The Australian motor vehicle sector accounts for a total of 15.3 million registered passenger vehicles (PV) and light commercial vehicles (LCV). The Australian consumer motor vehicle market experienced a significant increase in 2012, with new vehicle sales up 10 percent over the previous year to 1.11 million cars and trucks.
The Australian fleet market has also increased, though not to these levels. It has remained stable for a number of years — around the half-million unit mark. Total units leased and/or managed in 2012 were up 4 percent compared to 2011. GE Capital’s Custom Fleet business expects a similar increase between 2013 and 2014.
One key component of the Australian fleet market is "tool-of-trade" vehicles, known elsewhere in the world as utility vehicles.
"The key focus of fleet managers in Australia and New Zealand is total cost of ownership, CO2 reduction, and compliance with government-mandated occupational, health, and safety regulations,” said George Georgiou, general manager, fleet for ORIX Australia Corporation Limited.
The total leased and managed market is quite stable with the Australian Fleet Leasing Association (AFLA) indicating a total of 520,000 units being leased or managed via its members with 119,000 units (or 10.7 percent) business written in the 2012 calendar year. In addition, the Australasian Fleet Management Association (AfMA) estimates a further 800,000 vehicles are managed directly by business and government through their internal systems.
Changing the Market Landscape
While the total market size has remained static over the past five years, the competitor landscape has changed significantly with a number of the major banks exiting the industry and selling their leasing and management businesses to independent providers or private equity groups, according to ORIX Australia. The Australian market is made up of more than 15 fleet funding providers with significant growth in the niche and salary packaging areas. The major providers offering a full-service product range are sgfleet, GE Capital's Custom Fleet, LeasePlan Australia, ORIX Australia, FleetPartners, Interleasing (Maxxia), Toyota Financial Services, and FleetPlus.
The fleet leasing and management market is very mature with the major providers offering full-service product ranges, according to ORIX. While the major players, by name, have remained constant, the ownership of a number of these providers has changed over the past 10 years including GE Custom Fleet, sgfleet, Fleet Partners, and Interleasing (Maxxia).
One recent trend in the Australian fleet market is silent leasebacks. Companies will sell their vehicles to fleet leasing companies and then lease them back. In addition, driver safety has become a greater concern to Australian fleet managers and is now viewed as their second-highest challenge after depreciation.
"ORIX has implemented a driver training program with ExxonMobil in Australia," Georgiou said.
One of the most dramatic changes in priorities in the Australian fleet market recently has been the decline in concern about meeting CO2 emissions reductions. "In 2010, Australian fleet managers ranked this their No. 2 concern; however, in 2011 it dropped to No. 7," Georgiou said.
The majority of new entrant activity has been in the salary packaging market where the barriers to entry remain low and funding can be undertaken by a panel arrangement with the risk residing directly with the driver. There are numerous providers in this segment with a range of products, which includes motor vehicle leasing; however, this also extends to travel; electronic work devices, such as laptops, tablets and mobile devices; education; and other work-related expenses.
In the post global financial crisis environment, customers have changed focus from a lease-rental-only focus to a more "whole of life" focus factoring in all elements of vehicle lifecycle costs, including lease rental, fuel, insurance, and taxes, such as a fringe benefit and luxury car tax. In addition, the market is also seeking to improve the efficiency of interfacing with their providers through online portals and electronic interfaces while not losing any of the full-service attributes, such as account management, reporting, and quarterly performance reviews.
Turning to Technology
Technologically, the concept of "big data" is taking shape within fleet management, with telematics aiding the ability to link together disparate pieces of customer and driver data.
Online capability is one of the fastest growing services in the fleet leasing industry, according to ORIX. Customers are looking for smarter and faster ways to manage their fleets as well as interface with their lease providers. Initiatives such as online quoting and online acceptance are areas many customers are looking for improved efficiency in the fleet management process. This, along with online alerts, driver behavior management, and exception reporting, are best practice services major corporations are looking to capitalize on.
"There's also evidence of the ‘consumerization’ of the fleet industry, as customers seek technology akin to that available in their personal lives," GE Capital noted. "We have seen a rise in fleet-related smartphone applications and expectations of online experiences analogous to the best consumer online experiences."
Technology is a changing the face of the fleet industry, according to Keith Cormican, sgfleet's commercial excellence executive. "Online portals, apps, IVAMs (in-vehicle asset management systems), and a pool car booking system are just some of the applications that we have created for our clients. Fleet management is no longer just about providing vehicles, it's also about delivering the most efficient fleet for each client," he said.
According to GE Capital's Custom Fleet business, "While technological advancement is certainly impacting fleet management, there remains an underlying need for real solutions delivered by real people with the expertise to manage through complexity. Our customers are seeking insight, not just data. They are looking for recommendations of where and how they can reduce costs while maintaining or improving fleet performance. Outside of delivering core fleet services, there is an increased need for 'consultancy' services that deliver these insights and recommendations."
"GPS and GSM (global system for mobile communications) technology are now playing a growing part in collecting mileage data and then collating the output to submit as part of an annual tax return that optimizes the fringe benefit tax (FBT) cost for employers," said Adam Trevaskus, managing director, corporate for FleetPartners. "This same technology is being linked to the provision of safety-related data. The federal Work Health and Safety Act came into effect at the end of January 2012, which is stimulating a lot of discussion around how employers can meet their obligations under this new legislation."
Australian fleets are also adopting GPS technology as part of their driver safety and risk management programs.
Sizing Up the Australian Market
Fleet sizes in Australia can range from so-called micro fleets of less than 20 units to mega-fleets exceeding 1,000 vehicles. Larger fleets tend to be more prevalent in the fast-moving consumer goods (FMCG), telecommunications, logistics, and utilities industries.
The Australian market has access to an ever-increasing array of motor vehicle brands, with a few new entrants in 2012. With a population of only 23 million, there are currently 49 brands in Australia, which is twice the number of brands within the U.S. Local production continues to decline with all major manufacturers shifting production outside of Australia. Sole-sourcing from a single OEM supplier is another ongoing trend among Australian fleets.
"With the incentives offered by all manufacturers to fleet buyers, in particular the huge incentives for 'conquest' business, it makes commercial sense to standardize to one manufacturer," Georgiou said.
Auto manufacturers operating in Australia are seeking to stimulate fleet sales by offering incentives to large fleet customers. Korean OEMs, in particular, are aggressively trying to expand fleet market share through the use of robust fleet incentives.
"The Korean auto manufacturers are very aggressive with fleet incentives and are making inroads in the fleet market," Georgiou said. "The Korean impact on the Australian fleet market in the past few years with higher quality controls, extended warranties, as well as robust fleet incentives, has changed the whole look of the Australian and New Zealand fleet market."
Korean OEMs, along with Subaru and Volkswagen, have been experiencing dramatic increases in fleet market share in Australia over the past two years.
"Traditional players, such as Ford, Holden, Toyota, and Mitsubishi, have lost huge market share to the Koreans, Subaru, and VW. Honda and Mazda are also planning to enter the Australian fleet market in the near future," Georgiou said. The entry of these new OEMs into the fleet market — along with dramatic market share shifts — has complicated the Australian fleet marketplace.
Another recent OEM entry in the Australian fleet market is Great Wall, a Chinese OEM; however, fleet market reaction has been lukewarm. "Great Wall has only a two-star safety rating in Australia," Georgiou said. "The Chinese-produced Great Wall cars will take a few more years to gain acceptance."
The top five brands in the Australian market in 2012 were Toyota (19.6 percent), Holden (10.3 percent), Mazda (9.3 percent), Hyundai (8.2 percent), and Ford (8.1 percent). In addition, there has been a significant shift away from the traditional tool-of-trade providers, such as Holden and Ford, with Toyota maintaining its position and smaller variant/model providers, such as Hyundai and Mazda, growing. The top selling variants/models in the Australian market in 2012 were the Mazda3 (up 6.5 percent), Toyota Hilux (down 12.5 percent), Toyota Corolla (up 7.5 percent), Holden Commodore (down 24.8 percent), and Holden Cruze (down 13.7 percent).
"While choice is high, as the location of production has changed, Australia has become more susceptible to issues of global supply," said GE Capital's Custom Fleet. "The natural disasters of recent years have resulted in delays ranging from three to nine months, impacting the ability to meet fleet customer needs. We are, however, starting to see this normalize, though this 'new normal' involves OEMs carrying lower levels of stock locally."
Manufacturers continue to look to cater to the growing demand for medium- and small-sized cars, which offer the lowest possible whole of life cost, best-in-class green credentials while ensuring the highest possible driver ergonomics, and safety, according to ORIX. There has been a move away from the local manufactured larger vehicles with a trend toward mid-small vehicles such as the Ford Focus, Ford Mondeo, Toyota Corolla, and Mazda3.
In the LCV segment, the mining and infrastructure sectors have pushed a major focus on the safety attributes of vehicles, with some setting a mandate for five-star Australasian New Car Assessment Program (ANCAP) rating. This has pushed a number of manufacturers to bring forward their plans to upgrade their safety ratings for vehicles in this segment.
Supply continues to be a major issue for some manufacturers with the global financial crisis and natural disasters impacting manufacturers' supply stock at hand, manufacturers continue to work with major corporations to align manufacturer supply with market demands. As a result of this lack of supply, used-car values have remained high, as has the prevalence of lease extensions in the industry.
"For a relatively small country, there are 14 fleet management organizations competing for a half-million units," observed GE Capital's Custom Fleet. "It remains a highly competitive market in which to operate."
Treatment of operating leases and accounting changes have been proposed as part of a global initiative to standardize international financial reporting. The potential changes will result in the same balance sheet treatment of finance and operating leases. While it is unclear the impact this will have on acceptance of finance leases over operating leases by the markets, the taking of residual risk by customers may result in customers continuing to undertake operating leases, regardless of the accounting treatment.
Major corporate customers are generally still under pressure to reduce their business operating costs and, as such, fleet rentals, fuel, FBT, and insurance/accident/driver training are becoming a major focus in the assessment of their lease providers.
In addition to this, management-by-exception in the areas of fleet utilization and imminent expiry, are becoming a priority to ensure fiscal management. This is being done through utilization management and the reduction of short-term rental costs by aligning new asset delivery with expiring agreements. Another area of focus for major corporations is "duty of care" management, ensuring fleet vehicles are serviced at all times, looking for trends in accident history to drive assessing driver training initiatives and identifying the best fit for purpose vehicles for the company's operations.
Among the biggest potential changes that the Australian fleet market witnessed occurred in July 2013, when the federal government announced changes to the FBT, which would have negatively impacted novated leases. Under the proposed legislation, all businesses will now be required to abandon the Statutory Method, which will result in a significant rise in the FBT liability, according to AfMA.
However, with the victory in September 2013 of the Liberal/National Coalition party led by Tony Abbott, who is now serving as the Prime Minister of Australia, the FBT reform proposal was scrapped — a promise Abbott made to the fleet industry while campaigning.
The market responded with fleets upping their purchases 64 percent in the month after the election, according to AFLA.
"Novated leasing provides significant savings to hundreds of thousands of employees," said sgfleet's Cormican. "We expect this market to increase as more organisations see the benefits of providing salary packaging for their employees."
● Capital: Canberra