As the eurozone lurches out of
recession and into full-blown crisis, Grant Collinson and Richard
Brown asked leading fleet managers and lessors from across Europe
what they expect the short-term future holds for the
industry.
Go deeper with GlobalData
Like Greece,
Italy has seen new records of borrowing. Like Greece, the
parliament of Italy has put a new package of austerity before its
people. Like Greece, Italy’s political leader has withdrawn, to be
replaced with an unelected stop-gap.
Germany, meanwhile, has met with
France, and both have met with the US, to negotiate the region’s
crippling stalemate, mired by dispute over the role of the European
Central Bank.
European banks lie exposed to the
risk of their lending, global market turbulence is a weekly
occurrence, a perpetual hub of nations appear close to leaving the
euro as the British trade ambassador warns of “a lack of committed
leadership” on the continent.
Things look perilous in Europe, yet
fleet vehicle management has not just survived but grown.
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By GlobalDataAccording to Leaseurope, vehicle
leasing grew by 11.3% in the first six months of 2011, compared to
the same period for 2010, or 10.1% if the bullish Russian economy
is discounted.
Every fleet lessor member of the
British Vehicle Rental and Leasing Association (BVRLA), itself a
member of Brussels-based Leaseurope, survived the recession intact,
according to chief executive John Lewis.
“Fleet has been amazingly
resilient,” says Lewis.
“The number of vehicles which our
members operate, while it dipped in 2009, came back in 2010 and the
2011 numbers we have tell us we may see some areas of small
growth.”
While absolute numbers may not have
grown, older vehicles still had to be replaced as fleet accounted
for a healthy share of new vehicle registrations in the past few
years, according to Lewis who does not doubt that the added values
and lower risks of the industry continue to be attractive to
lenders.
“The industry provides a good
return on capital for any investor,” Lewis says.
“Cars were extended, customers
demanded different things, and the industry reacted to it.
“While no business is experiencing
euphoria at the moment, there is a reasonable amount of confidence
we will not be back in recession.”
Although vehicle leasing may have
survived the past few years, it has been remoulded by the
experience, says Nancy Storp, head of marketing and business
development at Alphabet International.
“The market has been changing and
that allows us to anticipate trends,” Storp says.
“Customers are not only looking for
ways to reduce costs, they are demanding a different approach to
mobility.”
“Companies and customers have
realised the market has evolved on a permanent basis since the
credit crunch of 2008,” adds Matt Dyer, commercial director of
LeasePlan UK, who sees the opportunities of a redrawn fleet
market.
“In the past, there would always be
a supplier. There would always be another cab off the rank. Not
anymore. Now companies have come out of recession needing a
substantial, long-term, outsourced solution.”
Dyer’s sentiment is echoed by
Philippe Bismut, chief executive of Arval, who says the opportunity
for value-added services is born of the “increased complexity and
uncertainty, and the needs for employees and traditional corporate
fleets”.
Uncertainty
And both men agree with Lewis that
fleet business has not been quelled by uncertainty in Europe.
“It is driving the agenda of
multinationals,” Lewis says. “The need to leverage scale is more
important and companies constantly look at international
opportunities.”
Harald Kroon, international sales
manager, Athlon Car Lease shares the sentiment, likening the
leasing market to any sector that deals in car finance or any
business that operates under the apprehension of another economic
shockwave.
“As in 2008, those companies that
have policies to cope with the crisis will be winners,” Kroon
says.
“The bigger or stronger financial
institutions will have the biggest gain.”
Other fleet managers, however,
remain cautious.
“The market is recovering, that is
the realistic viewpoint,” says Grahame Neagus, head of LCV
consulting, Lex Autolease. “There is still some wariness and
opportunities are more hard fought.”
The key to winning those battles,
says Neagus, is product differentiation.
In practical terms, Storp
highlights the change in customers’ attitude toward vehicle
ownership such as increasing car-sharing or carpooling.
“The bigger picture is mobility
management,” she says. “Our opportunity is to provide both
innovative mobility and innovative service and financing.”
While Alphabet looks at consumer
attitudes, LeasePlan sees prospects in the rising cost of
petrol.
“One of the big dynamics in
business is fuel costs, which are now the biggest costs when
running a fleet, not depreciation, and a stimulus to renewal
deals,” says Dyer.
“It drives the green agenda and
manufacturers are moving at quite a pace to put good products on
the table.”
Crisis is another word for
opportunity
The impact of European and global
economic misfortune, however, cannot be ignored in fleet. Adjacent
sectors have gone into extension, and some of those have reached a
point of maturity where a business’s hand is forced.
“Demand, which normally speaking,
would have come to the market in the last 18 months is pent up,”
says Neagus. “And growth forecasts indicate the next 12, 18 months
will be tight.”
Bismut shares this prediction.
“The challenges will remain the
same,” he says. “So the value proposition of the sector must remain
the same: Optimise the total cost of ownership and outsource the
risks.”
Those risks are epidemic across
Europe and apparent throughout the entire continent’s financial
dealings, according to both Dyer and Kroon.
“All leasing companies need to
secure money, whether from their own financial arm or the
commercial market, and any question marks about doing that raise
concerns,” says Dyer.
“Where is the crisis going? Can it
solve itself? Will it snowball? That’s a big part of uncertainty.
There is still a question over consumer confidence. The used car
market is difficult to read and that will drive a lot of cost.”
“The challenge is the same for the
whole economy, not just the finance market,” says Kroon. “Another
shock would impact our business, especially those buying our
second-hand cars.”
Lewis, however, says consumers are
showing “caution but not extreme nervousness” and suggests the
answer to questions like those of Dyer and Kroon is “how to do more
with less”, which has been the situation for years in fleet
management.
Doing more with less, however, is
something that all companies, and all potential consumers, are
doing.
“There are customers out there now
who had previously purchased outright but are now leasing,” says
Neagus, who believes the downturn is an opportunity for contract
hire providers as it allows prospective clients to maintain cash
reserves while renewing their fleet.
“The companies who do well will be
the ones more customer-centric in their view.”
Customers
reward
For Lex, whose two biggest
customers are utilities companies, customer focus means growing its
LCV division, explains Neagus. This, in turn, takes “a higher
degree of complexity and understanding and not every lease company
out there has that.
“The more you are able to tailor
your offering to what your customers need then that’s when you
stand a greater chance of winning their trust, their loyalty and
their business,” Neagus adds.
LeasePlan is also looking to its
core business of vehicle leasing to bring in new clients and
maintain existing ones, which is dependent on bringing them “the
right opportunities”, as Dyer calls them and providing high
added-value.
“We have made more than £20m
[€23.5m] savings for customers at a time when the bottom line is
extremely crucial,” he says
This outlook of Lex and LeasePlan
is shared by Athlon – “consolidating what we have in the market as
a leading mobility provider”, according to Kroon – but both Arval
and Alphabet are looking to expand in the near future.
Bismut outlines a three-part
strategy for Arval that includes enhancing corporate market
leadership, making an inroad in the SME market and deploying Arval
in “other territories with long-term high potential”.
For Alphabet, another company which
cites its strength in leasing, the ambition is simple.
“We want to be in the European top
three in the next five years,” says Storp, who believes the
company’s technology, fleet, staff and creative solutions geared
for future trends will get them there.
“Our customers will reward us for
all of this, and the industry will have a new standard.”
Banking,
sharply
The split in attitude can not be
drawn along ownership lines, however. Athlon, ultimately is
beholden to Rabobank, via De Lage Landen, whose strategy has the
biggest impact on the fleet lessor, says Kroon, much the same as
Arval is to BNP Paribas, its shareholder, funder and distribution
channel, three roles that reinforce each other according to
Bismut.
Lex Autolease, owned by Lloyds,
completes a trio of lessors happy to have a bank behind them.
“We are a core activity of Lloyds
Banking Group so we have a strong footing,” says Neagus.
“The difference between us and
fleet lessors backed by manufacturers is that we are independent in
terms of brand choice and viewpoint.
“We don’t pin our flag to any one
mast. One of the things we have seen in the last two years is a
greater reliance on an independent perspective of the whole vehicle
market.”
Lewis of the BVRLA supplies an
independent perspective on the bank-owned lessors.
“Instead of being used by their
parents to fund all types of vehicles, they will focus more on
value-added fleet business and restructure into better quality
businesses,” Lewis says.
Though Lewis predicts this will
give space for independent lessors to move in, he does not think
bank-owned fleet managers will disappear for the very reasons that
fleet has survived the recession,
“This industry gives them a very
good return on a very manageable risk,” he adds.
That risk, Lewis says, reduces for
both the industry and its funders as the number of funders the
BVRLA works with and brings in increases more than the number
withdrawing.
Beyond the bank-owned and
independents, Lewis cites the manufacturer captives as having a
“good stream of capital”, Alphabet (owned by BMW) in particular,
something Storp attributes to the purchase of ING Car Lease.
“The acquisition was necessary for
both companies to achieve the right size and market coverage to
better meet the requirements of major international customers,” she
says.
“It was a natural decision, we
complement each other well.
“We think that banks are turning
away from car leasing as a core business.
“This will leave four major
providers in the market and that is one of the reasons why we
acquired ING Car Lease, to strengthen our business and compete for
the top ranks.”
Storp’s reasoning aligns with the
consensus among lessors that the market has seen the last of the
international consolidations in European fleet.
“I am not sure we will see any more
big deals,” says Dyer.
“Lex and Lloyds have made their big
merger and you have had the acquisition of Masterlease.”
Storp, however, expects some
consolidation in the industry.
“There are not many players left
anymore,” she says, adding companies such as Alphabet will focus on
key business and regions.
“From there we will expand our
horizons, consolidate, and then expand again.”
“There is a tendency in the market
toward more consolidation,” agrees Kroon, although, “on an
international level, companies are more limited”.
“If you look at national specifics,
there are 900 leasing companies in the Netherlands, so there will
be more consolidation,” Kroon adds.
Although Dyer agrees there are
still chances for consolidation he believes they are more likely to
be international opportunities than in the UK market.
“The deepening of the recession
will drive the agenda. Bank players can only have so many competing
demands,” he says.
“The question is: are you
strengthening your balance sheet to survive another Greece?”
Lewis suggests some banks may
choose to scale down their business, rather than dispose of it
entirely, a move he says which “will come out as a healthier fleet
business”.
Neagus also predicts some
consolidation in the industry but says any mergers and acquisitions
will be made “because that is just the nature of the beast in
meeting the demands of the current credit situation”.
New business opportunities, says
Neagus, will come for, and from, those “who are in a position to
grow their own portfolio”.
Bismut sums up the situation as a
balance between an inevitability of consolidation and the demands
of the bottom line for corporations swelled by the latest round of
mergers.
“Economies of scale must be
delivered,” he says.
“The pace of this process, however, remains very uncertain due
to the constraint of funding the balance sheet of larger companies
resulting from consolidation or acquisitions.”
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