BVRLA News, July 2010

BVRLA News

www.bvrla.co.uk July 2010

The newsletter of the British Vehicle Rental and Leasing Association

We’ve got a government we can do business with

by John Lewis The Chancellor was never likely to win many friends in delivering his emergency Budget, but the reactions so far suggest he made a good fist of a difficult job.

In his first Budget, George Osborne managed to produce a realistic plan for reducing the deficit without stifling private sector business.

Unsurprisingly, much of the strategy is focused on cutting public spending.

The coalition government’s policy of cost reduction and improved operational efficiency will chime with many privately run businesses across the UK. The fact that so many businesses have taken similar steps over the past two years makes many of us quite optimistic that the Chancellor’s spending goals can be achieved without too much damage to the fabric of society.

Government ministers have already made it clear that they don’t want trade associations and lobbying groups approaching them cap in hand. For this reason the BVRLA is talking to civil servants and ministers about areas where mutually beneficial changes can be made which will cut bureaucracy and improve efficiency.

Lewis: the government’s efficiency drive could benefit the rental and leasing sector

What the BVRLA is trying to achieve through lobbying, its members are already delivering on the ground. In fact, government procurement experts have been working hard to make it easier and more cost-effective for government bodies to buy-in external fleet services.

The Office of Government Commerce has set up ‘frameworks’ around different fleet services, including fleet management, fleet consultancy, contract hire and daily rental.

These dramatically cut the cost and hassle involved when a public sector organisation wants to put its requirements out to tender.

Some industry watchers are predicting a big increase in the outsourcing of public sector fleets as more departments and agencies seek the 10-20% cost savings that leasing and fleet management companies are routinely able to deliver for their private sector clients.

With an estimated 100,000 vehicles and an annual budget of £600m, the public sector fleet could be another area where both the government and the rental and leasing industry can work together and deliver benefits to both sides. n Budget summary and comment, page 4

bvrla.co.uk

In this issue Bodyshops struggle with new vehicles Some repairers are being tested by the latest methods and materials page 2 TfL says sorry for the cost of poor service Transport for London admits woeful congestion charge administration page 3 Insurance admin ‘nightmare’ looms The new offence of being the registered keeper of an uninsured vehicle poses admin problems page 3 Budget’s ill wind may blow us some good Last month’s Budget focused on the public spending deficit, but it will affect rental and leasing page 4 Accounting: how to help your customers A new reporting standard for leases has major implications for customers page 5 New accreditation recognises key role A technical service advisor comments on the ATA assessment page 6

— Promoting responsible road transport since 1967 —

Comment Bodyshops struggle with new vehicle technology Welcome to this latest issue of BVRLA News, the first to be published only in a digital format.

Just like the coalition government, your association is looking to cut costs and streamline the processes involved in delivering key services.

This electronic version of BVRLA News will help us meet those goals.

We hope that you enjoy this way of reading the publication. We value your feedback – if you experience any problems accessing or reading it, please let us know.

All this year’s editions of BVRLA News have been converted into online publications and you can read them – or download PDF versions – via the BVRLA website.

Editor Toby Poston, toby@bvrla.co.uk 01494 545700 Production Manager Steven Prizeman, steven@bvrla.co.uk 01494 545710 Advertising Nora Leggett, nora@bvrla.co.uk 01494 545713 © Copyright BVRLA 2010 BVRLA News articles may be used copyright free by members provided that an acknowledgement is given.

BVRLA River Lodge, Badminton Court Amersham Buckinghamshire HP7 0DD T 01494 434747 F 01494 434499 E info@bvrla.co.uk W bvrla.co.uk Honorary Life President Freddie Aldous Chairman Kevin McNally Vice Chairman Neil Cunningham Honorary Treasurer Brian Back Chief Executive John Lewis

Independent bodyshops are finding it difficult to keep up with the complexity of materials and methods used to build modern vehicles, according to experts at Thatcham, the Motor Insurance Repair Research Centre.

Greater use of modern steels, aluminium and carbon fibre, together with new welding, riveting and bonding techniques is limiting the number of non-franchised outlets capable of repairing many modern cars. There are also fears that some vehicles are being improperly repaired as a result, putting drivers and residual values at risk.

Speaking at the recent BVRLA Service, Maintenance and Repair (SMR) Forum, hosted by Thatcham, Marsh said that the challenges of repairing modern vehicles were leading to a fragmentation of the bodyshop market. Some body repair outlets were willing to invest in training and equipment, others were not.

This view has been echoed by Malcolm Tagg, director general of the Vehicle Builders and Repairers Association (VBRA), who said the industry was polarising between those concentrating on cosmetic repairs and those capable of full structural repairs.

Andrew Marsh, advanced data and methods manager at Thatcham, said that some manufacturers were making the situation worse.

However, he said that manufacturers were willing, albeit sometimes grudgingly, to give the relevant knowledge and support to independent repair outlets – as long as they paid for it.

“In today’s market, OEM [original equipment manufacturer] support is very patchy,” he said. “Some of them provide comprehensive data for body repair, others do not, and the challenge going forward is getting bigger.

“The main problem is that insurance companies are not willing to pay reasonable rates for repair,” said Tagg.

“This means there is less money available for reinvestment in future equipment and training for vehicle build technology.”

“There is no legal driver for manufacturers to provide detailed repair methods, nor are there drivers on the standard, timing or quality of repairs.

Things are not going to get any better over the next five years.”

Both the VBRA and Thatcham advise vehicle owners to pay close attention to where their vehicles are repaired. n See page 7 for more details of the BVRLA SMR Forum at Thatcham

MasterCard accepts the need for consistent credit card processing The BVRLA has told MasterCard that its members want consistent application of credit card rules when their customers try to get a charge by a rental company reversed.

MasterCard said that the BVRLA’s calls for best practice across the industry in areas such as damage charging and chargebacks could also help MasterCard achieve consistency in these areas.

At the meeting, held in Brussels last month, MasterCard explained that one of its biggest difficulties was ensuring that its rules are applied consistently by all parties in the payment card chain, including the card issuer, the merchant acquirer and the rental company.

MasterCard also said that the process for defending chargebacks had been improved and that much of the information could now be submitted electronically. BVRLA members should ask their own merchant acquirers how they can access this service. n BVRLA News | July 2010

TfL apologises – but members still counting the cost The BVRLA has expressed its continuing dissatisfaction with the level of service its members are receiving from Transport for London (TfL) when dealing with the capital’s congestion charge scheme and associated fines – often issued incorrectly.

They have also complained that the congestion charge website is incredibly slow.

BVRLA members have identified their headaches as beginning when IBM took over as service provider for the scheme in November 2009.

Inchcape Fleet Solutions has calculated that each payment and credit for the erroneous fines it received during this period took 16 minutes to process.

Following a meeting in April between TfL, the BVRLA and association members, a number of improvements were promised. Feedback from BVRLA members indicates that the fleet schemes are now running normally, but a large sum of money has yet to be repaid to companies that were wrongly fined.

TfL’s latest response to the BVRLA states: “TfL apologises to the fleet managers who have experienced difficulties with the operation [of] their accounts in the last few months. TfL has worked to resolve these issues and the vast majority of accounts are now operating well.

The BVRLA is calling for TfL to compensate members for the additional costs they have incurred during this period of poor service.

“A lot of work has been done to address the issues affecting fleet accounts that were drawn to our attention by the trade, and these have all been resolved.

However, on examination of the original issues, a number of additional issues requiring work have been identified.

“Progress has been made in resolving these secondary issues, but, owing to the nature of the fleets, it will take time for this to be reflected in individuals’ accounts.

“TfL will not be satisfied until the fleet solution has proven itself over a number of months. We are always keen to work with fleet customers and value their feedback.”

The BVRLA will shortly be writing to London’s transport commissioner, Peter Hendy, to express its concerns. n

SMMT figures Access to insurance database reveal recovery could stop admin ‘nightmare’ The fleet car market continued its strong recovery in June, up 25% on the same period in 2009, according to the latest figures from the Society of Motor Manufacturers and Traders (SMMT).

New registrations for fleets (25 vehicles or more) hit 100,250, suggesting that a large proportion of the lease cars that had their contracts extended during the Credit Crunch are being replaced. Purchases in the SMMT’s businesses category (up to 24 vehicles) were also up, by 18.4%.

This indicates that recent price reductions from a number of manufacturers are helping drive demand for company cars.

Following the end of the scrappage scheme, private demand for new cars fell by 3% year-on-year.

Registrations of alternatively fuelled vehicles rose by 157% year-on-year, and matched their largest ever market share at 1.2%. Unfortunately, the SMMT does not break down the figures, so it is unclear whether this surge was led by demand for electric or hybrid vehicles. n BVRLA News | July 2010

With legislation due early next year to create a new offence of being the registered keeper of a vehicle with no insurance, the BVRLA and members met with the Driver and Vehicle Licensing Agency (DVLA) and the Motor Insurers’ Bureau (MIB) last month to discuss its implementation.

The DVLA said it would enforce the ‘continuous insurance’ measure by regularly cross-checking its own registered keeper database against the MIB’s motor insurance database.

When the DVLA finds registered keepers whose vehicles appear on its database but not the MIB one, it will ask the MIB to write to them, giving the keeper an opportunity to get their insurance in order or correct any errors on the databases.

As the registered keepers of their vehicles, leasing and rental firms would be held liable for any that were uninsured. They would not be able to formally transfer fines to their customers.

The BVRLA believes that even though the majority of its members’ vehicles will be compliant, some will not appear on the motor insurance database due to keying errors or administrative oversights by customers.

Given the size of fleets, postal advisory letters for each non-compliant vehicle would impose what the association called “an administrative nightmare” on its members.

The MIB has therefore agreed to consider giving BVRLA members access to its database so they can see if any of their vehicles are unlisted. This would provide members with the ability to work with their customers to manage their fleets and ensure that vehicles are on the database before any advisory letters or fines are issued.

The BVRLA has called on the MIB not to charge for such access, which it believes would reduce the bureau’s administrative costs as well as those of its members.

It is awaiting the MIB’s decision on the feasibility of the scheme. n

Budget’s ill wind may blow us some good Last month’s emergency Budget focused on the government’s plans for tackling the UK’s public spending deficit, but there were still plenty of changes for the vehicle rental and leasing industry to digest.

The biggest change announced was the widely anticipated decision to increase the VAT rate from 17.5% to 20% as of 4 January 2011.

This will make all forms of vehicle funding more expensive, but will accentuate the benefits of leasing company cars instead of buying them.

While a leasing customer can recover 50% of the VAT cost associated with a company car, a company purchasing a vehicle cannot reclaim any of it. The cost

advantage enjoyed by firms that lease will therefore become even greater when the VAT rate increases next year.

The increased VAT rate is also likely to push up the cost of private car rental. The Chancellor announced support for the UK tourism industry in his emergency Budget, and we will be lobbying for a special VAT rate for leisure car rentals, in recognition of this sector’s vital part in the UK’s tourism infrastructure.

Elsewhere in the Budget, the reduction in capital allowances may have a marginal impact on headline lease rates, which could be offset by the staged reductions in the rate of corporation tax.

These reduced allowances will make leasing even more attractive, because companies purchasing vehicles will

Budget: key points Corporation tax The main rate of corporation tax will be reduced from 28% to 27% from 1 April 2011. There will be further 1% reductions each year thereafter, leading to a 24% rate by 1 April 2014.

For small businesses, corporation tax will fall to 20% from 1 April 2011.

Employment tax From 6 April 2011:

❱ the personal allowance for people aged

under 65 will be increased by £1,000 to £7,475 (except for higher rate taxpayers) ❱ the secondary threshold (the point at which employers start to pay Class 1 National Insurance contributions) will be increased by an extra £21 a week above indexation (inflation-adjusted pricing).

New businesses setting up outside London and the east and south east of England will be exempt from £5,000 of National Insurance per employee for the first 10 workers hired in their first year.

Fuel duty The previously announced increases will remain as 1p in October 2010 and the final 0.76p in January 2011. Thereafter, the increase will be 1p a litre above inflation each year until 2014.

Fair fuel stabiliser The Office for Budget Responsibility is to assess the effect of oil price fluctuations on public finances. The government will then consider options for a fair fuel stabiliser.

VAT rate and IPT increase From 4 January 2011:

❱ VAT will rise from 17.5% to 20% ❱ Higher rate of insurance premium tax

(IPT) will rise from 17.5% to 20% ❱ Lower rate of insurance premium tax will rise from 5% to 6%.

Writing down allowances (capital allowances) Writing-down allowances (WDAs) for new and unrelieved expenditure on plant and machinery will be reduced:

❱ from 20% to 18% a year for expenditure

allocated to the main pool (this will affect expenditure on cars emitting 160g/km CO2 or less and all commercial vehicles) ❱ from 10% to 8% a year for expenditure allocated to the special rate pool (this will affect expenditure on cars emitting more than 160g/km CO2).

The first measure will affect the calculation of WDAs for chargeable periods ending on or after 1 April 2012 for corporation tax and on or after 6 April 2012 for income tax.

have the administrative and financial burden of carrying these depreciating assets on their balance sheets for longer.

Some media reports have suggested that the new VAT and capital allowance rates, together with the changes to National Insurance thresholds, will lead to a stampede of fleet funding reviews.

Regular reviews are a good idea, but we cannot see anything in this Budget to create an urgent need for fleets to redo their sums.

But one area where the Chancellor should redo his sums is fuel duty. His apparent commitment to the previously announced increases in fuel duty later this year and next risks creating an unsustainable burden for many businesses and individuals who have to drive by necessity.

We were disappointed not to hear further details of a potential lorry road user charge as an alternative way of taxing road freight movement.

The Chancellor said he would consider the introduction of some form of fuel price stabiliser, but the BVRLA will continue to lobby for an essential user rebate.

Another area where the association will continue to lobby is for improved access to funding. Many taxpayers will have welcomed the introduction of a bank levy, but any joy at seeing this sector punished for its involvement in the Credit Crunch will be short-lived if banks subsequently put up their lending rates.

BVRLA members are already paying extortionately high rates to their funders and we hope that this levy does not indirectly lead to further increases.

Overall, this was a ‘macro’ Budget, and we will undoubtedly see transport funding and motoring taxes receiving more attention in October’s spending review and future Budgets. Given that the vast majority of journeys are made by road, it is vital that the government take a value-for-money approach when considering whether to axe transport projects. n BVRLA News | July 2010

Prepare your customers for new lease accounting rules Accounting standards-setters working on a new system for reporting leases in financial accounts are due to publish their plans this month.

Jay Parmar, the BVRLA’s head of legal services, explains what they are likely to mean for business.

Historically, financial leases have been reported on the balance sheet, but not operating leases. The International Accounting Standards Board (IASB) is working on a common standard for all lease contracts – a move that could affect publicly quoted companies as soon as June 2011.

What is the proposed change?

The IASB wants to bring all leased assets onto the balance sheet to give a more complete picture of a company’s financial position. Under its proposals, publicly quoted companies leasing an asset – whether a photocopier, computer, motor vehicle or property – would be required to account for it.

This new approach to lease accounting, referred to as the ‘right of use’ model, differs substantially from today’s standard, which is based on an analysis of the risks and rewards inherent in the lease.

Under the right of use model, a lessee would always identify the leased item as an asset on its balance sheet and incur a corresponding liability (see table, below).

Bringing these leased items onto a firm’s balance sheet will not in itself erode the

commercial benefits of leasing. Leasing has already proven its value – sheltering companies from the risks associated with vehicle values and ensuring that more capital remains available than when assets are purchased outright. But it would inevitably impose a new reporting burden. Members may therefore consider how they can help their customers prepare. Here is our summary of the key points to bear in mind: Maintenance and service Fees relating to maintenance, fleet management and other service costs are excluded. With only the finance element of the rental having to be reported, leasing companies may be asked to separate finance and maintenance charges. This is unlikely to be a problem for a leased car, where the finance and maintenance are noted separately for VAT purposes, but usually won’t be possible for a commercial vehicle. Where the finance element cannot be separated, the customer would have to set out the full rental value on their balance sheet.

Short-term hire Customers renting vehicles for less than 12 months would be required to use a simple accounting model. This would keep their reporting burden to a minimum because they would not need to calculate the net present value of the rental.

Contingent rentals Customers would have to account for any end-of-rental and excess mileage charges. The BVRLA believes that calculating this for each and every leased vehicle would be impractical. Having discussed this with the major accounting firms, the association believes that

Right of use model – lessee Asset

Right to use the leased asset

BVRLA News | July 2010

Liability Rental payments (finance element only) Net present value discounted at customer’s incremental borrowing rate

customers could meet their reporting obligations on a fleet portfolio basis, thereby simplifying the process. The reporting requirement would begin when the vehicle has been delivered to the customer, not when it is ordered.

Residual values Leasing firms would not have to provide any financial information relating to the asset’s value at the end of the lease term, so residual values can be ignored.

Options to extend A lessee with a formal option to extend the term of their lease, and who expects to do so, would be required to calculate the value of the asset for the period of the extension and include this on their balance sheet. The lessee would be required to consider all relevant factors, including options to renew at market value at the date of renewal. In practice, as most BVRLA members use fixed-term leases without formal options to extend, this requirement is unlikely to affect many customers. Those who have been informally permitted to continue using a vehicle after the lease term has expired – whilst awaiting delivery of a new vehicle, for example – would not have to account for the period of informal use.

Auditors Auditors would continue to decide if a lease has to be accounted for by applying the ‘materiality’ or ‘non-core’ rules. In short, this means that if the vehicle being leased has little financial impact on the accounts it can be ignored.

Will all companies be affected?

The proposed lease accounting rules would only apply to publicly quoted firms that report to the standards of the IASB. Most small and medium-sized enterprises reporting to the UK’s generally accepted accounting principles (GAAP) will be unaffected until UK standards converge with those of the IASB. This is not expected to take place until after 2015. n Contact Jay Parmar, jay@bvrla.co.uk 01494 545706

News in brief Van values plummet

The industry mean value (IMV) for the ‘basket’ of vans whose predicted residual value is tracked by the BVRLA has fallen dramatically. The association’s data survey for June saw values down by £464.27 (11.58%) on May, ending a run of steady but unspectacular growth since December 2009. The IMV for vans coming off fleet in three years’ time with 60,000 miles on the clock now stands at £4,007.60, £192.39 lower than when the BVRLA began tracking values, last December.

2009 theft figures revealed

Every year the BVRLA surveys its daily rental members on their experiences of vehicle theft and fraud. The findings from respondents’ 2009 experiences can now be downloaded from the BVRLA website.

The key findings from 2009 were:

❱ the cost of vehicle theft to the rental sector was £7,139,950, taking into account net vehicle loss, loss of rental income and recovery costs (a 1% rise on 2008)

❱ BVRLA members reported the theft of 1,988 vehicles (3% up on 2008) ❱ the vehicle recovery rate was 77% (the same as in 2008) ❱ members’ net vehicle loss was 461 (15 more than in 2008) ❱ 1,053 vehicles, just over half the total losses, were stolen from the hirer or the hirer’s premises.

Revised rental agreement on sale The rental agreement is one of the most important documents for all rental companies, forming as it does a legally binding agreement between company and customer. Updated earlier this year, the latest version of the BVRLA’s own rental agreement forms are now on sale to members. Available in quantities of 500, 1,000 or 2,000, the forms can be personalised with company details.

For further information, contact the BVRLA Member Services department.

Contact memberservices@bvrla.co.uk 01494 545703

Accreditation recognises the key role of technical customer service advisors Aimed at individuals who work in technical service departments, the ‘Automotive Technician Accreditation (ATA) Technical Customer Service Advisor’ intends to give a boost to individual careers and professional development.

Skills are assessed through an online test and practical assignments designed to test advisors on reallife situations they will Lord: one of the first ATA Technical Customer Service Advisor encounter. Assessment candidates, she found the accreditation varied and challenging takes half a day, at the candidate’s own business premises, on a date to suit their employer. How has your role evolved over the past few years?

Susan Lord, technical services advisor “I have taken on more responsibility at BVRLA member Lex Autolease, was within the department. Every day is one of the first advisors to gain the different, and you never know what is accreditation, earlier this year. She shares going to happen, which is what I like.” her experience with BVRLA News: What did you enjoy about the What does your role entail? assessment?

“I deal with all aspects of maintenance, “It was a good test of knowledge and was repairs and queries for all vehicles that varied and challenging.” are on contract to us. My role is varied and I liaise with garages, customers, fleet Lord also said she appreciated the managers and manufacturers on a daily opportunity to discuss her work with the basis.” assessor.

How does your role fit into the business?

“My role is very customer-orientated, so requires me to speak to customers when their vehicle is off the road and ensure we get their car back on the road as soon as possible.”

To book a test in September, October, or November, contact BVRLA member services administrator Fran Hampson. n Contact Fran Hampson, frances@bvrla.co.uk 01494 545703

Further information on the ATA Technical Customer Service Advisor accreditation and other BVRLA training courses can be found in the training section of the association’s website www.bvrla.co.uk

BVRLA News | July 2010

Thatcham reveals future of car safety features Lane departure warnings, speed limit recognition, night vision, pedestrian detection… these and other safety technologies are coming soon to a car near you.

This was the message from executives at Thatcham, the Motor Insurance Repair Research Centre, which hosted the latest BVRLA Service, Maintenance and Repair (SMR) Forum last month.

Thatcham’s director of research, Andrew Miller, also talked about a ‘life-saver’ technology that has been around for some time, but is still only fitted in around 60% of new cars – electronic stability control (ESC). Tim Bowden, operations director at Hitachi Capital Vehicle Solutions and chairman of the BVRLA’s SMR Committee, urged his counterparts at the forum to insist on having ESC fitted as standard.

Later on, forum delegates heard from Bryan Stringer, operations director at

ING Car Lease, on his experiences of working with telematics equipment.

Although the technology could be used for many things, including capturing fleet or mileage data, vehicle diagnostics, asset tracking and proactive servicing, he acknowledged that most customers were yet to be convinced that it was worth paying the extra £10 a month it could add to their lease rate.

Finishing off the forum was a presentation from Chris Vowles of Axeon Power, which makes battery systems for electric and hybrid vehicles.

Vowles forecast that the cost of batteries would continue to fall as electric and hybrid vehicles become more popular and economies of scale improve. However, he also warned that motorists would not see the kind of price reductions and performance increases seen from improvements in semiconductor technology. n

Committee meetings 2010 Committee of Management

19 Aug

18 Nov

Chairman’s Committee

21 July

28 Oct

Commercial Vehicle Committee

7 Sept

30 Nov

Leasing & Fleet Management Committee

21 Sept

7 Dec

19 Oct

Leasing Broker Committee

Rental Committee RVR Forum Committee

5 Oct

20 July

23 Nov

Risk Management & Security Committee

16 Sept

9 Dec

SMR Forum Committee

14 July

25 Nov

Training programme 2010 Certificate in Fleet Consultancy

Amersham

14-15 Sept

Selling Contract Hire

Amersham

20-21 Oct

Certificate in Fleet Consultancy

Amersham

16-17 Nov

(module one)

(module two)

In-house training – dates available upon request For further information about all BVRLA courses, contact Nora Leggett: nora@bvrla.co.uk, 01494 545713

New member BVRLA News | July 2010

Rentorose Ltd (Feltham)

Training courses Certificate in Fleet Consultancy Module One: 14 – 15 September Module Two: 16 – 17 November Amersham

The BVRLA’s Certificate in Fleet Consultancy is designed to align the rental/leasing sales function more closely with the role, responsibilities and requirements of a typical fleet manager.

An accredited training programme for account managers, it covers the principles of fleet management, policies and procedures, providing innovative solutions to fleet delivery requirements.

Delivered from the clients’ perspective, the course draws on the training expertise of the Institute of Car Fleet Management and enables participants to benefit from that organisation’s knowledge of fleet operators. By gaining that perspective, staff will be better placed to advise on the most appropriate acquisition methods and other services.

Participants will demonstrate their learning through written assessments.

Contact Nora Leggett, nora@bvrla.co.uk 01494 545713

City & Guilds Vehicle Rental Operator accreditation 12 October

This nationally recognised certificate can reinforce best practice and legislative knowledge. Testing knowledge of vehicle rental operations, examinations are held at various locations around the UK. Contact Fran Hampson, frances@bvrla.co.uk 01494 545703

Selling Contract Hire 20-21 October, Amersham

This two-day course is aimed at sales professionals in contract hire, leasing and fleet management. Delegates will gain a greater understanding of finance, taxation, competitive contracts, margins and underwriting. It is intended to make salespeople more knowledgeable, confident and effective.

Contact Fran Hampson, frances@bvrla.co.uk 01494 545703 7

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