By Mike Antich Predicting the future has been likened to a billiard game. The cue
ball is the catalyst – representing a seminal event – that upon crashing into a
racked set of balls triggers not only the initial reaction, but numerous unanticipated
secondary and tertiary reactions. When the cue ball strikes its target, it
unleashes unanticipated dynamics of balls deflecting off other careening balls,
ultimately changing all of their trajectories. Let’s expand the pool table analogy
by inserting “fleet” as one of the billiard balls within the rack. Although it may
be unaffected by the initial catalytic event (being hit by the cue ball), it
will most likely be affected by the secondary and tertiary events unleashed by
My point is that the future direction of the fleet market may very
well be influenced by a seemingly unrelated event that we never saw coming. For
instance, who predicted the impact of today’s housing crisis on the fleet
market? The bursting of the housing bubble has rippled through fleet all the
way 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 the
daily rental industry, flooded the wholesale market with downfleeted rental
cars, collapsing resale values for everyone, including commercial fleets. It
took the resale market four years to recover from this calamity. Are there
other unanticipated (seemingly unrelated) events waiting to occur that will
rock 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 new
debt 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.
government has accumulated debt over time by running budget deficits, spending
more than it collects in revenues. Add up all the deficits (and subtract those
few budget surpluses), and you get the current national debt. Independent of
the national debt, the U.S. is also running a separate Social Security funding shortfall that, depending on
who you read, is between $3 trillion and $11 trillion. Compounding this problem
is the percentage of the population over 65 that will increase from less than
13 percent today to 20 percent by 2030.
in addition to the unfunded Social Security obligations, you add projected Medicaid
and Medicare shortfalls, this figure rises to $59.1 trillion.
To make up for our perennial budgetary shortfalls, the government
borrows money. The amount borrowed (and now owed) is added to the national
debt. As a country, we pay interest on this debt. There does not seem to be any
plan to manage this debt other than attempting to grow the economy faster than
the growth of the debt. Currently, 11 percent of the federal budget is spent
paying interest on the national debt. Interest was the fourth largest expense
item 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 will
become the largest expense item in the federal budget. Everyone knows this level
of deficit spending is unsustainable and cannot continue ad infintum; some
liken it to a train wreck waiting to happen. Either federal spending must be
curbed or taxes increased. I don’t know about you, but I foresee a future of
much higher taxation, paid mostly likely by our children. What impact will this
new reality have on the macro economy or, at the micro level, on the fleet
market? 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 company
cars. One reason for the high market share of company-provided vehicles is tax
avoidance. Starting in the 1970s, the number of fleet vehicles in the UK increased
dramatically to circumvent the government’s taxes and income policies. Rather
than offer employees higher wages, which would be heavily taxed, employers
offered fringe benefits such as company-provided vehicles. This approach has
worked well for the UK economy.
If this was the reaction in the UK
market, could the same occur in a future U.S. market operating in a similar high-tax
environment? In my mind, it’s not a far-fetched scenario. I can envision internal
and external political and economic pressures that could prompt the U.S. fleet market to migrate to a UK business
The bigger point I’m hoping to convey is that change may be forced
upon the fleet industry by factors not yet on anyone’s radar screen or subjects
of current concern.
Let me know what you think.