Jonathan Manning explores how planning for uncertainty and upheaval is essential for leasing companies.
As economics and politics impinge on the fleet sector more heavily and frequently than ever, it is difficult to avoid the image of leasing companies as swans, projecting reassuring calmness and control above the water, while underneath they paddle furiously to contend with issues beyond their control.
From interest rates to Brexit, emissions testing to taxation, the number of ‘what ifs’ that could impact vehicle leasing appear to be rising exponentially.
The past month alone has witnessed the uncertainty of a general election, with its potential impact on corporation tax and income tax; inflation rising to a four-year high, shining a spotlight on interest rates; and the announcement of an HM Treasury consultation on the taxation of employee expenses, which is sure to include business mileage reimbursement.
As if external factors were not a sufficient challenge to the boards of leasing companies, the meltdown of British Airways’ IT system reminded every director of the importance of contingency planning for issues that are within their control.
In a risk business, protecting clients from uncertainty and preparing for what Donald Rumsfeld once famously called the “known unknowns”, is a core element of the leasing proposition.
“The way we approach and address these issues is always to think about continuity of service,” says David Jones, communications manager, Alphabet.
“We live in a world that is ever faster, so continuity is about planning for emergencies and for ongoing change.”
Internally at Alphabet, it is a responsibility shared across departments, with few issues likely to touch just one area of the business.
HR, operations, compliance, IT, legal, facilities, commercial and communications departments all have to devise a coherent response or contingency plan for issues that will affect the business and its clients.
Externally, Alphabet has adopted a two-pronged approach to support customers by splitting its account management structure into two; service managers take responsibility for helping clients with the day-to-day, operational challenges of running a fleet; while strategic managers help clients to devise solutions and policies for longer-term issues.
“The earlier we can put issues on customers’ radars, the earlier they can consider them in their decision-making,” says Jones.
Alphabet also holds regular customer forums, where fleet decision-makers can discuss with each other and with industry specialists how best to deal with impending change.
Ogilvie Fleet discusses such matters of uncertainty and potential upheaval at monthly board meetings. Every board member is responsible for formulating an action plan so the company can take change in its stride.
“We see it as a whole business function and everyone has a part to play in the process,” says Nick Hardy, sales and marketing director, Ogilvie Fleet.
“Whether that be the IT team ensuring uninterruptible services online, the maintenance team ensuring all functions can be carried out remotely, the marketing team keeping all external communications channels open, or the account management team communicating directly with clients.
“If you go back a few months to the announcement of the changes to the road fund licence (vehicle excise duty), we immediately discussed how we were going to handle it.”
While the company had to inform customers of the details of the changes and what it would mean to quotations and pricing, its internal technical teams also had to start working on systems-based changes to accommodate the new VED rates.
“There was no point waiting until March to decide what we were going to do – we took immediate action,” says Hardy.
The forthcoming changes to real-world emissions testing and their implications are on the agenda at every board meeting.
“The reality is that there is not a lot we can do now, but we talk about what is coming,” says Hardy.
Future-proofing its business against potential risk is critical for Essential Fleet Services, the contract hire and fleet management company focused on specialist vehicles such as refuse trucks, gritters and road sweepers.
Given the nature and high capital cost of these vehicles, contracts can frequently run for as long as seven years, with the option of a three-year extension, which increases the risk and uncertainty involved.
“We have a risk report in every board paper, which our investors look at,” says Ed Hummel, sales director of Essential Fleet Services.
“It’s colour-coded red, amber or green depending on the height of that risk. It’s a key agenda point at the moment because we recognise that the economy and the world are more uncertain than they have been in recent times.”
When the company is pricing contracts, typically supplied through public sector purchasing framework agreements, it assesses the elements of uncertainty in four key areas: purchase price (“What are manufacturers likely to do, because often within these contracts there’s a fixed price for that long period, but there might be two changes of vehicle,” says Hummel), residual value, maintenance budgets and interest rates.
“In each of those areas we have a director responsible for exploring what those risks might be, and we have come up with some pretty smart ways of mitigating those risks for our customers,” he adds.
“In terms of the interest rate, we made a conscious decision to make sure we got funding lines in place with the four big banks to ensure that we have plenty of choice and competition should market rates change.
We are committing to a rate today for a product that might not be delivered for a year or two.”
In a recent contract win, Essential Fleet Services securitised the interest rate on the deal with Lloyds Bank, locking in for the next seven years the low interest rates that are available now.
Such initiatives are vital as Hummel says fixed-cost budgeting has become “increasingly important for customers with Brexit and uncertainty around elections.
“That is leading to our customers wanting to protect against that uncertainty. In tenders, customers are looking for us to cover that risk.”
If there’s some consolation that the ramifications of changes to interest rates, corporation tax, VED or the taxation of salary sacrifice schemes are industry-wide, rather than company-specific, individual leasing companies also have to maintain contingency plans in case of calamity striking.
It’s a reasonable bet that BA’s systems crash prompted an agenda item at board meetings of most FN50 companies.
The idea of a building burning down or a catastrophic systems failure may seem unlikely, but it’s a scenario for which companies need to prepare, says Gary Jowett, sales and marketing director of CNC, a Brighton-based business technology firm.
He advised that an effective disaster recovery and business continuity plan requires more than an off-site, duplicate IT system, in case the main system fails.
“Disaster recovery procedures should be practised every month, to ensure everyone is up to speed,” says Jowett.
“Employees and managers may join or leave your company every year so practising these procedures promotes continuity in what needs to be done.
“If such chaos can affect a major international airline, it should be a warning to smaller enterprises that being fully prepared for a disaster is essential.
Failure to do so can create a lasting negative impression with customers and business partners that you may never recover from.”