Having fleet management companies listed in the ASX is great for the industry because it provides an insight into the challenges and opportunities each reporting season.
The recent announcements by Eclipx, SG Fleet and Smart Group have confirmed the COVID related challenges Fleet Managers are facing with new vehicle supply; and the opportunities to generate significant profits when the traditional cycles are disrupted.
Increased profits have come from increased End of Life income which means selling ex-fleet vehicles when the leases expire at higher prices in a used market which estimated to be 30% higher than pre-COVID levels.
Eclipx reported an increase from $2,566 per vehicle in FY20 to $6,558 in FY21 ($7,204 per vehicle in the first six months of 2021). They had less vehicles to sell this year (down 2,416) because there’s issues finding new cars, though the extra profit per ex-fleet car made up for it. Similar figures were reported by SG Fleet and Smart Group.
Vehicle delivery delays are well documented in 2021 with comments by manufacturers on supply disruptions, and lower new car sales being reported in the October VFACTS. The questions that haven’t been clearly answered are; 1) How long are the delays? 2) how many orders are there?
In the Eclipx results presentation there are some answers, as they explain to shareholders (and non fleet industry people) the potential impacts on revenue over the short and longer term.
Delivery times for new vehicles to their customers have increased from 1-2 months to over 5-6 months. Eclipx stated that the constraints in new vehicle have impacted their revenues because they cannot write new business. They also acknowledged that while global manufacturing volumes have increased from previous COVID effected lows, and imports into Australia have recovered, manufacturers and dealerships are diverting sales to higher margin retail buyers which is impacting corporate fleet and novated deliveries.
The delay in new vehicle deliveries has created some panic amongst fleets and novated lease drivers looking for a new car in 2021. From the numbers provided by Eclipx, it looks like uncertainty paralysed organisations when the first lockdown was implemented in 2020 and the order pipeline for new fleet and novated lease vehicles to drop below 2019 levels. In 2021, the order pipeline is 2.1 times higher than 2019 as everyone plays catchup.
This pause in the regular replacement cycle of fleet vehicles has created another profit driver for fleet management and leasing companies – lease extensions (up 42% for Eclipx).
Eclipx commented that the FY21 margin was positively supported increased maintenance margins due to lower vehicle utilisation through COVID lockdowns and higher return on extended leases given income is earned off a lower asset base as extended leases continue to depreciate.
Opportunities still exist in novated leasing and Eclipx talked extensively about strategic pathways to expand into new markets and maximise new business in existing markets using digital pathways. In the 2H21, the value of new novated leases signed by Eclipx had recovered from the low in 2H20. With the current supply constraints and large order pipeline, 1H22 will be challenging before a recovery is expected in 2H22 and beyond.
Overall, Eclipx believe the market should return to normal in 2022. New business volumes will peak as the massive order pipeline is fulfilled. End of lease income will decline with an influx of older (better value) fleet vehicles into the used market, an end to lease extensions and more money spent on fleet maintenance and tyres as vehicles hit the road again.