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Changes in CO2 thresholds could have a big impact on UK car sales

mercedes-benz-a-class-blue.jpg Changes in future CO2 thresholds could have a big impact on UK car sales , and fleet sales in particular, according to Nick Andrews, head of fleet at Mercedes-Benz in the UK.

At its recent fleet-focused demonstration day, Mercedes-Benz wheeled out a rather broad range of cars, from the tiny Smart ForTwo city car to the chunky M-Class soft-roader, and from the new A-Class hatchback to the long and low form of the CLS Shooting Brake.

There was a time when the typical company car was a medium-sized three-box saloon or just possibly an estate version of the same. But no longer. Today, even the notion of a typical company car seems as outmoded as a GLX boot badge.

“The old days are gone”, explained Nick Andrews. “The ‘traditional fleet’ just doesn’t exist anymore. Diversity is part of us now and it’s all around us.”

That blossoming variety is driven by customer demand, according to Andrews, with expectations fed by rapid product turnover in consumer technology and amplified by social media. He cited the upcoming CLA – a four-door edition of the new A-Class that’s more coupe than saloon – as an example of his company’s determination to build whatever shape or size of car seems necessary. “People often say, ‘What segment is CLA going to fit into?’, but it’s a deliberate crossover of elements.”

It is hard to dispute the thinking behind mash-ups like the CLA. Nissan’s scored a huge hit with its Qashqai, slapping purposeful 4×4 style over unremarkable hatchback running gear. Many user-choosers who weren’t allowed to select a real off-roader lapped it up. “Why not?,” said Andrews. “If it keeps your drivers motivated, it’s good. Diversification is here to stay, I’d say.”

While companies may choose an increasingly broad range of vehicles, their decision-making processes have narrowed noticeably, according to Andrews. “We’re in austere times at the moment, since 2008,” he noted. “The main purchasing consideration today is whole-life cost, where a few years ago it was all about environmental impact. We’ve seen that change, because business confidence is static and consumer confidence is low.”

A laser focus on cost reduction has triggered a sharp decrease in interest in driver training, for example, which is a paradoxical development given that relatively cheap training can help staff to avoid wasting lots of expensive fuel. “About five years ago, companies were saying training was important,” Andrews recalled. “But that requires investment, and confidence is low. It’s daft, isn’t it, but it’s one of those things that gets a lower priority, when it can actually reduce your overall costs.”

When times are tight, cashflow is king and companies are reluctant to spend even on potentially wise investments.

Extreme interest in CO2 ratings remains, of course, since CO2 is such a strong determinant of whole-life costs for companies. It governs the level of Benefit in Kind taxation, Class 1A National Insurance Contributions and writing-down allowances against corporation tax.

“In our C-Class at the moment we’ve got a derivative called the Executive SE, which offers a huge amount of value and just 109g/km CO2 emissions,” said Andrews. “We have an A-Class at 98g/km and the E-Class Hybrid at 109g/km . The chauffeur market is all over the E-Class Hybrid, because with no compromise on space it’s ticking all the right boxes.”

However, a host of changes in CO2 thresholds will mean that those boxes won’t stay still, with many CO2 goalposts due to be uprooted over the next few years. Starting in April this year, leased cars will cease to qualify for some tax benefits, for example, while the threshold for mainstream allowances will fall from 160g/km to 130g/km. Additional benefits for low-emission vehicles will begin at 95g/km rather than 110g/km. And the cut-off point for London Congestion Charge exemption is likely to fall from 100g/km to just 75g/km over the summer. Many low-carbon incentives will end altogether in 2015.

The changes could have a big impact on Mercedes’ UK sales – with roughly 55 per cent of the 82,000 vehicles sold last year accounted for by fleet buyers, and about 80 to 85 per cent of company cars leased rather than bought outright.

“It’s going to affect every manufacturer,” Andrews said. “If you look at how we’ve dropped our average CO2, over the last five years, it’s been incredible. And we are working really hard with our colleagues at Daimler AG to meet the unique requirements of the UK market.”

Cost-obsessed fleet managers do have to look beyond CO2 taxes, of course, to inescapable facts of life like depreciation. “What the car is worth is still a major component of whole life cost, along with fuel costs, service, maintenance and repair costs, and the upfront discount,” Andrews explained. “There are about four or five key factors that determine whole-life costs. The challenge for us is always to maintain a market-competitive position in each one. The market changes, and we have to react accordingly.”

Among the most significant changes in Mercedes’ world is the arrival of the new A-Class . It is expected to become a strong contender in the premium Golf-sized hatchback market, with a consequently large contribution to overall fleet sales. Andrews said initial demand has greatly exceeded Mercedes’ capacity to actually build and supply the car.

“It’s going to have a massive impact,” Andrews predicted. “A significant proportion of companies are looking for single-source solutions, or at least a reduced set of sources. So as our portfolio of cars grows, we can talk to many more companies about a single solution. If you complement that with our commercial vehicle division and our truck division, the A-Class has opened a huge door for us. Because it’s probably the biggest segment and the previous A-Class just didn’t cut it.”

As one of the smaller options in the Mercedes range, the A-Class will also, as a side effect, help to reduce the average carbon footprint of the company’s products – even if fleet buyers are presently more concerned with saving cash than being green.

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