Leasedrive Velo Blog

Roddy Graham, Commercial Director

Business life is currently a bit like walking on sheet ice. You don’t know when you’re going to hear the next crack, get an icy dowsing, go under, or make it slowly but gingerly to the far shore.

Those best equipped for the conditions stand the best chance.

The ice analogy has other relevance, which I’ll come on to later. Last Thursday, it was very much all doom and gloom until the white knight in shining armour, US Treasury Secretary Henry Paulson announced the Bush administration was working on a major rescue package, a $700bn bail-out of the financial markets, all at the expense of the US taxpayer. Friday saw the biggest single day rise in the FTSE 100 and dramatic rises across global financial markets. Was it all too good to be true?

This week, after digesting some of the consequences, markets have been notably shaky and the FTSE has seen steady drops. Meanwhile, Paulson faces a major backlash from lawmakers on Capitol Hill. The distant shore across the lake seems to be receding. At least UK used cars values only fell 1.7% last month!

Naturally, the HBOS/Lloyds TSB proposed merger has got tongues wagging about a super lease group. Lots has to happen before that takes place so I shall refrain from comment other than to repeat my long-held belief that further consolidation within the industry is inevitable.

Away from our troubled economic times, news came this week of potentially longer-term concern. Large amounts of methane are rising to the surface from the sea bed north of Russia. The cause is the gradual melting of the permafrost layer, allowing pockets of methane to escape. Scientists warn that this could accelerate global warming considerably. And at least the climate change cynics can hardly blame this on excessive farting from herds of cattle!

It seems we’re skating on thin ice, both above and below the surface.

Roddy Graham, Commercial Director

Last week I referred to one hell of a rollercoaster economic year. Little did I, or anybody else, know what a ride we would have this week following the demise of Lehman Brothers.

My focus last week was on the price of oil, which has now dropped again below $100 a barrel. This week my focus, like everyone else’s is on the stock markets. We’ve seen falls across the world but not nearly so sharp as on Black Monday.

Last night the FTSE 100 dropped below the 5000 mark as the London banking sector was subject to volatility on news of advanced talks between Lloyds TSB and HBOS to effectively ‘bail out’ the latter – now confirmed. This follows a dramatic loss in stock market confidence since Monday which saw the HBOS share price drop by 40% after the Lehman Brothers news broke.

Over the pond, the US Government has taken control of yet another business, hot on the heels of Freddie Mac and Fannie Mae, this time Manchester United’s sponsors, AIG. The Federal Reserve bailed out the world’s largest insurer with an $85bn emergency bail-out. At 2.00am yesterday morning, Barclays agreed a $1.75bn deal to buy the core business of Lehman Brothers, the investment bank that filed for bankruptcy on Monday. It had tried buying the bank over the weekend but pulled out to see it file for Chapter 11 bankruptcy. What we are witnessing is Wall Street suffering its worst financial crises since the Great Depression.

In Russia trading on two exchanges was halted yesterday as share prices plummeted.

We could be forgiven for panicking but that is the last thing anybody should be doing. We should remain calm and not talk things down as the doom-mongers have been doing since last year and the “profit-whisperers” have been doing these past few weeks.

I do not need to spell out what this means for the fleet industry. All the talk has been of the effects of a credit crunch, with the full effects of the wash-out of the sub-prime market in the USA yet to be felt.

We’re not feeling a wash-out now, more a tidal wave effect. I just hope it does not become a Tsunami!

The word from the wise is that if the HBOS/Lloyds TSB merger is successfully consummated, with a ‘bye’ from the competition commission, then this would certainly more than steady the ship in London.

Overseas might be a different matter.

Nobody can tell where it all will end, how many unsupported debts there are out there. One thing is certain, there will be need for sounder financial regulation. Expect corrective measures to be taken but hopefully no knee-jerk reaction, which might depress the markets further.

Economists still maintain our recession, when it comes sooner rather than later, will not be as deep as the one of the early nineties.

What is clear is that it is those leasing companies that have maintained a tight ship these past few years which will stay afloat. For our industry sadly there will be some losers. A further consolidation of the market, as will happen in the banking sector, is inevitable.

Hold on tight, the rollercoaster ride is not over by a long way.

Roddy Graham, Commercial Director

What can you say except that we are having one hell of a rollercoaster economic year. It almost makes it impossible to plan but it also reinforces the need not to panic and to navigate a steady path through troubled waters.

Take the price of oil. At the start of the year, the fear was that it would break through the $100 ceiling. It did to such an extent that talk was rife of it doubling in price by the end of the year to $200! Prices hit a record $147 a barrel in July and, as we have seen in both the new and used car markets, drivers have been trading down from large capacity vehicles to smaller, more fuel-efficient, lower CO2 emitting models to reduce the drain on their financial resources.

On September 9, the price of oil dropped briefly below the psychologically important level of $100 per barrel, Brent crude touching $99.30. That’s still 50% higher than last year and nearly 10 times what it was a decade ago.

Then yesterday, it rose again to settle at $103 after OPEC surprisingly decided to cut production by 520,000 barrels a day to avert a further drop in the price.

Prices had originally gone up due to demand, a weak dollar and the absence of Iraqi supplies and geopolitical concerns. Speculators also contributed to sky-rocketing prices. Now that the US dollar is stronger and demand worldwide is lower thanks to the credit crunch, prices have fallen.

Latest Treasury forecasts suggest the average price of oil in 2009 will be around $93 dollars. That means pump prices should come down further. The latest drops in oil prices have yet to be fully reflected in prices at the pumps. They apparently take four to six weeks to filter through. However, UK drivers won’t see the full benefit because of high fuel duty and the weak pound.

We’ve gone from ‘disaster’ forecasts last week to ‘cautious optimism’ this week. The Bank of England now expects inflation to peak at 5.1% and then fall below 2% in the second half of 2009. In the USA, we had the US Treasury nationalise Freddie Mac and Fannie Mae and the stock markets rose only to fall again on news of Lehman’s record £2.2bn loss.

What we don’t need ‘experts’ to tell us is that a) it’s still going to get tougher before it gets better, b) we had better batten down the hatches and be prudent in our spend and c) we’ve had one hell of an almighty wake-up call concerning our Earth’s natural resources and must conserve them better going forward. That still means driving around in smaller, more fuel-efficient, less pollutant vehicles. If your glass is half full, it means we should come out of this latest round of economic woes with a stronger perspective on life. Namely, look after our resources, protect our environment and speculate less, especially on our own home buying. After all, a home should fundamentally be a roof over our heads, not a speculative investment vehicle. Let’s hope so anyway.

It’s been a real see-saw week.

Roddy Graham, Commercial Director

You know how much I hate politicians. I’ve yet to find one who’s actually got balls, is determined against the odds and will fight for what he or she truly believes to be right. Two-faced, lying b******s is my general opinion, which is probably why I just have not voted for years. Why back somebody, or a party, you don’t believe in?

My opinion reached an all-time low when I heard what Alistair Darling, our ‘esteemed’ Chancellor of the Exchequer said in an interview in Saturday’s Guardian that our country faced the worst economic crisis since 1948.

Firstly, besides politicians, the people I cannot abide are those that talk us into a recession. You know who you are and you’ve been doing it for the past year. The fourth estate needs to take some share of the blame in this regard.

Second, what pea-sized brain thought it such a great idea to make such a remark? We’re not yet officially in a recession and here we have the head of finance, UK PLC, dragging us down and comparing today with a period of harsh austerity which included food and clothes rationing, housing shortages on a grand scale and a country breathing a collective sigh of relief at its financial rescue from the abyss, thanks to the Marshall Plan of Europe.

If the man in charge of our financial and economic well-being shows such poor clarity of judgement then I can begin to see why many are pulling their hair out at our economic woes.

One thing for sure is that the Brown Government is but a pale imitation of the Attlee Government. The former has done nothing but shoot itself in the foot, time and time again while the latter beat Churchill in the immediate post-war general election and through hard work and application delivered us things we are rightly proud of to this day – the NHS, 60-years old this year, national insurance, the Festival of Britain, etc. Make no mistake, our Government’s post-war forefathers like Attlee, Beveridge, Bevan One and Bevan Two were light years ahead of our current lightweights. I might even have liked one or two of them.