LOS ANGELES -

In the near future, businesses in the fleet car leasing industry might have to change their tactics, according to a recent report from IBISWorld. 

Though the company contends that over the next five years, a “favorable” economic climate and higher business activity will contribute to “low but steady” average annual growth for these leasing companies, officials stress that as businesses continue to build profit as the economy recovers, they may be more likely to invest in fleets of their own, presenting a potential threat to the fleet car leasing industry.

This threat may already be cutting down on demand, as the industry is expected to only grow 0.2 percent this year, according to IBISWorld.

In light of this trend, company officials stressed these companies may have to shift their focus in order to compete.

Specifically, IBISWorld officials noted, “In order to combat the threat of new fleet sales made directly to end-users, leasing companies may have to shift focus in order to attract new customers.

“Most operators in the fleet car leasing industry are local or regional players, with only a few, such as major company ARI Fleet Leasing, able to operate nationally,” they continued.

And what exactly will firms need to focus on?

IBISWorld contends they will need to shift their attention to more “attractive” fleet management services like fuel management and roadside assistance in an attempt to pull in new leasing agreements.

Moreover, the company noted that many firms will expand their vehicle inventory by including fuel-efficient platforms of fleet vehicles that clients are accustomed to.

“Fleet leasing firms can attract new customers by promoting the cheaper cost of leasing a fuel-efficient vehicle in the midst of skyrocketing gas prices,” the company shared.

“Through marked-up pricing, green vehicles will also contribute to higher profitability throughout the industry,” it noted, stressing that though more expensive, green vehicles may be a good investment in the coming years.

A ‘Volatile’ Past Five Years

Moving on to highlight the road the fleet lease industries have been navigating since the recession hit in 2008, IBISWorld noted that over the past five years, this market segment has endured volatile demand as business and government activity rose and fell in response to the health of the U.S. economy.

That said, the fleet industry might not have suffered as much during the recession than other segments of the automotive indutry.

“Because companies were unwilling to invest in their own vehicle fleets, many turned to industry firms instead, thereby staving off even worse performance in 2008 and 2009,” the company further explained.

“In the aftermath of cost cuts during the recession, many businesses were sitting on large cash surpluses, which in turn encouraged them to spend on less essential purchases like fleet leases,” officials continued.

However, they were not immune to the effects of the recession.

IBISWorld noted that when business activity faltered and many state and local government agencies slashed consumption during the recession, the industry experienced falling demand.

But, this may not have been such a bad thing, according to the report.

“On the other hand,” says IBISWorld industry analyst Antonio Danova, “fleet leasing firms benefited from the reluctance of many firms to invest in company fleets during this period, instead entering a short-term or open-end fleet lease agreement to tide them over.”

And as 2010 rolled around, the industry was on the upswing.

As corporate America began to recover and see growth in profit once again, the firm reported that “higher export sales and more efficient business practices helped profitability in downstream industries grow immensely.

“Firms used this excess cash to boost activity, creating a greater need for leased car fleets,” it added.

But will too much corporate growth end up hurting the industry?

IBISWorld contends that as corporate bottom lines stabalize, “firms may invest in purchasing new company fleets outright instead of leasing them,” Danova noted.

Moreover, according to the report, the Big 3 automakers have been “shifting fleet sales to individual customers because these sales tend to be more profitable than those to leasing companies.”

As these trends take shape, IBISWorld reiterated that the fleet car leasing industry may be forced to evolve.