The relationship we share with the cars we drive is about to change and we will not be going back. There was a time when horse carriages and buggy whips were in high demand then came along the internal combustion engine and it changed the world. Similar events are upon us now. The electric vehicle (EV) era has arrived worldwide to be quickly followed by autonomous piloted vehicles but we get ahead of ourselves let’s deal with the immediate issue the EV.
Looking at this emerging automobile market through new eyes, professional eyes, there is a lot for us to learn from the professional fleet managers that we can apply to our personal vehicle holding portfolios. After all, cars are the second most expensive item most of us control next to our homes – this exercise makes sense.
For starters, automobile fleet managers do not see their stock their inventory in the same appreciative personal light that we consumers do. Their stock is an investment that produces income they are dispassionate towards it; it is not something they dream about or spend hours at the end of the day lying in bed on their phones reading relevant articles like we do. Once they have pragmatically determined the best value for their money they will only hold it as long as feasibly responsible, maximum 3 years, then it is liquidated.
April tax increase on all fuel burning cars
Most of you are aware that there was a tax increase on all fossil fuel burning cars including hybrids, in April this year. This was the first shot across the bow preparing us for the coming EV (electric vehicle) market.
Within the next 36 months, we are slated to have over 3000 EV charging stations placed around the state. The transportation minister has projected by 2030 that new cars sales will consist only of EV vehicles, a bit optimistic perhaps but you see where the trend and the market is heading.
The April tax hike was unpleasant, new taxes always are, but we’ve endured them before and we are adjusting, however that is not the whole story this time. The tax hike was not a singular dimension event as consumers suppose. What comes next in this story is what has the professional fleet managers concerned.
When there is a storm there can be damage but once it passes in some parts of the world, like where I live in the Jordan Valley, what comes next can be more dangerous even deadly – the flood waters.
Dramatic metaphor yes but it deftly illustrates our point. The April tax hike was the storm that we wish we did not have to endure; it came and went. You may now ask, what then are the flood waters that are coming which will cause more problems than the storm? The flood waters are that once the EV’s arrive, the new generation cutting edge technology cars, the ones not burdened by the additional taxes levied on fuel burning cars, the ones promising us less expensive operating costs, there presence in the market makes predicting the future value of the fuel burning cars bought today impossible. The uncertainty of the next 3 to 5 years has caused irregular movements among the major importers and the large leasing companies.
Up until now the fleet managers were able to play around with their end of contract value projections on the stock they were buying and holding to lend out to their customers. There were models they could take liberal positions on regarding their future values to stimulate sales. Until now they could make up any deficiencies on the over valuations of their stock when the time came for their inventory to be retired and retailed to the general public in 3 or 5 years’ time – can’t do that anymore. They are now forced to be more realistic, conservative if you will, even at the expense of losing sales, in their approach to these future value projections. No one knows to what extent the depreciation percentages will increase only that they most certainly will.
Another trend that has come into vogue with fleet managers is offering current lease contract extensions. The lease company wants to retain their clients of course, but if they can delay making another purchase of a new car for a couple of years this is preferable to them, it gives the market a little time to stabilize.
So the take away for us as individuals and what we try to convey to our potential clients is that if the professional fleet managers are concerned and have changed previous business practices shouldn’t we be questioning our positions as well? Is it really a good time to buy a new car?
Keep in mind the lease companies have tools at their disposal to help them overcome the future liquidation processes, as the market values move against them. They have large marketing budgets, commission sales personnel, and retail stores where they have the ability to offer financing and extended warranties to increase a vehicles perceived value, we as consumers don’t.
New cars will always have a place in our lives for sure, there offer us advantages that used cars cannot provide. But maybe this time, even if you have never seen yourself as one who would lease a car, consider making an exception for the next 3 to 5-year cycle.
Allow this new and exciting time in automobile history to come into existence and begin the process of stabilization before making any long-term purchasing commitments.