Illustration: Sarah Ozgul
There aren't many things from the 1970s that remain a central part of the UK's corporate landscape, but the company car is one of them. It was, like Luncheon Vouchers, originally conceived to get around government attempts to restrain pay in that inflationary and troubled decade.
Regardless of gibes about 'repmobiles' and the cliche of the business traveller setting out on a Monday morning with five ironed shirts hanging in the back, the UK company car market - in its widest sense - accounts for around 1.3 million new car sales last year, a full 50% of the total number of new cars that were registered for the road in 2015.
MT spoke to the fleet bosses of three of the biggest fleet players in the UK about the shape of this market and whether, in the second decade of the 21st century, significant change in how companies keep their goods and employees moving may finally be around the corner.
AUDI: ELECTRIC VEHICLES POWERING UP
James Douglas (left), head of Audi UK's fleet operations, has spent the last three years at Audi after 15 years with Nissan. Business, he says, is booming: '2015 saw sales of 2.6 million vehicles, up from 2.47 million in 2014. The total fleet market last year was 1.3 million, so it's growing organically with the wider market. Audi's fleet and retail split is almost exactly 50/50, reflecting the situation in the wider UK new car market.
Douglas notes that the share of the market for 'premium' brands like Audi has risen strongly. 'Contract hire is driven by strong residual values (and, as a consequence, lower monthly hire costs) which has pushed the rise of premium brands in the fleet market.'
Indeed, the compact but upmarket Audi A3 - sister model to the VW Golf - was the ninth biggest selling fleet car in 2015.
Douglas reckons that Audi's appeal in the fleet market is largely down to a carefully thought out model strategy. The brand's extensive range of seven road car models, three (soon to be four) SUVs and a pair of sports cars 'works well as a hierarchy, matching a company's employees'.
One unnamed Audi UK client company only buys Audi models and, while the majority of its drivers have the entry-level A1 model, the more senior the employee, the more upmarket the Audi they drive. HR departments say offering premium cars can be 'essential for staff recruitment' he adds.
'We want to see organic growth as a brand in this market, we don't push too hard. Focus on customers, not on selling x number of cars.' He points out that Audi has clients buying cars on a weekly basis, which they will own for three to four years 'so our dealers have to be near-perfect'.
The hybrid A3 e-tron is becoming a fleet vehicle option as companies commit to reducing emissions; the e-tron’s in-car display
And what of Dieselgate and the possible backlash against diesel? Will alternative fuels really gain traction in a hard-headed commercial market? 'Audi's fleet mix of diesel is quite high, somewhere in the high 60s (%). But I think the future of the market will be dominated by alternative fuels, petrol electric (hybrid) in the medium to long term.'
Electric vehicles, particularly hybrids, are coming on fast. The hybrid A3 e-tron launched last year and Douglas claims 'phenomenal' demand, though that needs to be put in context. 'We launched the hybrid as a halo vehicle for the A3 range. It has advanced technology and drivetrain and is very enjoyable to drive.
'One customer ordered 100 examples in two batches of 50. This year we have managed to get a bigger supply from the factory. Almost every company has an environmental policy and reducing emissions is a large reason why hybrid is popular. The cars themselves are not the cheapest, so the government grant (reducing the list price by beween £2,500-£4,500) is an important part of the proposition.'
This year, Audi gets the big Q7 e-tron SUV. This vehicle offers intelligent connectivity to get the best out of the hybrid drivetrain. By using live traffic information and details about the road topography and the driver's route (via the sat-nav), the Q7 e-tron can very quickly shuttle the transmission from using the petrol engine to using just the battery or both forms of propulsion together. The car will even coast downhill to save fuel.
The potential for business travel and fleet management of this so-called 'predictive efficiency assistant' is clearly considerable. While much of the discussion around autonomous driving is about the driver being able to relinquish control, the other side of the coin is the car deciding how to best mange a hybrid drivetrain for the current and expected road conditions.
'Autonomous driving, the connected car, live diagnostics and greater safety will all push operating costs down,' says Douglas. 'If you think that 50% of the marketplace is fleet cars of one kind or another, this kind of technology has huge potential.'
However, such a step change in the way fleet cars can be driven and tracked brings both the potential for new revenues and also new challenges. Douglas hints at the difficulties involved. Aside from data protection, he says that Audi 'sells cars to different leasing companies, a different business pays for the lease and there's an individual driver in the car. For whom is the contract drawn up if we want to sell extra technology for the driver via a monthly fee?'
FORD: CROSSOVER MAN EMERGES
Nick Themistocleous (left), director of fleet operations for Ford of Britain, has a rather more hard-headed business sensibility. Themistocleous, who has been with Ford for the thick end of three decades, oversees wider fleet sales of around 250,000 units annually.
In his world, demand for company and fleet vehicles is a direct reflection of the health of the core economy. 'We're seeing lots of growth, driven by SMEs. That's what is happening in the economy. Lots of new enterprises are being established and growing,' he says.
'Deliveries to the corporate sector are not as big as they historically were. Once, a company like Mars would take on 200 graduates a year and they would all get a company vehicle. But it's the small businesses that are now growing.'
Unlike Audi, Ford's core fleet market is much less about employee reward and status and more oriented to serious business use. Its famous van brand, the 'Transit nameplate' is 'the sixth or seventh biggest in the UK vehicle market. We've seen growth of 45-50% in commercial fleets the last few years.'
He also thinks that the future for Ford's commercial fleet supply will be 'the rental business and mobility in the marketplace'.
'There could be a lot more blending in the future. In a few decades, London could have a third of the number of current vehicles on the road, most of which are not owned and many driverless. A lot will change.'
Changing tastes mean the Ford Kuga SUV is gaining popularity as a fleet car
Ford has already rolled out its GoDrive hourly rental car project, a kind of Boris Bikes scheme for cars, which guarantees parking spaces at designated hub points.
In contrast with the more upmarket Audi, Themistocleous says hybrids are still a very small part of his market. 'A Mondeo Hybrid is available but we didn't see as big an uptake as expected. Perhaps it's because so few people have driven one.'
Response to alternative fuels has been equally muted in the commercial market. 'As for the functionality of EVs, people involved in delivery realise it is not a fit because the weight of battery packs greatly reduce the load capacity of a van.'
Classic business cars such as Ford's Mondeo have also been hit by changing tastes. The Mondeo is no longer in the fleet sales top 10. 'Ford now offers four similar-sized models in the sector,' he says. As well as the Mondeo, there's the S-Max and Galaxy MPV and Kuga SUV. Indeed, UK sales of the Kuga leapt from 10,000 in 2009 to 30,000 in 2015.
This, Themistocleous reckons, is because the increase in fleet sales to SMEs mean the end user is now also more of a 'user-chooser'. It seems that Tony Blair's ambitious Mondeo man is increasingly becoming Crossover man.
Ford, unlike Audi, does not have any type of external car connectivity/interactivity on the near horizon. In Themistocleous's opinion - and speaking as a man who supplies vehicles for serious business use - he has an alternative vision of connectivity which 'integrates into company management schedules'.
'Something that would produce job schedules and invoicing. I can even imagine such a system telling the driver when he is scheduled to leave the motorway at Junction 4 ...'
VAUXHALL: MAKING CONNECTIONS
Vauxhall sells around 150,000 cars into the fleet and around 30,000 commercial vehicles. 'We're seeing a healthy UK economy, with high levels of employment,' says Paul Adler (left), the brand's fleet marketing & motability manager.
Like other fleet departments, the big effort for Adler and his team is specifying a car down to the last useful extra. This is because an ex-fleet car will eventually find its way back to the used car market. What that car is worth at three years old and with 60,000 miles under its wheels is a vital consideration because it directly affects the monthly cost of leasing when the car is brand new.
'Specification and pricing a car is a big job for the UK market. We've been reverse engineering from showroom price back to the monthly leasing cost. We've brought in lower list prices for the new Astra and Corsa models but, if we get the specification and offer right, we can gain that cost back on better residual values,' he says.
'There's a long chain of people involved in a fleet car sale. List prices and balanced equipment are key for improved residual values. With this new approach, residual values for the new Astra went up by as much as £2k.'
Fleet car users and buyers have become very clued up when comparing the all-important TCO (Total Cost of Ownership). 'We know the most used part of the Vauxhall website is the BIK (Benefit in Kind) calculator. They have to research the decision-making process and have a very pragmatic "how much it will cost" approach to purchase. It's a big decision for a company. There's an endless pressure for efficiency.'
Vauxhall - General Motors Europe's British brand - also has a new connectivity system called OnStar. It works via both GPS and the mobile phone network and is primarily sold on safety, though it has clear fleet vehicle appeal.
For example, if a car is involved in an accident and the airbags are deployed, the information is relayed to the OnStar call centre. Operators can communicate with the occupants and call the emergency services. 'We are seeing a huge interest from fleet and private drivers alike.'
If an OnStar-equipped vehicle is stolen - the first UK incident was recently recorded - once the car stops it can be immobilised and the location relayed to the police. A car can also be automatically unlocked if the keys are locked inside. It's even possible to get OnStar staff to remote programme the car's sat-nav, especially useful for a multi-stop business day.
Adler is cautious on the idea that OnStar could be used for live diagnostics by fleet managers. 'Of course, if you used OnStar as a diagnostic tool, a fleet manager could check monthly mileages remotely. And arguably, it could also track driving style information on which could be used to improve safety and improve fuel economy.'
Vauxhall’s new Ampera E battery-electric car is due to launch in Europe in 2017; in the event of a crash, Vauxhall’s OnStar connectivity system relays information to a call centre
On the subject of alternative fuels, diesel still dominates. Across the retail market the balance has tipped slightly to petrol, approximately 52/48 in 2015 from 50/50 in 2014. We've not seen this happen in the true fleet market.'
Intriguingly, Adler says that cars supplied to daily rental companies - which are released onto the used car market after six to 12 months - will have to reflect the slight shift in retail market preference to petrol.
'Now we have efficient petrol engines, such as the 99g/km 1.0T unit in the new Astra, there's been a big request for fleet demonstrators. It's not a massive swing (to petrol) but interest is changing.'
Currently Vauxhall doesn't have a hybrid vehicle in its line-up. 'GM is committed to developing EVs and hybrids, such as the (upcoming) Ampera E battery-electric car, but we're not sure which EU markets will take it,' he says.
'I'd say alternative fuel take-up (on fleets) is about the same as three years ago. It's being offered but not being taken up. Perhaps ownership of a hybrid car is possibly less good than promised, and not so fuel efficient.'
The figures back this up. According to the RAC, some 2,838 'ultra-low emission vehicles' were registered in the UK in the first five months of 2014. This jumped to 11,842 in the same period in 2015. But that has to be put in the context of one million new cars being registered across the same period.
It seems that Dieselgate and significant media coverage of poor air quality in many UK cities is, so far, failing to have much impact on the fleet car market. Likewise the growing availability of EVs and hybrids. The extra costs and residual uncertainty around these alternatives shows that for the vast majority, fleet car purchasing remains a hard-headed business activity, where every penny still counts. Much as it did back in the inflation-ravaged 1970s when the company car was born.