As the eurozone crisis continues to cast a shadow over much of the economy, the fleet leasing industry looks in reasonable shape as companies report steady growth in some parts of the market. Nick Huber reports.
Observers of the European economy could be forgiven for feeling they are existing in a temporal loop. The eurozone crisis is still casting a long shadow over all industries and, although fears of a Greek or even Spanish exit from the euro have eased, the economic outlook is still grim.
Once again, however, the fleet leasing industry is one of the few bright spots in the economy. At the time of writing Leaseurope had not released figures for the European leasing market in 2012, but most leasing companies reported steady growth, or strong growth in some parts of the market. Most are cautiously optimistic about decent growth in 2013, thanks to steady markets in northern Europe and strong demand from small businesses.
John Lewis, chief executive of the British Vehicle Rental and Leasing Association (BVRLA), says the number of car and van vehicles leased or rented by its customers increased by about 3% in 2012. A similar growth rate is expected for 2013.
Members expect the fleet market will be steady in 2013, Lewis says. Demand for leased company cars will be strongest in the services industry (utilities, IT and telecoms) and weakest in the construction sector, which has shrunk.
"Fleet demand in the construction sector is still very weak. There probably won’t be any growth until 2014," Lewis says. Finance for fleet leasing, which was "very scarce" in 2009 and 2010 during the financial crisis, showed some improvement last year. Australian bank Macquarie’s entry to the fleet leasing market is a sign that the funding market is changing, Lewis says.
Another encouraging trend in the UK fleet market is rising prices for used cars. Rising prices mean fleet providers are l ikely to make a better profit once contracts with customers end. A shortage of used cars is pushing up their resale price. "About 400,000 fewer used vehicles are coming onto the market each year.Pre-recession there was deflation [in the price of] used cars," Lewis adds.
In continental Europe the story of the fleet market is much the same. Pascal Serres, deputy chief executive of ALD Internat ional , part of Société Général, says it grew its global portfolio of cars by 5% in 2012. He expects that the corporate car market will be similar this year.
"I think company car leasing will be similar in volume, as the corporate market is more stable than the retail market."
He adds: "[We] have not really been affected by the eurozone crisis. During an economic crisis companies tend to outsource their car fleets because there is an opportunity to save money. Companies can save up to 20% if the car fleet that is out sourced was not previously well managed, he says.
ALD can make savings by buying cars in bulk and reselling them at the end of the contract, he says.
However, the resale market for second-hand cars is in most western European countries, with the exception of the UK and Germany, Serres says. Prices in most European countries are almost the same as in 2009 during the depths of the financial crisis. He doesn’t expect prices to increase significantly in 2013.
Europe’s fleet market is less crowded than it used to be. "Banks, especially in the UK and Spain, don’t seem as interested in full-service leasing and taking a risk on residuals as they were pre-2007 and 2008," Serres says.
When choosing a fleet of cars to lease, companies’ top priority at the moment is that the cars are within recommended limits for CO2 emissions, both for economical and ecological reasons, say Serres . "We work with all car manufacturers," he says. "Each time they issue a new car it breaks the record for CO2 [emissions]."
ALD, the second-biggest car fleet company in Europe, does most of its business in Europe. Operations in Brazil, Russia and China are small but growing fast and between 8% and 10% of ALD’s sales are now from outside Europe.
"Brazil and Russia are very important markets" says Serres, although he adds there is tough competition in Brazil from local fleet companies and, to a lesser extent, in India and China.
LeasePlan, the world’s largest fleet and vehicle management provider by fleet size, is cautiously optimistic about prospects for 2013. John Boon, senior corporate vice-president of corporate strategy and development of LeasePlan Corporation, hopes that it can grow its fleet ahead of the average market growth rate of 2% and 3% in Europe.
Fleet markets in southern Europe such as Spain, whose economy is one of the weakest in the eurozone, remain slack. The size of the fleet market in Spain has fallen back 17% in the past four years from 521,000 to 435,000, Boon says.
Fleet markets in north Europe are a little stronger with revenue growth around 2%.
Markets in eastern Europe, where LeasePlan has expanded over the past five years, are starting to recover, Boon says.
In the second quarter of this year LeasePlan plans to start doing business in Russia in response to strong customer demand. Start-ups in new countries do not normally produce growth in the short term however; it usually takes about five years before they produce significant growth, Boon says.
LeasePlan hopes to grow its business in the SME sector, where fleets are typically between one and 10 vehicles, which Boon says has a lot of potential, but acquiring customers can be tricky and expensive.
Acquisitions may also boost LeasePlan’s growth this year as the company is eyeing bank leasing businesses as banks exit the market.
Last December, LeasePlan said it had agreed to acquire the Italian fleet and vehicle leasing activities of Banco Bilbao Vizcaya Argentaria, S.A. (BBVA). The total BBVA leasing portfolio currently consists of approximately 20,500 vehicles. The acquisition allows LeasePlan to further expand into the Italian fleet and leasing market.
Similar deals are likely this year, Boon says. LeasePlan is interested in operational leasing businesses with typical ly a minimum of 10,000 vehicles. "A lot of banks are saying this type of leasing is nota core activity, but still want to provide it as a product to their customer s. Operational leasing is a complicated product and this is our area of expertise."
Handling all of a customer’s fleet leasing is another way LeasePlan hopes to boost growth. Its FleetPlan "total fleet outsourcing" product is currently only available in the Netherlands and Boon hopes it will lead to more business by simplifying fleet leasing for the customer, as well as creating "significant" savings.
LeasePlan plans to introduce its FleetPlan product in other markets in the near future.
BVRLA predictions for 2013
Britain’s company car market for leasing and rental accelerated in 2012, bucking the economic gloom in the national economy.
The BVRLA, whose members buy nearly half of all new vehicles sold in the UK, says that it grew its membership in all categories — rental, leasing, and commercial vehicle and leasing broker members — in 2012 compared to 2011.
In January 2013 the BVRLA’s member fleet was 2.75 million vehicles — its highest ever and up 9% from a year earlier. A 10% rise in the car (2.2 million) and van (430,000) fleets was offset slightly by a 7% decline in the larger commercial vehicle fleet (102,000).
"Even as the economy continues to limp along, these figures are a sign that the vehicle rental and leasing industry is as strong as ever, a vital cog in the UK’s transport network," says BVRLA chief executive, John Lewis.
BVRLA predictions for the rental and leasing fleet industry in 2013 include:
The fleet sector will continue to be the mainstay of the new car market and a reliable source of business for manufacturers who will struggle to cope with what is likely to be a volatile retail market.
New fleet car registrations will continue their recovery from the slumps of 2009/10, with slow but steady growth. Growth will primarily come from two markets: small and medium-sized businesses and salary-sacrifice company schemes run by larger corporate customers.
The slump in van registrations towards the second half of 2012 took many people by surprise, especially as it was offset by a strong rise in truck registrations (which nonetheless remain well down on pre-credit crunch levels). Operators choosing to replenish their fleets ahead of the introduction of new Euro 6 emissions standards will give a fillip to truck sales.
Electric vehicle (EV) sales
EV registrations in the UK increased less than expected last year, partly because electric vehicles are too expensive, the BVRLA says.
Prices of EVs will continue to come down, but in isolation this will not be enough to create significant momentum in this market, it adds.
The fleet industry enters 2013 with a healthy supply of funding and funders, with a range of new entrants firmly entrenched in the market and lending. Another big bonus is the decision of the industry’s largest funder, LloydsBanking Group, to renew its commitment to the market.
Strong used car market
The used car market will remain strong. No one currently knows what a normal used car or van market looks like and seasonal trends have almost disappeared. All we can be sure of is that the UK is facing an almost unprecedented supply shortage of quality young used vehicles.
With the economy hopefully entering a more sustained growth phase, this shortage will continue to support stronger residual values.