The impact of rising diesel prices

As the price of diesel hits record-breaking levels, the Independent Automotive Aftermarket Federation (IAAF) called on the government to cancel the planned rise in fuel duty in the Autumn Budget – what impact is this overhead having on motor factors?

At the beginning of October, the RAC revealed that UK diesel prices had hit a new high of £2-a-litre. It is estimated that a 55-litre tank of petrol costs £96.09 – £23.03 more than before the US-Iran conflict began – while filling the same-sized tank with diesel costs £110.01, which is an increase of £31.70 compared with 28 February.

“Unsustainable pressure”

Consequently, motor factors continue to see a spike in their diesel costs. The IAAF warns that soaring prices are putting “unsustainable pressure” on motor factors, and its analysis shows that a typical motor factor running 10 delivery vans has spent around £8,000 more on fuel since February. At current prices, this is almost £1,800-a-month.

At the time of writing, current proposals mean fuel duty will rise by 3p-a-litre on 1 January 2027 and by a further 2p in March. This would add around £2,300-a-year to the same fleet’s fuel bill.

The IAAF hopes the government will postpone the scheduled rise and, instead, introduce targeted relief for essential commercial fuel users, including motor factors whose fleets are central to their service. The federation is also urging the government to direct the Competition and Markets Authority to take “firmer action” on retail diesel margins.

Motor factors support IAAF’s strategy

David Clarke, the managing director of Leisureways of Rotherham and Butlers Automotive of Barnsley, endorses the IAAF’s calls. He cited fuel as “one of the biggest ongoing expenses” for motor factors that rely on daily deliveries and warned prices to customers would likely increase if the current trajectory continued.

He told PMF: “Continuing to increase fuel costs will only add further pressure to an already challenging trading environment. Ultimately, these additional costs have to be absorbed by the business or passed on through higher prices to our customers, who may then have to pass them on to motorists. With households already feeling the impact of rising living costs, further price increases are unwelcome for everyone across the supply chain.”

Car Spares Factors is another motor factor absorbing additional costs. Its co-owner, Sanjiv Shah, concurs with David that it is difficult to manage these overheads without them having an impact somewhere else in the business. Consequently, he “fully supports” the IAAF’s call for the planned fuel duty increase to be cancelled.

He said: “Rising diesel prices are having a direct impact on our business because delivery is such an important part of what we do. We’re making multiple deliveries to garages every day from our network of six branches, often within the hour, so even relatively small increases in the cost of fuel quickly add up across the fleet.

“We’ve seen a significant increase in our fuel costs over recent months, at a time when businesses are already dealing with rising operating costs. It’s difficult to absorb those additional costs without them eventually having an impact somewhere else in the business.

“We fully support the IAAF’s call for the planned fuel duty increases to be cancelled. Motor factors provide an essential link between parts suppliers and independent garages, with delivery vehicles covering significant mileage every day to keep workshops operating and customers’ vehicles on the road.

“With diesel prices already at exceptionally high levels, adding further fuel duty would put yet more pressure on businesses across the aftermarket.”

Short-term fix enough?

Meanwhile, Steve Horne, the CEO of GSF – which makes over 30,000 deliveries a day across the UK and uses approximately 1,700 vehicles, says that while he agrees that increasing pump prices are a challenge, he believes a temporary solution will create larger problems later.

He said: “Rising fuel costs are a challenge. They can restrict the vital travel people do directly or squeeze budgets, so motorists try to delay essential maintenance. Unfortunately, this temporary relief only normally leads to bigger problems and bigger bills down the line. The government needs to do all it can to keep fuel costs down to help not only our sector but the wider economy.”

Is the real impact of diesel costs yet to be realised?

FRP is an automotive insolvency specialist and has recently worked on several “high-profile mandates” in the sector. Anthony Collier is a restructuring advisory partner, and he takes a different approach. He believes the full effect of higher diesel prices has yet to “work through the sector” – but concedes: “Motor factors and parts distributors rely on frequent, often time-critical deliveries, so even relatively small fuel increases can become significant across an entire fleet.”

Anthony believes the pressure comes against an “already challenging backdrop” for the transport and logistics sector, claiming that insolvency activity remains high. While he questions whether elevated diesel prices are likely to be the sole cause of distress, he did acknowledge that if businesses are already managing tight margins, an additional and sustained cost increase could make a “material difference”.

He continued: “Higher fuel costs also put pressure on cash flow. Operators have to pay for fuel and other costs before they are paid by customers, so management teams need to understand how further increases in fuel prices could affect both margins and cash. Forecasting different fuel-price scenarios can help businesses spot savings early and see how much room they have if costs rise further.

“Fundamentally viable businesses may still have options if pressure builds. Early engagement with funders, backed by a clear view of cash flow and profitability, can create more flexibility to adjust pricing, reduce costs, or secure additional headroom.”

Is electrification the solution?

Switching from diesel to electric is not straightforward, nor an immediate fix, according to Anthony, but he does think it will “form part of the longer-term solution”.

He concluded: “Replacing fleets requires significant investment and supporting infrastructure, so for many operators, the near-term priority will be managing existing fleets as efficiently as possible while planning carefully for that transition.”