The automotive market will be difficult to predict in 2025, but things certainly won’t be dull. By Toby Poston, chief executive, BVRLA.

Toby Poston, BVRLA chief executive

The vehicle rental and leasing industry is braced for a turbulent 2025. The optimism that was beginning to build has been shackled by the severe sting in 2024’s tail. Late October brought tax rises and fresh regulatory uncertainty, adding to the constant confusion over whether the Government will stick or twist on decarbonisation targets.

Our energetic, innovative and resilient sector is facing tough times.

That initial optimism has combined with these factors to present somewhat of a ‘Jekyll and Hyde’ forecast for this year, as shown in the BVRLA’s latest Industry Outlook report.

Roadblocks are rising in the form of a sharp rise in employer National Insurance contributions, upheaval caused by the Court of Appeal’s ruling on motor finance commissions and continued confusion surrounding decarbonisation targets. These factors weigh heavily on the industry’s outlook.

When the previous government announced a five-year delay, to 2035, for ICE phase-out targets, it weakened the momentum towards electric vehicles. The move – and its impact on consumer confidence – is also partly to blame for undermining the residual values of used EVs.

Our report shows that industry executives believe a fixed date would send a powerful message to new and used car buyers, boosting confidence in an electric future.

The Government has committed to reinstate the 2030 deadline for cars powered solely by internal combustion engines. The Future of Roads Minister, Lilian Greenwood MP, reemphasised this when addressing delegates at our Industry Outlook Conference in early December.

The uncertainty is now around which vehicles do or don’t count towards the transition, or where manufacturers may be afforded flexibilities against the ZEV mandate requirements. A consultation that will close in February will hopefully clarify the route to achieve the phase-out at the accelerated timeline.

Incentives have been influential in driving EV uptake to date. Their positive impacts are demonstrated in the progress of the areas where they are available, but the targeted deployment is creating an imbalance. An example of this is seen in the rental sector, where consumer demand and installing infrastructure present massive barriers. Rental firms say an end-of-decade deadline requires additional, rental-specific government support if the levels targeted are to be achievable.

When looking at vans, there is a universal acceptance that 2035 (and ideally later) is the earliest any ban should apply to ICE vans. Currently, suitable electric light commercial vehicles and charging solutions are short of operational needs, making it hard for widespread adoption to be done effectively. Through our cross-industry Zero Emission Van Plan, we are gaining traction in this space and will drive further change in 2025.

While it is a major consideration, decarbonisation is but one of the core challenges that BVRLA members expect to tackle this year. The operational churn and uncertainties that companies are facing are laid bare in the Industry Outlook Report. None of the top three challenges anticipated for 2024 make the top of the list for 2025. Residual value risk, supply constraints due to the ZEV mandate and rising costs and energy prices are the biggest causes for concern in 2025, having featured down the rankings in last year’s report.

On a more positive note, sector leaders are cautiously optimistic about market improvements in 2025. Expectations of increased fleet demand and a potential decline in interest rates suggest some silver linings. Trading conditions are expected to improve too when considering overall vehicle supply, while expectations that manufacturer discounts on new vehicles will continue are promising.

Salary sacrifice, rental and business contract hire are all projected to see increased demand compared to 2024, thanks, in part, to the Government’s mission to kickstart economic growth. An expanding economy needs more vehicles to keep the wheels of business turning, while a positive picture overall tends to create consumer confidence to drive the retail market too. The level to which those projections may be curtailed by the tax and regulatory headwinds is yet to be seen, but work is ongoing to push positive change and see the sector supported.

The BVRLA continues to champion change through initiatives such as the #happyEVafter campaign and the Zero Emission Van Plan. These programmes aim to tackle key industry pain points at a policy level, while supporting our members and their customers through enhanced learning and operational guidance too.

The full Industry Outlook Report 2025 is now available online, offering detailed insights from more than 1,000 BVRLA member companies and fleet decision-makers responsible for thousands of vehicles on UK roads.

As 2025 gets underway, resilience and innovation will be critical to navigating the choppy waters we have come to expect.