Managing the Financial Side of Commercial Fleets

Market Trends

Migration of U.S. Fleet Management to the European Fleet Model

January 11, 2016, by Mike Antich - Also by this author

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 this catalyst.

My point is that the future direction of the fleet market may very well be influenced by seemingly unrelated events, what are known as "Black Swan" events.

As of December 2015, the total U.S. federal debt was more than $18.7 trillion and growing. Independent of the national debt, the U.S. is also running a projected Social Security funding shortfall of $20 trillion for current participants above projected revenues from their payroll and benefit taxes and a $30-trillion deficit in obligations for current Medicare participants above projected revenues from their payroll taxes, benefit taxes, and premium payments. Everyone knows this level of deficit spending is unsustainable and cannot continue ad infinitum. Either government spending must be curbed or taxes increased. The most likely future is one of much higher taxation. What impact will this high taxation environment have on a future fleet market? To answer this question, it is necessary to look outside the U.S. fleet market.

Traditionally, U.S. fleets have relatively low taxation levels compared to other global regions. In high-tax envi-ronments, such as Europe and South America, there are a multitude of taxes targeting fleet vehicles, such as a value-added tax, vehicle excise duty tax, company car tax (benefit-in-kind), country-specific taxes, aftermarket equipment (batteries, tires, etc.) sales tax surcharges, and environmental taxes, such as engine displacement size and CO taxes. Corporate fleets are an easy target to generate tax revenue and every government always needs additional revenue sources to counter budgetary shortfalls.

Company Vehicle as Compensation

If you think fleet is big in the U.S., it is even bigger in Europe, where the company car reigns supreme. In fact, almost 60 percent of new cars sold in Europe are com-pany cars. One reason for the high market share of company-provided vehicles is tax avoidance. Starting in the 1960s, the number of fleet vehicles in European and UK companies increased dramatically to circumvent government taxes and income policies on company employees. Rather than offer employees higher wages — which would be heavily taxed — European employers offered fringe benefits, such as company-provided vehicles. This approach has worked well not only for European corporations and their employees, but it has also benefitted the Continent’s domestic automotive industries.

If this was the reaction in the European fleet markets, 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 European fleet business model offering company-provided vehicles as a form of compensation. As history illustrates, the greatest changes occur in fleet when tax policy changes, new government regulations are mandated, and new technology, such as the Internet, are incorporated in day-to-day operations. If we envision the emergence of an even more onerous high-taxation environment, could the same future unfold for the U.S. fleet market as it did in Europe? I believe the trend toward higher taxation will trigger dramatic changes that will transform the U.S. fleet market. For decades, the U.S. commercial fleet market has been a flat (albeit, stable) market. However, if this scenario becomes reality, then the U.S. fleet market will quickly transition to a growth market, which, concomitantly, will demand ever-greater in-house fleet management expertise, similar to what is presently seen in Europe.

Let me know what you think.

[email protected]

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Mike Antich

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Mike Antich has covered fleet management and remarketing for more than 20 years and was inducted in the Fleet Hall of Fame in 2010.

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