As competition in the truck finance market rises, market players are looking at ways to differentiate themselves and attract customers. Sotiris Kanaris reports.

The European truck market has been buoyant in recent years, with manufacturers boasting high level of sales.

In the finance side of the market, the landscape has changed with the entry of some larger banks. The increased competition in combination with changing customer behaviour has created the need for companies to develop their offerings, either through the provision of additional services or new tools.

Rise and rise

2015 was the third consecutive year of growth in new commercial vehicle registrations in the EU, according to European Automobile Manufacturer Association (ACEA) figures.

Registrations of heavy commercial vehicles (HCV) over 16 tonnes grew by 22.4% year-on-year in 2015, with growth recorded in all the ‘Big Five’ EU economies. Significant rise in sales of such trucks was witnessed in Spain (38.7%), UK (32.1%) and Italy (25.3%).

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By GlobalData

Over the same period the number of medium and heavy commercial vehicles (MHCV) over 3.5t registered rose by 23.7%.
In the UK, the Finance and Leasing Association (FLA) members provided £4.4bn of new finance for new commercial vehicles in the 12 months to February 2016, of which £1.7bn was for new heavy commercial vehicles.

Geraldine Kilkelly, head of research and chief economist at the FLA, tells Leasing Life: "New business reported by the commercial vehicle finance sector grew by 16% in the twelve months to February 2016. This was driven by strong growth in new business for both new light and heavy commercial vehicles, up 13% and 20% respectively over the same period."

Eastern promises

Over the past decade, some Eastern European countries have emerged as key players in the continent’s truck market.
Looking at ACEA figures for 2015, on average, the rate of year-on-year growth in truck registrations was significantly higher in countries of that region than Western Europe.

François Millot, head for the retail lending at CNH Industrial Capital / Iveco Capital EMEA, says the company has considered Poland and Romania as ‘core’ markets in this field for years.

Poland’s market for heavy trucks has been growing at such a rate that it is now the fourth largest in Europe.
Bengt Thorsson, senior vice president and executive regional director, European region at Scania, says that Poland has benefited from an increasing number of manufacturing and logistics companies choosing to set up there.

"In addition, major infrastructural investments have been completed, which makes Poland an important market for Scania," says Thorsson.

Out-flagging by multinational fleet operators and the pool of Eastern European drivers were cited as reasons behind the trend by Mehrgott.

Changing customer behaviour

Leasing is a dominant product in the truck finance market, as it entails a number of benefits for the customers.
Millot says the most popular finance product for retail customers is a financial lease, while for big fleet customers it is an operating lease with full service arrangements.

Christian Seidlitz, senior manager sales & marketing Europe Trucks & Buses Daimler Financial Services, tells Leasing Life: "Our customers demand products which save them liquidity. Operating lease products are clearly dominating. The benefits are low and clear calculated monthly rates over the full duration with guaranteed buy backs based on a yearly mileage."

A usual practice for customers with a big fleet is to use different products for different parts of their fleet.

Chief executive officer at MAN Financial Services Germany Martin Mehrgott, explains: "If 20% of contracts with their own customers are short-term, they prefer to use mobility rental contracts as they have flexible cancellation features. The customer can then use operating leasing for another part of their fleet and hire purchase for ‘long-term stock’," he says.

Seidlitz says that a key learning from the crisis is that customers need more flexible contracts which they can align to contracts with their own customers. To focus on this trend Daimler Financial Services is offering additional rental solutions to cover peaks in customers’ business through Mercedes-Benz CharterWay.

Big fleet customers are interested in total cost of ownership (TCO), where they want to spend a certain amount a month for a truck "all inclusive".

Iveco Capital is seeing a rise in demand for TCO contracts by retail customers as well. Millot says that the boost in popularity of TCO contracts in the truck finance market resembles trends witnessed in other industries.

"In the copier business, 20 years ago we financed a copier with financial lease, now it is priced via only cost-per-copy. No one talks anymore about the asset. The customer now a truck for X hundreds of euros per month over a three year term which is all inclusive; it has to be maintained, given a warranty, and insured."

Millot says captives have a clear advantage compared to non-captives in additional services. He explains that being close to the manufacturer allows captives to have a better understanding of the asset titles.

"Each time the manufacturer is launching a new truck, we liaise with the manufacturer as to what will be the maintenance cost for the new trucks. With the new Euro 6 regulation of the trucks’ engines but also with the progress manufacturers are making on the engines, cost is reduced and this is something which is far easier for captives to understand than players who don’t know the details," adds Millot.

Hard times for captives?

The truck finance environment has changed in the past three years, with acquisitions and new entrants. Volkswagen Group launched a new holding called Truck & Bus, which includes the recently-acquired MAN Finance International and Scania, while the excess liquidity in the market signalled the return of banks.

Mehrgott says: "The present time is not the easiest time for captive finance companies because the economy is going well, resulting in credit losses being very low and money being very cheap. ‘Traditional’ commercial banks have a huge excess of liquidity and they are now entering into our business and targeting our customers.

"As a result customers have more financing opportunities than when they economy is not as good. It is easier for big commercial banks to lend out to a good solvency customer for 1.5% or 1% interest because they have the money, whereas we as a captive have to borrow money from the market."

Mehrgott says that captives cannot follow those interest rates, however they can agree with the customers to finance part of their tranche in order to maintain the relationship.

"That is more the way we are going now and normally we can convince the customer to remain a partner. When the financial conditions change it will be our time again," he adds.

He says that competition from banks is tough in nearly all European markets, but highlights that this is particularly evident in Germany and Austria where there is a strong savings culture.

Millot says that the competition from banks is more intense on big fleets (more than 1,000 vehicles) and medium fleets (30-500 vehicles).

New products

The competition has pushed market players to launch a number of new products, offering additional services to customers.
Mehrgott says MAN Financial Services’ new strategy focuses on digging deeper into the value stream of their customers by providing invoice finance.

"When we offer additional services it is to the benefit of the customers. First it makes everything very easy for them and takes some risk away from them. It can be a good argument for financing with us beyond buying the truck. Our job is to convince customers that we offer such services that they only get via us," he explains.

MAN is also launching a van together with Volkswagen in the next year, which means the financial services division will be able to target a wider customer base.

"It will be a new segment for us, the customers are different than the ones for trucks and buses, so we are currently working on our business model to have the right instruments in place to provide finance to these customers and make this product a success," says

Iveco Capital has developed an offering to finance specific truck repairs, for example when a customer has an accident, or needs to change an engine.

The company is piloting a product called Capflex in some countries, which allows customers over the course of the lease to increase or decrease monthly instalments depending on their revenues.


Digitisation has already started to influence the passenger car finance market, with major captive banks, like Volkswagen Bank and Mercedes-Benz Bank, have already launched portals that offer their services through a digital channel.

Truck finance companies are still quite traditional in their sales and operation, but some have started to look into the digital space.
Mehrgott says MAN Financial Services would like to "go more digital", as that would not only enhance the customer experience but also reduce costs.

"We would like to do everything which makes the process for the customer easier and quicker. Customers will not have to sign millions of documents and they can do changes online. We would like to have registration documents online. When we do not have to do every change manually on our contract management systems and this is done by the customer, then there is good potential to cut some general costs in our operation," he explains.

Iveco Capital’s Millot says the first step to digitisation is online approval, but highlights that it is not an easy one. "Last month we received more than 3,000 applications online across Europe, of which 70% were approved in a couple of seconds," he says.

Millot tells Leasing Life that the company is piloting an online approval process on smartphones in some countries. "When the customer is interested in buying a truck, the dealer sales person can capture the application on the smartphone. The dealer sales person will be able to have an easy quotation and then submit the application immediately."

Millot highlights that digitisation may be more tailored for the retail segment of the market, as this segment is closer to the consumer market in the way the sales are being done and where automation with smart phones is clearly a "mandatory evolution".

Iveco Capital is also piloting an e-signatures tool in Denmark, and Millot speaks about some considerations finance companies have to make when introducing such a tool in the B2B space

He says: "It is more complex in the B2B environment than in the consumer environment because we have to not only make sure that the signature is valid but also that the person who signed electronically has the power to do so for the company who he/she represents."


Mehrgott cites digitisation as one of the main challenges captive finance companies in the area will face in the near future.
Another issue arises from differences in legislation across the EU, which adds a level of complexity when serving businesses with international operations.

"It is sometimes a challenge to go with the customer in the countries they want because the asset title and registrations are different," says Millot.

In addition, Millot speaks about a challenge in developing full service products for pre-owned trucks. "People are not yet used to taking a full service on a pre-owned truck. I think this will become a trend in the future because a truck of 36 months has still a long life ahead. We have developed a truck concept with warranty and maintenance, going from that to full service is a challenge."

Future expectations

Mehrgott says that the new IFRS standard could affect captive finance companies’ business model and increase the popularity of certain finance products.

"We have to see how the new IFRS standard on leasing will affect the industry because of the different balancing of leasing which will occur in 2019. We would perhaps have to shift our business more from leasing to rental or to hire purchase," says Mehrgott.

Millot anticipates a growth in additional services such as fuel consumption and uptime warranties. He also sees gas trucks becoming more popular, as air quality regulation becomes stricter especially in the big cities.

"We have seen customers which are contracting part of their fleet from diesel to gas because of pressure from their customers. Many big organisations with social and environmental responsibility are looking for truck operators who are providing the gas powered trucks," he says.