After setting up the Captives Forum with Bret Thomas of Xerox Global Leasing in 2007, Patrick Jelly has handed over the chairmanship to Elliot Lennick of MAN Finance. Grant Collinson caught up with them to find out what is next for the trade association
Having just stepped up to take over as chairman of the Captive Forum for a two-year term, Elliot Lennick, vice-president and head of international sales at MAN Finance, will lead the captive finance trade organisation during what he describes as "the time of the captives".
Lennick takes over the chair from Patrick Jelly, vice-president of Pitney Bowes Financial Solutions Europe, who stepped down after steering the body since its formal inception in 2009 and will take up the newly created role of president of the Forum’s executive committee.
Lennick sees it as an important time for captive finance arms because competitors in the bank-owned leasing sector have become increasingly careful in their use of capital with Basel III looming.
Jelly agrees with this analysis and says the European leasing market has gone through "huge change" when it comes to the availability of funding and believes this has meant captives must demonstrate value to their manufacturer parents more than ever.
"I think something has changed [in the leasing market] and continuing to show value to our manufacturer parents in an environment where capital comes at a premium is vital.
"I’ve always felt a captive exists purely on its ability to show and deliver tangible value, but no more so than in the last number of years," he said.
Pooling knowledge and experience
Getting the most from a captive business by pooling knowledge and experience has always been the aim of the Captives Forum since it was set up, and in that aim Jelly feels the body has been successful.
The Forum began as informal meetings between Jelly and Bret Thomas, vice-president and global head of business at Xerox Financial Services, which quickly evolved to become formal meetings and then, in 2009, an industry body.
"We met really as friends and found that we were meeting to talk about various issues and opportunities which existed within a captive environment and wanted to exchange ideas and thoughts," says Jelly.
"We did that as friends and then we decided we were operating in a non-competitive environment and it was possible, we felt, to bring these sorts of companies together to share, to learn, and to enhance our businesses."
With a membership which boasts the majority, if not all, of the major manufacturer-owned finance firms operating in Europe, Jelly feels the seniority of those involved in the Captives Forum and the time dedicated to meetings is indicative of the success and worth of the organisation.
"For me, the best measure of success is that we get a strong representation from businesses and people see it as helping
them manage their business in a captive environment.
"In what is a difficult business world, trying to balance different priorities, people are still committing their time, their attendance, and involvement as well as participating and leading various discussions."
With a diverse membership, from software producers to heavy plant manufacturers, the major challenge for Jelly, as chairman of the Forum, has been keeping those discussions relevant to all parties.
Jelly says: "The biggest challenge has been ensuring the agenda for each of the meetings is representative of the members around the table and that there is value seen for all who join – getting a balanced range of topics, a balanced range of external speakers and experts to come and give us external perspectives as well as sharing our own ideas – trying to ensure that you are discussing the right topics with the right expertise."
Jelly feels the Forum has successfully managed to address a diverse range of topics in its meetings, but continuing to rise to that challenge was one of the reasons the executive committee with elected members was formed.
As the new chairman, Lennick is aware of the challenges of agenda-setting but also has his sights set firmly on helping the captive industry to capitalise on the funding squeeze pinching the bank-owned lessors, but not before levelling what he sees as an uneven playing field.
"It is the time of the captives at the moment", says Lennick, "especially the way banks are looking at their capital with Basel III coming through."
"The challenge for the captives is to be in the position to do business for our manufacturer parents in a fair, competitive landscape.
But at the moment we are not given access to some types of funding that are available to non-captives. "
Both Lennick and Jelly believe captives are operating with "their hands tied behind their backs" because they do not have access to government schemes aimed at boosting SMEs lending such as Funding for Lending in the UK or the continent-wide European Investment Fund.
Contribution to Europe’s SMEs
Lennick says captive finance arms represent around 18% of all leasing in Europe, which, when stacked up against the latest
Leaseurope figure for total new leasing business in 2012 of 225bn, makes the European captives a 40.5bn industry.
Much of this funding is going to help Europe’s SMEs, says Lennick, at a time when there is "a tremendous amount of talk about SMEs not being funded", but the contribution the captives are making is not being recognised.
"The problem with these schemes, whether in the UK, or through the European Investment Bank, is it is restricted," says Lennick.
"Our issue is the EIB took the stance that a captive, as it is financing only its own manufacturer’s products and no others, isn’t entitled to the funds. It is the same, to my understanding, in the UK."
Lennick suggests this arrangement is "unfair" and uncompetitive and says the Captives Forum plans to use "the strength" of its members’ manufacturer parents to lobby in Brussels and in London.
It is in the UK, where the issue of SME funding is a "big topic", that Lennick hopes the Forum can make a breakthrough with the government.
"SME funding is very high profile and something we will be discussing at the executive meeting is how to approach the government on this."
Back to basics
UK trade body the Finance & Leasing Association (FLA) and the Europe-wide organisation Leaseurope have both lobbied on behalf of the wider leasing industry for inclusion in funding schemes and closer ties with other trade bodies is also on Lennick’s agenda for his two-year term.
"We want to get closer to Leaseurope, but as an independent body," says Lennick.
"There have been informal talks. Patrick has been involved over a period of time – it is a slow process," he says.
"We recognise Leaseurope as an association that has value, and hopefully they recognise that in us as well.
Lennick also has his sights set on garnering greater recognition for captive finance firms and on raising the profile of the sector, as well as attracting more members over his term as chairman.
"I would like to see us as a recognised body of like-minded people and companies, fully recognised within the European leasing market as a powerful leasing lobby," says Lennick.
Beyond the two years of Lennick’s tenure, Jelly hopes the Forum will continue to do what he says it does best: discussing industry issues, sharing best practice and learning from each other’s experience.
"In the captive world you don’t have to wrestle on your own because we can share ideas and thoughts in a non-competitive environment and I think, ideally, that’s something we really mustn’t take our eye off.
"Sometimes it can be simple things that add real value: understanding how to structure indenture plans, commission plans, how to work with a manufacturer that is considering outsourcing aspects of its business, understanding how best to structure your organisation, how best to manage your P&L together with the manufacturer – real fundamental, tactical things that we as MDs of captives wrestle with in our conversations with our manufacturers all the time."
"In my continued role, I keep going back to ensure we also look at the basics and some of the original objectives the forum had," Jelly says.
A GUIDE TO THE CAPTIVES FORUM BY THE SECRETARY ALAN LEESMITH
The Captives Forum is the only organisation dedicated to and run by manufacturers’ finance companies.
It is a trade association for a variety of global equipment manufacturers who seek to support the sale of their products with the use of finance.
Members are usually represented by the divisions or subsidiaries whose role it is to provide or arrange the finance to support the company’s sales. Representatives of a manufacturer’s marketing or sales function are equally eligible to attend meetings and do so.
The Forum particularly, although not exclusively, focuses on the issues that are relevant to manufacturers. These might not be obvious at first glance, but reporting to a manufacturing/sales company is considerably different to reporting to a bank or financial institution. In the latter case finance is the primary tool of the business for making profit, whereas for a vendor it is very much a secondary item, the object of which is to increase sales.
The measurement of success is thus how much has been contributed to supporting and increasing the parent’s sales.
The quarterly meetings of The Forum are usually hosted by members (recently, IBM, Caterpillar, Scania and next John Deere), although sometimes by banks, and service providers. Meetings move around European capitals, reflecting the wide European membership, including Brussels, London, Luxembourg, Paris and Stockholm.
The fact that membership is only open to equipment manufacturers certainly doesn’t mean that the importance of others in the leasing industry isn’t recognised. Individually members have close working relationships with vendor lessors, banks, service providers, etc. and at every quarterly meeting outside speakers are normally invited for one or two of the sessions.
Vendor lessors and service providers are frequently guest speakers, along with speakers on topics of interest to members, including rating agencies and economists.
Other sessions are presented by members on specific topics that the members have chosen to be of interest. This sharing of views and experiences is found by members to be valuable. Equally important, according to members, is the time made available to mix informally, providing opportunities to talk with others who face similar challenges.
This is aided by the fact that it’s normal practice for members to assemble for dinner the evening before the quarterly meeting.
The Forum doesn’t attempt to duplicate matters dealt with by national associations or Leaseurope relating to the leasing industry overall (although it may look at them from the perspective of the manufacturer), but it concentrates on aspects not normally dealt with by those organisations.