The Car and Truck Fleet and Leasing Management Magazine

Market Trends

Is the U.S. Destined to Follow the U.K. Fleet Model?

July 28, 2008, by Mike Antich - Also by this author

 By Mike Antich Predicting the future has been likened to a billiard game. The cueball is the catalyst – representing a seminal event – that upon crashing into aracked set of balls triggers not only the initial reaction, but numerous unanticipatedsecondary and tertiary reactions. When the cue ball strikes its target, itunleashes unanticipated dynamics of balls deflecting off other careening balls,ultimately changing all of their trajectories. Let’s expand the pool table analogyby inserting “fleet” as one of the billiard balls within the rack. Although it maybe unaffected by the initial catalytic event (being hit by the cue ball), itwill most likely be affected by the secondary and tertiary events unleashed bythis catalyst.

My point is that the future direction of the fleet market may verywell be influenced by a seemingly unrelated event that we never saw coming. Forinstance, who predicted the impact of today’s housing crisis on the fleetmarket? The bursting of the housing bubble has rippled through fleet all theway from the securitization of leases to the resale value of pickups. Likewise,who predicted the fleet market consequences of a terrorist attack on the World Trade Center and the Pentagon?No one, but the impact was substantial. The 9-11 attack essentially shut down thedaily rental industry, flooded the wholesale market with downfleeted rentalcars, collapsing resale values for everyone, including commercial fleets. Ittook the resale market four years to recover from this calamity. Are thereother unanticipated (seemingly unrelated) events waiting to occur that willrock the fleet world?

$9.5 Trillion and Growing

As of April 2008, the total U.S. federal debt was more than$9.5 trillion and growing. Although the annual U.S. budget deficit declined from$318 billion in 2005 to $162 billion in 2007 there is still $162 billion in newdebt that will ultimately have to be repaid, with interest I might add. However, this decline in the deficit is short lived. On July 29, the government issued a statement that the deficit will increase to $482 billion in the 2009 budget year, which would surpass the record deficit of $413 billion in 2004.

Thegovernment has accumulated debt over time by running budget deficits, spendingmore than it collects in revenues. Add up all the deficits (and subtract thosefew budget surpluses), and you get the current national debt. Independent ofthe national debt, the U.S. is also running a separate Social Security funding shortfall that, depending onwho you read, is between $3 trillion and $11 trillion. Compounding this problemis the percentage of the population over 65 that will increase from less than13 percent today to 20 percent by 2030.

If,in addition to the unfunded Social Security obligations, you add projected Medicaidand Medicare shortfalls, this figure rises to $59.1 trillion.

To make up for our perennial budgetary shortfalls, the governmentborrows money. The amount borrowed (and now owed) is added to the nationaldebt. As a country, we pay interest on this debt. There does not seem to be anyplan to manage this debt other than attempting to grow the economy faster thanthe growth of the debt. Currently, 11 percent of the federal budget is spentpaying interest on the national debt. Interest was the fourth largest expenseitem in the federal budget, after defense, Social Security, and Medicare. In FY 2006,the U. S. government spent $406 billion on interest payments to holders of the national debt.Unless this spending pattern ends, eventually interest payment on the debt willbecome the largest expense item in the federal budget. Everyone knows this levelof deficit spending is unsustainable and cannot continue ad infintum; someliken it to a train wreck waiting to happen. Either federal spending must becurbed or taxes increased. I don’t know about you, but I foresee a future ofmuch higher taxation, paid mostly likely by our children. What impact will thisnew reality have on the macro economy or, at the micro level, on the fleetmarket? To answer this question, it is necessary to look outside the
U.S. fleet market.

A High-Taxation Environment

If you think fleet is big in the U.S.,it is even bigger in the United Kingdom, where the company car reigns supreme.In fact, almost 60 percent of the new cars sold in the UK are companycars. One reason for the high market share of company-provided vehicles is taxavoidance. Starting in the 1970s, the number of fleet vehicles in the UK increaseddramatically to circumvent the government’s taxes and income policies. Ratherthan offer employees higher wages, which would be heavily taxed, employersoffered fringe benefits such as company-provided vehicles. This approach hasworked well for the UK economy.

If this was the reaction in the UKmarket, could the same occur in a future U.S. market operating in a similar high-taxenvironment? In my mind, it’s not a far-fetched scenario. I can envision internaland external political and economic pressures that could prompt the U.S. fleet market to migrate to a UK businessmodel.

The bigger point I’m hoping to convey is that change may be forcedupon the fleet industry by factors not yet on anyone’s radar screen or subjectsof current concern.

Let me know what you think.

[email protected]

Comments

  1. 1. Julián R. Rodríguez-Bird [ August 11, 2008 @ 09:40AM ]

    Just wanted to let you know I always enjoy your articles very much, and the first paragraph of today's (7-28-08) can only be described as art. I've been a reader of your magazine probably since around 1990, and I think that your writing is excellent. Have you authored any books?

  2. 2. Dick Dennis [ August 11, 2008 @ 11:48AM ]

    Your article on how the US fleet market may potentially go the way of the UK fleet market is really well done. Your discussion of the macro economic and micro economic factors impacting all of us is very clear and understandable, with logic that is hard to refute. I agree with you about this trend and only wish that more people in the US would develop a better understanding of these tax and spend trends and vote in a manner that would encourage our elected representatives to act more responsibly. In any case, this does bode well for the fleet marketers.

Comment On This Story

Name:  
Email: (Email will not be displayed.)  


Comment: (Maximum 10000 characters)  
Leave this field empty:
* Please note that comments may be moderated.

Fleet Incentives

Determine the actual cost of owning and running a vehicle in your fleet. Compare vehicles by class and model.

FleetFAQ

Fleet Tracking And Telematics

Todd Ewing from Fleetmatics will answer your questions and challenges

View All

 

Fleet Management And Leasing

Merchants Experts will answer your questions and challenges

View All

 

Sponsored by

Brenda Davis, fleet commodity manager for Baker Hughes, was named the Professional Fleet Manager of the Year for 2015.

Read more

Author Bio

sponsored by

Mike Antich

Editor and Associate Publisher

Mike has covered fleet management and remarketing for more than 20 years and entered the Fleet Hall of Fame in 2010.

» More

More From The World's Largest Fleet Publisher