A Brighter Future?

My Q3 2014 column for Professional Manager

Longer fleet cycles combined with rapid changes in technology and legislation make it imperative to futureproof new car leases.

It pays to see what’s down the road. We’re naturally risk averse these days – we want to know that our decisions stack up; that they make sense in context and in terms of what’s to come. See a red light approaching, for instance, and it makes sense to ease off the accelerator. You save a little fuel; you lessen the wear on your brake pads; you mitigate against someone rear-ending you at the lights; you give yourself a little pat on the back. It’s an example of future-proofing on a micro level, but it makes total sense to apply the same thinking on a larger level.

Take out a lease on a car now and – if you’re still on a three-year cycle – you won’t part with it until halfway through 2017; plan for replacing your current fleet and you need to start thinking about the economic and technological landscape in 2020, especially if you delay your fleet rollover beyond 36 months, as is increasingly common. While I don’t have a crystal ball there are some obvious issues to be aware of, whether announced by the government already or likely to be a factor by the time your next cycle comes around.

Tax is the obvious place to start, with the planned removal of the diesel surchrage and new BIK rates for ultra-low-CO2 cars. From April 2015, two new company car tax bands will be introduced at 0-50g/km and 51-75 g/km CO2 – starting a 5% an 9% respectively as the market anticipates more alternative-fuel cars with ultra-low CO2 emissions.

The opportunities for the cost-conscious manager or user-chooser are obvious, as they are for the planned harmonisation of BIK rates for petrol and diesel cars from April 2016. What’s more, from April 2015, the threshold at which the 100% first-year write-down allowance applies will reduce from 95g/km to 75g/km, as CO2 is driven down across the board and incentivisation of electric vehicles continues apace.

What else? Well, what’s inside your car requires some attention too, or you could find yourself without your dose of breakfast radio inanity during your commute. A digital switchover, which could be announced at any time, could render your car’s audio systems obsolete within their three-year cycle. While the chances are this won’t happen for several years, there’s no way of knowing you could be stuck with a motor that can only pick up pirate radio and Scandinavian phone calls. Most cars feature DAB as an option – or as standard on the majority of specifications, but cars at the cheaper end of the spectrum may not.

Similar electronic systems such as satellite navigation, hands-free technology, internet connectivity – and safety kit such as parking cameras – will also continue to develop rapidly. Soon any newish car without those features will start to look dated.

If you’re of the opinion that we’re starting to emerge from recession in the UK then crack out the Champers – or the Cava at any rate. But be aware that the attractive list prices and interest rates of the last five years are rapidly becoming a thing of the past.

What’s more, it’s important to view a new car in terms of its total life-cycle cost – that means not only thinking about running costs, but taking a view on projected residual values too. CAP and Glass’s will provide whole-life running costs by crunching data on per-mile running costs and residual values for new cars – taking into account all the relevant factors in terms of running costs, list prices, technology and desirability – so they’re invaluable for anyone planning a new purchase, but most car magazines will have data on resale values.

With the difference in residual values between comparable cars often as much as ten per cent, there can be thousands of pounds between a car’s three-year residual values. Arm yourself with this data if you want to future-proof your car purchase.

Future-proofing isn’t simply about which car to buy though. What happens if you car is involved in an accident? Do you have coverage? Will there be a replacement? A fully-maintained lease may be a good idea, but balance it against the escalated monthly costs such an agreement may incur – can you afford to tie yourself into an expensive contract that might last for 60 months?

Leases are getting longer, while developments in technology and respective regulations are gaining pace. This is all interconnected. No-one is going to buy a used car that immediately stings them at the pumps, has an unimpressive safety rating relative to brand-new cars or features obsolete entertainment equipment. Driven by increasing regulations, the pace of change is accelerating. While it’s not always possible to make out the road ahead, you can certainly mitigate the effects of that uncertainty and the imperative is clear; decisions made now could make a difference of thousands in three, four or five year’s time.

Future Shocks

Six areas that could change significantly in the next three years

Electric vehicles – EVs, especially EREVs and hybrids, aren’t going away. Don’t ignore new powertrain technology if it could work for you – an be aware of any new subsidies for these cars.

Tax changes – The rapid development of low-CO2 engines means changes to BIK are likely on a rolling basis, while the diesel surcharge will also disappear. While efficiency savings are likely to bottom out soon, the downward trend will continue.

Environmental trends – As turbo petrol engines improve and alternative fuels enjoy stronger incentives, diesel may become less of an obvious choice.

Regulatory changes – Proposed accounting rules will stipulate that leased assets will have to appear on company balance sheets, though there is no current schedule for this change.

Technology – Buy a car without DAB and you might suddenly find yourself without Ken Bruce on the radio during your morning commute. Consider infotainment and connectivity too.

Safety – Car safety changes very quickly. Buy a car without an excellent NCAP rating now and – in three years’ time – it could dent resale values, not to mention bodywork.

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