The recent drop in the AA share price caught my attention for a short period of time, its debt problem is well known at £2.7billion.
With fairly stable EBITDA of around £350 million and all loans due for repayment by 2025 there is clearly an issue, especially as the loans have an average interest rate of around 4.5% which is pretty loe.
However if some form of long term loan were achieved over say 25 years then you could see financial stability for the company, well you could at first glance.
The private car market in the future say 15 years from now seems very hard to predict and I have real concerns on the number of vehicles in private hands and the owners choosing who provides insurance and roadside/home/recovery services.
At first glance it seems silly to say that less people will own cars in the future, it is so obviously wrong and certainly the whole repmobile market will be untouched as sales and support staff will still need to travel. These vehicles will likely remain available from private usage but insurance and recovery will continue to be decided by the company or lessor.
For owner drivers it seems likely that there will be an expansion in the number of congestion charging zones, add this to the cost of insurance and Road Fund Licence for older more polluting cars and it is very easy to see how family A will get rid of their 15 year old banger. Especially if this is a second car or a car that does very low mileage.
What will this be replaced by, an Electric Car, unlikely as even Tesla who don’t seem to be operating at a profit are having difficulty with battery cost and is the market ready for a £20k plus Ford Fiesta?
A new petrol or hybrid car, possibly, but once the decision is made to sell the car the idea of cycling, going by train or walking raises its head. So a new purchase may be delayed and after a few months the cost of owning a car suddenly looks a lot less appealing.
Those with a new car will likely find it stuffed with more and more autonomous systems and probably with petrol/electric hybrid power. Given the current trend of people buying cars they can’t really afford it is easy to see a move to lease only options, where Insurance and recovery is included in the price.
The autonomous car throws a spanner in the whole methodology of calculating insurance premiums, it is quite possible that the only was that insurance can work is if the car maker carries the cover. Typically insurers know how often 19 year old lads in a Super Turbo GTI with tinted windows and lowered suspension crashes. With autonomous driving aids it is quite possible that all instances of the Model Dull Family Saloon will crash on the same day as a software update went wrong, no insurer would be able to carry this risk as the premiums would be so high that nobody would pay them.
The AA insurance arm would probably become obsolete under these circumstances, however the recovery arm would likely either get or not get a mega recovery contract, gaining or losing a large number of members.
Supporting electric cars at the roadside is going to be quite different to supporting Petrol or Diesel cars, it may even turn out to be impractical, the only things that will break will require garage repair.
So in the short term another big price drop seems inevitable when a new debt management approach is found and in the longer term the services that the AA offers may not be relevant to the type of cars that are then on the road.
I genuinely don't understand why everyone doesn't just sell up today as in my view collapse is inevitiable
Bye
Ian
