That just gets you a seat at the table. We have a proven methodology that identifies problems and delivers solutions through insight and a deep knowledge of our markets, which gives us a strong competitive advantage for the future.”