One Auto API CEO Mark Fretwell explains how leveraging a powerful data mix can enhance decision-making, improve agility and help mitigate risk across a dynamic automotive landscape.

As the automotive industry accelerates towards an electric future, the complexities of this transition are becoming increasingly apparent. 

Take the vehicle leasing and rental sector for example. 

The leasing model offers a straightforward path for consumers and businesses to access new vehicles, but is currently under significant pressure due to the popularity of electric vehicles (EVs) in company car and salary sacrifice schemes combined with volatility in their residual values (RVs) .

As legislation and mandated targets seek to force an EV transition on yet-to-be convinced consumers with tax incentives in company schemes, more used electric vehicles are coming back to the used market and, with limited demand, this creates a significant challenge for leasing companies in terms of end of contract losses.

In recent weeks we have seen reports of falling profits at Lex Autolease, with much of the blame seemingly attributed to fluctuations in residual values (RVs) of fleet vehicles and a clear statement that:

“Significant price reductions have been seen through 2023 as significant volumes of battery electric vehicles (BEVs) have come into the market for the first time.”

In this rapidly evolving market, the ability to accurately forecast and manage these RVs has become critical. 

Leasing companies are now faced with the dual challenge of de-risking their existing portfolios while remaining competitive in a market where the future is anything but certain. 

This residual value balancing act is crucial, as it directly impacts monthly rentals—a key factor in decision-making. If you de-risk too much, you might protect your position, but you’ll also drive up pricing, making it harder to attract and retain customers.

For those trying to mitigate losses on existing agreements, some of the options are to try and extend contracts or keep cash flowing through secondary leases.

But you still need to get your residual value position right or a painful financial loss today could end up snowballing into a much more significant loss down the line.

The quest for stability

Given these challenges, some stabilisation in the used EV market, at whatever level, is going to be hugely important – as it will give people the ability to forecast with greater degree of certainty.

And that applies as much to franchised and independent retailers as it does to the fleet and rental decision makers.

Just last month we referenced the controlling influence manufacturers have over supply of nearly new vehicles and approved used programmes, meaning they can effectively nudge franchised dealers toward stocking more used EVs. 

Just like their fleet and rental counterparts, franchised dealers rely on predictable pricing to manage their inventory effectively. If used EV prices fluctuate significantly, it becomes challenging for dealers to price vehicles competitively and profitably whilst controlling their overall holding cost.

Stable prices allow dealers to plan and manage their stock more efficiently.

Technological Challenges and Opportunities

In addition to market dynamics, the automotive industry is also faced with significant changes in the technological landscape – which creates both challenges and opportunities for businesses.

As large tech providers continue to consolidate, there is some concern about the potential limitations this could impose on customers – in the form of higher prices, less innovation, and all the associated risks of becoming overly dependent on a single provider.

And while there are certainly efficiencies and economies of scale to be gained from compatibility, forcing incompatibility with systems outside of a tech provider’s ecosystem may cause service disruption or changes, which can be costly.

Ultimately, businesses must carefully manage the risks and rewards of tech consolidation based on their individual circumstance. 

For those who are looking to de-risk their position, this may involve seeking out solutions that offer greater flexibility and integration – or even creating their own which can be hugely powerful and successful with help from the right industry tech experts.

The Role of Data: Enhancing Decision-Making

In this complex and rapidly changing environment, accurate and reliable data is more important than ever. 

It plays a crucial role in helping businesses navigate the challenges of the automotive market, from forecasting RVs to managing technology integrations and building new solutions.

We see this playing out every day at One Auto API, where our data solutions are designed to support businesses in making informed decisions. 

By providing access to a wide range of automotive data through a single API, we help companies gain deeper insights into the market by comparing different sources.

As we always say, no single dataset is perfect, but having the right mix of data at your fingertips can help you manage risks and make better decisions.

So don’t put all your eggs in one basket. 

Pick and choose a variety of data providers within a platform that ensures agility and fosters competition. 

That’s a recipe for success.

Here to help – let’s talk.

If you have any questions about how you can use data to position your business for future success, we are here for you. Click here to schedule a free 30-minute consultation – we will use the time to understand your business, project and goals to see how we can add value.