The fleet services market, including fleet and business cars, grew by an estimated 9% in 2015 to £14.3 billion. Record fleet car registrations reflected rising employment levels, low fuel costs, and increasing business confidence among larger firms, which helped boost demand and market value.

Figure 1: UK market for fleet services, 2010-15

(£ billion)

Source: Mbd and trade estimates

The popularity of company cars has, however, declined in the long term as changes to tax benefits has restricted demand for fleet vehicles. The number of company car benefit-in-kind (BIK) recipients fell by 3% from 2009/10 to 2013/14, which can be linked to a parallel increase in taxes on CO2-emitting vehicles. The main threshold of capital tax allowance will be further reduced to 110/km from April 2018, meaning that even more vehicles will be eligible to pay the tax. However, the increasing availability of electric and low emission vehicles from fleet operators has begun to offset the impact of tax increases, with the decline in BIK receipts slowing in recent years.

More than 1.3 million fleet cars were registered in 2015, a 12% increase on 2014. Business cars, on the other hand, have seen a 10% reduction in registrations to 107,000 cars. Despite improving access to credit for SMEs, the decline in business cars points to more challenging trading conditions for smaller firms. Fleet car registrations account for 92% of the fleet services market, with business cars contributing the remaining 8%.

Figure 2: Segmentation of UK new car registrations, by volume, 2011-15

(000 cars)

Source: SMMT

Fleet and business car registrations are projected to increase by an estimated 1.9 million by 2020. Fleet car registrations are expected to grow by 28% from 2016 to 2020, compared with a 17% decline for business cars. The impact of interest rate rises, now expected in 2017, will contribute to the slowing growth rate for new fleet cars as both borrowing costs and leasing rates rise, moderately dampening demand.

The rate of decline recorded in business car registrations during 2015 will slow to 2020. However, pre-2015 growth levels are not expected in the next five years as SMEs reduce business car use to essential needs and smaller companies move towards short-term lease options.

Figure 3: Forecast UK market for fleet services, 2015-20

(£ billion at 2015 prices)

Source: MBD and trade forecasts

Business investment continues on an upward trajectory, with five-year cumulative growth of 19% and a year-on-year increase of 3% to Q4 2015. Increasing economic activity has created greater demand for leased fleet vehicles, with improved trading conditions across a number of sectors generating the budgets to support this demand.

However, investment fell from October to December 2015 for the first time in the year, pointing to impending signs of caution at a time when the IMF reduced UK economic growth forecasts. Worldwide economic performance is impacting the UK, with growth in China and other major global economies slowing, and a particularly weak performance in Europe - the UK’s main trading partner. Uncertainty in the UK also reflects the upcoming EU referendum on 23 June.

Figure 4: Business investment in the UK, 2011-15

Note: Not including investment by central or local government, investment in dwellings, or the costs associated with the transfer of non-produced assets

Note: Chained volume measures, seasonally adjusted

Source: ONS Business Investment, Q4 2015 revised results

The number of people in work continues to rise, reaching 31 million in 2015. Growth has been driven by the private sector, while public sector employment has been falling since March 2010 amid department spending cuts and austerity.

Company car drivers are travelling shorter distances, with the average business milage in England falling to 700 miles in 2014, compared to 900 miles in 2015. This is as a result of economic and technological changes, with more home working and technology-assisted remote online and tele-conferencing meetings requiring less travel.

Fuel prices fell from 2013 to 2015, with unleaded dropping by 17% and the cost of diesel declining by 18%. In the short term, fleet managers have more scope to consider expanding the number of vehicles they operate in a climate of reduced cost or using the savings to fund other fleet management services. However, it is unlikely to represent a long-term trend as oil prices are prone to fluctuations and a concerted global economic recovery would likely drive up the price of oil and fuel again. In fact, fuel prices rose in March 2016 for the first time since July 2015.

Figure 5: Typical retail cost of fuel in the UK, 2011-15

(pence per litre)

Note: Typical fuel cost is the annual average between 2010 and 2013. For 2014, the typical fuel costs are the monthly average price taken from November 2014.

Source: Department for Energy and Climate Change, Energy Price Statistics

More than 28,000 plug-in electric vehicles were registered in 2015, a 95% increase on the previous year. Hybrid car registrations also rose by 19% to 44,580.

Mintel’s consumer research shows that 22% of drivers are interested in cars with hybrid technology, while 10% are interested in electric cars, reflecting the larger proportion of hybrid cars registered in the UK. This offers opportunities for fleet operators to cater to demand by increasing the number of hybrid cars in their fleets.

Companies in the fleet services industry enjoyed a strong 2014, with the vast majority increasing turnover in the financial year.

Lease Plan generated the largest turnover of companies profiled in this report at £828 million, reflecting a strong car market - though the company also cited termination results as a key driver of the year’s performance.

Inscape Fleet Solutions recorded the highest profitability at 17%, with pre-tax profits of £9.6 million in 2014 helped by its product offering and focus on customer service.

Trading under the new brand name Zenith-leasedrive, in the first full year following the merger of Zenith Vehicle Contracts with the contract hire arm of Leasedrive Group, the company recorded a 13% increase in turnover and a profitability rate of 6%.

The fleet services market is experiencing a strong period of growth, with demand for fleet cars at an all-time high. Underlying demand conditions are expected to remain strong in 2017 as rising employment levels and business confidence remain relatively strong. There are signs of caution in the medium term, however, as a global economic slowdown impacts the UK economy and SMEs limit company car use to essential need. Fleet service providers will also need to offer innovative service offerings and more flexible lease options to encourage demand in the years to come as more flexible working practices and technology makes it less necessary to travel for business.