Despite Bank of Scotland’s decision to pull out of bus and coach
leasing in 2004, the sector remains calm and balanced
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Our relationship to the bus has always been somewhat ambiguous.
On the one hand, the bus does have a significant place in popular
culture – witness the appearance of the Routemaster bus in films as
diverse as the Cliff Richard vehicle, Summer Holiday, and Harry
Potter and the Prisoner of Azkaban. In the English language, a
phrase like ‘to miss the bus’ means to lose out on an opportunity,
to be left behind, as it were. On the other hand, this idea of
being left behind crops up in quite a different way in the quote,
apocryphally attributed to Margaret Thatcher, which says that any
man over the age of 26 who finds himself travelling on a bus can be
deemed a failure.
As a mode of transport, the bus has been in decline since the
1950s in terms of the number of passenger trips. Politically,
however, it is currently enjoying something of a renaissance. It is
a strategic priority for the UK government, as it tries to
alleviate the traffic congestion that blights the UK, and the bus
is also in the vanguard in the fight against global warming. The
government expects annual public spending on the bus industry to
reach £2.5bn this year – it was £1bn a decade ago – and in May it
published its Local Transport Bill, in which the bus features
strongly.
Where does the industry stand in this mix? Despite the decline
in passengers, 2005 saw the highest number of journeys taken by bus
in a decade. According to the latest figures from the Bus Industry
Monitor, industry turnover rose by 7.7 per cent to around the £4bn
mark, although pre-tax profit margins have fallen to their lowest
point in over a decade, and costs, such as unit labour costs and
fuel, are rising. But it is also true to say that the industry has
had a lot to contend with over the last few years, having to plan
for, and adapt to, such major issues as the Disability
Discrimination Act and the need to cut carbon dioxide emissions. In
addition, the industry is having to negotiate the move from manual
to digital tachographs, as regulations about driving hours become
more rigorous.
Some lessors believe that all the regulatory changes have led
bus and coach operators to put off investment in certain cases in
recent years, but, despite this, lessors regard this market as a
robust and steady one, which is perhaps confirmed by the level of
annual new bus and coach registrations. These have been averaging
around 4,000 per annum for the last 10 years, according to the
Society of Motor Manufacturers and Traders. Ownership in this
sector is relatively settled as it is dominated by five major
players. This has been the case for most of this century following
a number of acquisitions and market consolidation.
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By GlobalDataRobust leasing market
So, in terms of leasing buses and coaches, who is being left
behind and who is seizing the opportunities available? The asset
finance industry has a long association with this market, and there
are a small number of financiers active in it, some with teams
dealing specifically with this sector, and some captives and other
financiers which include this market as part of their general
approach to asset finance.
Lombard has bus and coach specialists, as does Alliance &
Leicester. One bank that did have a specialised bus and coach asset
finance team was the Bank of Scotland, but this division was closed
in 2004, despite having won the ‘best in show’ award for its stand
at the Expo Coach and Bus exhibition the previous year. Then there
are the captives, such as Volvo Financial Services and Scania
Finance Great Britain.
Barclays Asset and Sales Finance takes a different route to
market in that it does not have a specialist team per se, but uses
its 100-strong team of relationship managers and relationship
directors to target bus and coach operators. It has been in this
market almost since leasing began in the UK and, according to Keith
Sangwin, its sales director, it lends around £100m annually, about
5 per cent of its total book, primarily through hire purchase. In
addition to this relationship team, Barclays has a telesales
operation based at its head office in Basingstoke. This team looks
after the smaller end of the market, that is, those looking for a
credit line of up to £250,000.
As a captive, Scania Finance has an operation dedicated to the
bus and coach industry, and it has been financing these vehicles
for as long as Scania has been importing them to this country.
Around 9-10 per cent of the finance company’s new business each
year relates to bus and coach financing, says Alan Rhodes, its
sales and marketing director.
He also confirms Sangwin’s observation that hire purchase is the
dominant product in this market, especially in the coach market,
and also among the smaller operators, where ownership of the asset
is still an important part of their thinking. As with most lessors
in this sector, Scania Finance’s customers range from the smallest
operator up to companies such as National Express, one of the big
five bus and coach operators.
Rob Hallworth, head of the bus and coach division at Alliance
& Leicester Commercial Finance, says that the bank has been
involved in the bus and coach market for around 20 years. Its
general approach to the asset finance market is to develop
specialist teams within its commercial finance arm, and this is the
case with the bus and coach division, which sits alongside other
teams such as commercial vehicles and wholesale fleet. As of June
this year, about 7 per cent of its commercial lending book related
to bus and coach leasing.
“We operate under two distinct brands,” says Hallworth. “We have
the Alliance & Leicester Commercial Finance brand, which was
formerly known as Sovereign Finance, and that’s been very active in
the bus and coach market since the early 1990s, and we also have
Hansar Finance.” The latter is a trading division of commercial
finance and celebrates its 20th anniversary in this sector next
year. Hallworth says that the two brands account for about 25 per
cent of the volume of asset finance business written in relation to
bus and coaches, based on FLA statistics.
Branding buses
This double branding gives Alliance & Leicester coverage
across the whole of the market, from the largest players to the
smallest bus and coach operators. Although there is no strict
demarcation between the two, Hansar Finance tends to focus on the
SME market, while the bus and coach division looks at the medium to
large sector. Hansar Finance was acquired in 2000 and is part of
Hallworth’s division. It also partners CPT Finance, the finance arm
of the Confederation of Passenger Transport, which bills itself as
‘the voice of the coach, bus and light rail industries’, to provide
finance for this organisation’s members.
Both brands have separate sales teams dealing directly with
customers, as well as brokers and with nearly all the major dealers
in the bus and coach market. Hallworth believes that having a
specialist team that deals exclusively in the bus and coach market
is a distinct advantage, a belief that he shares with Andy Page,
the national sales manager for bus and coach finance at Volvo
Financial Services (VFS), which currently has a portfolio of around
£120m in the UK bus and coach market.
VFS has been active in the market as long as its parent company
-Volvo acquired Leyland Bus in 1988 – and was Volvo Contract
Services up until about five years ago. Volvo has separate
marketing companies for its vehicles – Volvo Bus and Volvo Trucks,
for example – and its financial services arm basically exists to
help sell these vehicles by providing a range of finance products,
from hire purchase to operating lease, and from finance lease to
contract hire. “We segment our business into three sectors – bus,
new coach and used coach,” says Page, “and nearly all our business
is referred to us by the sales team at Volvo Bus.” Most of the
contracts he agrees with clients are moulded around their specific
circumstances.
All the financiers in this sector offer a wide range of
products, although both Alliance & Leicester and VFS also have
used vehicle sales operations. Alliance & Leicester also has
its own portfolio of about 70 rental vehicles which enables it to
supply operators with new and used buses and coaches, with rental
periods up to 60 months. It has just signed a deal with the bus
manufacturer, Alexander Dennis Ltd, to increase this rental fleet
so it can provide school bus facilities to local authorities. It
has also recently launched a product called Choices, a hire
purchase agreement that enables the client either to take ownership
of the vehicle, by paying a balloon payment, or return it in the
event that a contract with a local authority, for example, has not
been renewed.
