Stable Outlook for US fleet industry 2019/2020
The US economy is healthy, with steady GDP growth, low unemployment and limited fluctuations in inflation. All in all, a good place to be for OEMs and leasing providers, who depend solely on the financial health of their client base to do business and make money. But how does a strong economy translate into success of the US fleet industry?
US Economy: key indicators
As a result of the Government’s international trade policy, the GDP growth is predicted to slow to 2.1% in 2019 from 3% in 2018, with a further anticipated decrease to 2% in 2020 and 1.8% in 2021 (source: Federal Open Market Committee). Initiatives are being proposed to contain and redress the GDP fall, as the White House aims to achieve a 4% growth within its time in power.
Unemployment is at 3.6%, expected to increase slightly over the next couple of years, but still much below the Fed’s target of 6.7%. This means that most of the people who lost their jobs during the financial crisis, have found employment since. To be noted though, is that many of the new jobs are either part time or in low-salary retail and food service industries, which means that a higher employment rate doesn’t necessarily imply a comfortable disposable income.
The inflation rate is below the Fed’s 2% target rate, giving room for lower interest rates.
Energy prices however will rise, for several reasons. The main cause is a “back to normal” phase after the production of US shale oil, which reduced oil prices with 25% in ’14 and ’15. At the time, a lower oil price was good news for US businesses, that saw their overhead costs (transportation, raw materials,…) decrease and profit margins raise. On top of that, a strong dollar (the reference currency for oil trade), adds to the benefits.
The forecast is less positive however. Whereas a barrel is quoted today at USD 67, the cost is expected to increase to over USD 80 by 2025 and close to USD 110 by 2050. Increased demand, as well as the end of cheap oil sources, being the main reasons for the price increase.
Fleet & Leasing industry
A strong economy – or at least an uptake of the economy – benefits the fleet and leasing industry almost immediately. During down periods, businesses postpone making capex or opex investments or look for cheaper alternatives. That period is now over, says Laura Jozwiak, Senior VP Sales and Client Relations at Wheels: “We see the fleet market being very favorable for the remainder of 2019 and into 2020. The unemployment in North America remains low, which has influenced our clients to leverage the vehicle, and the services that go with it, as a recruitment and retention tool.”
Businesses are not only acquiring new vehicles, they are also going for better equipped vehicles. Whereas especially tool of trade cars, or “vocational fleets” as they’re called in the US, used to be standard trucks, Fleet Managers today are increasing the level of equipment in order to attract and retain talent.
About connected cars and mobility
The US have been ahead of Europe for a long time when it comes to telematics, to the extend that it has become normalised to install some kind of telematics device in company cars. The latest trend however, and here as well the US are ahead of the curve, is connected vehicles. Laura Jozwiak: “It’s about data being received directly from the vehicle, not from a 3rd party device, and a fleet management company’s ability to access this data and integrate it into their reporting/analytic tools.” Laura Jozwiak admits however that standardisation of data as well as data ownership still need to be worked out.
Changing business models
Businesses are changing and new business models change the corporate need for company cars, also in the US. As a result, the role of the North American Fleet Managers is evolving. Laura Jozwiak recognises this: “We encourage our clients to engage with various stakeholders such as their logistic and marketing teams to understand potential disruptions to their business model with mobility schemes and alternatives. An internally engaged fleet manager will find themselves on the front line of innovation.”