Memorandum by the Retail Motor Industry
Federation (RH 09)
INTRODUCTION
The National Franchised Dealers Association (NFDA)
is a federated association within the Retail Motor Industry Federation
(RMI). The Association represents the interests of some 4,000
retailers and repairers of new cars and trucks, including those
belonging to the Scottish Motor Trade Association (SMTA). The
RMI serves and represents businesses concerned with the provision
of motor industry products and services. It aims to assist, support
and promote members in providing the highest standards of operation
for the mutual benefit of themselves and their customers. The
RMI is the lead body of an industry whose turnover is in excess
of 65 billion pounds per annum, whose workforce numbers 600,000
and whose customers contribute 30 billion per annum in motoring
taxes. The RMI works closely with the SMTA which represents the
industry throughout Scotland. There are a number of associations
which represent the interest of the haulage and truck operators
within the industry. The Truck Division of the NFDA, through its
National Truck Council, is the only organisation which is able
to represent the interests of the commercial vehicle dealers which
sell and service commercial vehicles. The franchised networks
are the major skill providers in the industry, and are, to a large
extent, the custodians of vehicle safety related issues. Through
its access to relevant government agencies and authorities the
NFDA's Truck Division disseminates information and represents
member concerns across a wide range of issues.
The Role of the Road Haulage Industry
The Road Haulage sector is the largest purchaser
of heavy commercial vehicles in the UK and is divided into owned
account operators, haulage companies, and spot hire companies.
The movement of freight is vital to the well being of the UK,
its economy, and people. The logistics industry moves over two
billion tonnes of freight around the UK each year, most, over
80 per cent, by road. In addition to its internal transport needs,
the UK is also a major trading nation which requires good international
transport links. The main problem of switching freight from road
to rail is the small landmass within the UK. Average freight journey
length in the UK is under 100 miles, while rail only starts to
compete at 300 miles. Added to which significant increases in
the rail infrastructure, required to meet modern demands are unlikely,
and rail's ability to deliver "Just in Time" is very
limited.
Changes in the Sector
The sector has undergone significant change
in recent years. There are now less trucks on the road than 40
years ago, the average weight of goods lifted has increased, and
more intensive use is being made of available trucks, largely
due to improvements in logistics management. The impact of technology
has been significant, resulting in increasing service intervals,
better diagnostics and the introduction of telematics. Modern
trucks require less frequent and expensive maintenance and are
more economical to operate. Pressures on margins means both dealers
and manufacturers are increasingly seeking to become service providers
of a total life customer care package and to take control of how
their products are financed or leased. Options include tyre maintenance,
safety inspections, MOT testing, VED provision, general repairs,
European cover etc. The net result has been a significant increase
in contract hire as opposed to outright purchase. Contract hire
in recent years accounted for six to seven per cent of registrations,
and is now estimated to account for about 15 per cent. An operator's
decision to sell and lease back his vehicles has often in the
past been dictated by the need to free capital for investment
purposes but is now increasingly a direct result of economic pressures
such as high fuel prices.
The Market for New Trucks
The earlier nineties was marked by the longest
and deepest recession in the truck industry's history. Although
the market has recovered to some extent, 1999 sales only represent
74 per cent of 1989 levels. Increased efficiency in the operator
sector and the long term shift to heavier vehicles is also gradually
reducing the overall size of the market. Lorry numbers in use
have fallen by 13 per cent in the last 10 years.
Despite the increasing rationalisation and restructuring
amongst many manufacturers, there still remains an excess of supply
over demand, and pressure on dealer margins is critical. The reduction
in the average age of fleets and the shortening of vehicle model
lives as technology improves has also led to a collapse in residual
values for many trucks. The retail selling market for trucks is
therefore more competitive than it has ever been. The truck market
is also highly sensitive to changes in the economic environment
and in many respects is a barometer of the health of the economy—in
particular of the corporate sector. However the industry is also
strongly influenced by changes in the regulatory framework and
by government policy towards transport in general which is currently
perceived as failing to understand the industry.
As a result of these factors it is not an over-exaggeration
to say that the industry is in a critical stage which is already
seeing some operators being forced out of business and which may
ultimately impact on the distribution network itself.
Distribution networks
The number of commercial vehicle sales outlets
has shrunk by some 40 per cent since 1988 to some 370 outlets
with the emphasis on investment in larger territories and the
maintenance of service points. The complexity of modern trucks
and the increasing attention paid to safety aspects underlines
the requirement for a strong franchised-backed distribution structure,
and many operators who may have in the past operated their in-house
workshops are now out-sourcing repair and maintenance to the franchised
network.
The Key Issues facing the Competitiveness of the
Industry
Despite the extremely welcome announcement in
the Pre-Budget Statement of the Chancellor's intention to cease
applying the fuel duty escalator, British operators continue to
pay the highest fuel duties and VED across Europe. The recently
issued Consultation Paper on Reform of Vehicle Excise Duty also
states that the tax on a litre of diesel should be higher than
on petrol to reflect the higher levels of carbon and energy in
diesel.
A typical UK Transport Company operating around
90 vehicles already faces a financial penalty of some 7 to 8 per
cent of their cost base compared to their average European counterpart.
The Freight Transport Association states that a French operator
has as much as a 14 per cent cost advantage over his UK counterpart.
Fuel represents the single biggest factor for
an operator accounting for up to 36 per cent of the operator's
costs. The UK is the only country in the EU that does not differentiate
significantly between unleaded petrol and diesel. Latest price
comparisons show that UK prices ex VAT are 57 per cent more than
in France, 61 per cent more than in Germany and 94 per cent more
than in Spain. It is estimated that the Government lost £400,000,000
in tax receipts in 1998 because hauliers were purchasing fuel
abroad.
UK operators also pay the highest VED in Europe—three
times the EU average, and for a European standard 40 tonne, five
axle unit, up to 12 times the rate of some other countries.
In July 1998 restrictions on cabotage were removed
raising the prospect of competition from foreign registered hauliers
operating on marginal return load rates and with much lower fuel
costs. The FTA survey in July 1999 appeared to confirm this by
finding that one third of companies questioned are already using
foreign operators to carry a proportion of their domestic freight,
whilst government figures confirm that there has been a 57 per
cent increase in foreign vehicle trips to the UK since 1996.
Britain's position on the geographical edge
of Europe necessitates that transport is able to deliver a cheap,
efficient service if business is to remain competitive in domestic
and international markets. We are increasingly concerned at the
number of operators who are now seriously reported to be considering
the re-registration of their businesses in Europe. If this should
happen, not only will the Treasury lose VED revenue, but the temptation
to source new product from mainland Europe, where prices are already
significantly cheaper, will be that much stronger.
We agree that we need to move to a more transparent,
enforceable and cost efficient fiscal and pricing regime, but
this must not be through further increases in the overall tax
burden on the road freight industry which is already disadvantaged
against its competitors in mainland Europe.
Progress to Date
The RMI is fully supportive of the concepts
outlined in the Government's Integrated Transport Policy White
Paper produced in July 1998 subsequently outlined in more detail
in the Strategy Paper for a Sustainable Distribution, and of course
welcomes the withdrawal of the fuel duty escalator. However we
support the view of the FTA and the RHA that urgent action is
required by the Government to ensure that a level playing field
with the rest of Europe is adopted. In this respect the Spring
Budget is critical. Without urgent action at this time it is anticipated
that the number of firms no longer able to remain in business
will increase. We welcome the work of the Integrated Transport
Commission in offering independent advice on allowing 44 tonnes
access to Britain's roads. We also welcome the work of the Road
Haulage Forum which has set up Sub Groups to address many of the
specific issues raised above—for example the extent of cabotage,
the requirement to impound illegally operated vehicles, a review
of VED, and improvements in the compliance and the enforcement
of transport laws, particularly relating to maintenance and safety.
Environmental issues
We welcome the commitment by the Government
to improve road maintenance. The increasing congestion and the
unreliability of road networks is requiring industry to build
inefficiencies into delivery schedules—eroding efficiency
gains and increasing costs.
The environmental impact of freight movement
can be reduced by a few sensible policies such as those which
would accrue from the removal of irresponsible operators, encouraging
fewer heavier trucks, building good roads and where appropriate
shifting some freight from road to rail. The RMI fully supports
the campaign to allow 44 tonne lorries on six axles on UK roads.
The economic and environmental benefits of allowing 44 tonnes
lorries have already been well documented.
Overseas hauliers of course run trucks of 40
tonnes on five axles which is the most damaging weight configuration
for our roads.
Trucks must be clearly separated from the political
realities of taxing private car use. The high price of fuel provides
no evidence of environmental benefits as it eats into the reserves
that companies would normally have for the purchase of new environmentally
friendly vehicles. The price of fuel has also had an adverse effect
on the environment by putting pressure on operators to cut costs
elsewhere such as service and maintenance.
There is a case for integral transport combining
road and rail. Under private ownership we can expect rail to make
some headway towards 10 per cent of freight volumes. This headway
will not be dented by trucks moving to 44 tonnes.
Changes to Government Policy needed
The RMI is fully supportive of proposals which
have already been advocated by the Road Haulage Industry's principal
trade bodies which seek to achieve a more level playing field
for UK operators, particularly in respect of fuel prices. These
include the consideration of an essential user rebate scheme and/or
an appropriate reduction in VED being made to UK international
operators to compensate for the Road Infrastructure Charges (Eurovignettes)
as levied by some other EU member states.
We recognise that VED rates have been frozen
and are under review but would stress the urgency of finding an
acceptable solution.
Whilst we welcomed the introduction of the £1,000
rebate via a reduced pollution certificate, insufficient operators
have been able to take advantage of this scheme. Consideration
should be given to incentives to enable operators to invest directly
in more modern, fuel-efficient vehicles. Incentives for the uptake
of alternative fuels which potentially offer environmental benefits
should also be considered.
The frustrations stemming from the unacceptable
levels of road congestion are growing. Apart from the obvious
costs to industry, this is even being manifested in a growing
shortage of drivers in the industry. The road network is an under-used
asset to the extent that it is virtually empty overnight. We need
to consider ways of moving more road freight journeys to the hours
between 9.00 pm and 6.00 am. Congestion could be eased by allowing
vehicles to turn left at traffic lights on red when traffic flow
permits, following a practice used successfully in the USA. Speed
limits on motorways and trunk roads have not, to the best of our
knowledge, been changed since their introduction in the 1970s
and should be reviewed.
Turning to an issue which is interlinked with
the road haulage industry, it is inevitable that there will be
a significant increase in the number of vans making home deliveries
as a consequence of the boom in internet ordering. The RMI has
always been an advocate of annual MOT testing, and is concerned
that commercial vehicles below 3.5 tonnes undertaking potentially
very high mileages will not, under the current regulations, be
required to undergo inspection until they are three years old.
Commercial vehicles above 3.5 tonnes are of course subject to
an annual test and the intermediate inspections required to satisfy
the issue of an operators' licence.
Finally we believe that the Government should
introduce a permanent 100 per cent capital allowance for SME's.
Bearing in mind that the number of third party non franchised
service providers such as contract hire companies and fleet management
companies now entering the market, there is also the case for
abolishing the current system of capital allowances, which is
heavily weighted in favour of financiers. It could be replaced
with a system of capital allowances which are targeted against
the usage rather than the ownership of plant and equipment, including
commercial vehicles.
February 2000
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