Despite ferocious competition, leasing companies cannot ignore the opportunities presented by the large volumes of public sector fleets
At first glance it appears difficult to build a business case to supply the public sector leasing market. Under a SWOT analysis there is strength in the guarantee of significant demand from essential services, and as an opportunity, there’s an open mindedness among public sector customers for progressive mobility solutions. But the price pressure of belt-tightening austerity can have escaped no one as a weakness, while the threat comes from ferocious competition among leasing companies determined to build volume.
Moreover, the determination of public sector organisations to maximise the value of every penny spent, combined with a purchasing approach that groups buyers into procurement consortia, squeezes margins until the pips squeak.
Yet many of the UK’s leading contract hire and leasing companies have dedicated divisions and even specialist brands focused uniquely on winning public sector business. When The Procurement Partnership Limited (TPPL) launched a new contract hire framework agreement, more than 40 leasing companies bid to join, with 15 appointed to the framework to supply lease cars, and 10 to lease vans. The opportunity to reach a potential 680 public sector organisations served by TPPL was too good to miss.
European legislation makes it compulsory for public sector bodies to go out to tender for any purchase worth more than £164,000. This can be a costly and laborious process, taking four-six months and countless man hours to advertise the tender, evaluate responses and feed back to applicants, before nominating suppliers.
The alternative for public sector fleets is to source vehicles and services through a framework agreement that allows different bodies to access the same buying terms as the organisation that initiated the tender. By pooling public sector purchasing power, specialist procurement companies can leverage prices and terms that the fleets could not access independently. And the negotiations don’t end there.
Crown Commercial Services (CCS), which runs the largest of the fleet procurement frameworks responsible for a fleet size of 120,000 cars, has created a fleet portal that gives customers instant access to quotes from 12 competing leasing companies.
“It pulls in Cap HPI data on cars and LCVs and allows access to all pricing and technical information to be able to understand which vehicles meet specs and are the best value,” says Kim Harrison, fleet category lead, CCS. “It has a live link to our 12 funders, so the customer can generate live leasing quotes. They can see finance rates, residual values and SMR costs to make some real-time decisions on best value, and award from there.”
Developing this theme, Jim Brennan, managing director of TPPL, recommends that when its clients draw down from a framework agreement they go to a further mini-competition.
“If, for example, you need 100 vans, there are going to be suppliers on that framework who will want that business and price it a lot more competitively,” he said.
Many public sector fleets sign up for access to several framework agreements, searching between them for the best deal available.
“If you are in the public sector as a procurement consortium then you have to wear a public sector hat. They are spending money from the public purse, therefore best value for money is always important. If they can get a better value deal from another framework then fine,” says Brennan.
NHS Blood and Transplant (NHSBT) sources its lease cars and commercial vehicles through CCS.
“The advantage of using the national framework for standard production cars, is the ability to piggy-back on the economies of scale of the whole of the Government vehicle parc, by taking advantage of the keenly negotiated pricing structures and added service elements on offer, without having to go out to competitive tendering as an individual health service body,” says Larry Bannon, NHSBT national fleet services manager.
But he adds that the benefits for commercial vehicles are less clear, due to their degree of customisation.
“NHSBT has no basic production line vehicles on fleet, therefore all our vehicles have an element of conversion required, to our bespoke specifications,” says Bannon. “So while we take advantage of the framework lots, we still have to go to mini-competition with suppliers on the framework, to source vehicles. The number of suppliers who are able to deliver bespoke commercial vehicle specifications, is greatly reduced as a result.”
On the supply side, leasing companies face the challenge of meeting public sector needs while keeping a close control of their own costs. This is a high volume, low margin business, with profits further eroded by the fees paid to procurement organisations for business written through their frameworks. These commissions can be as much as 0.5% of monthly invoice value for a leasing company.
“Public sector fleets tend to be driven by three key factors – value for money, operational efficiency and compliance,” says Stephen Kirwan, corporate and public sector sales team manager at Arval. “It is about getting the job done effectively and containing the cost as much as possible while meeting all legal responsibilities. In that respect, it is comparatively straightforward but still demands a high degree of managerial focus on our part.”
On the plus side, the guarantee of future business warrants investment in serving this market.
“There will always be a need for public sector vehicles and this, to some extent, insulates the market from wider economic concerns,” adds Kirwan.
Bidding to be on a framework agreement can be burdensome, with pages of bespoke questions that don’t allow for a copy and paste from a library of responses. The duplication and overlap between frameworks can be frustrating for leasing companies, so how do they decide which to bid for? For those with a serious commitment to this sector, the answer seems to be all of them.
“We always have to keep an eye open for public information notices,” says Angus Gillon, director of public sector sales at Arnold Clark Vehicle Management (ACVM), which has between 16,000 and 17,000 public sector vehicles on its fleet. “If we want to have the maximum opportunity to provide vehicles to these people we have to apply for their frameworks as well.”
But this demands a different approach to the corporate market. “We work on the basis that there’s no commission paid to any salesman in our business,” says Gillon. “We have administrators and we have wages to pay, and therefore I’m working on a much lower margin than, say, a corporate division which is employing a salesman on the road with a company car, etc. I’m perceived to be on a much higher volume and therefore can afford to be a much lower overhead contribution, which aids the competitiveness.”
Building relationships with clients through framework agreements is possible, but is no guarantee of business. Gillon says a realistic goal is to become one of a shortlist of three or four preferred suppliers within a framework.
“Organisations come to us as a first port of call for information and knowledge and experience, but they’re not always able to give us the business because of price,” says Gillon. “We have always prided ourselves on being personable, approachable and easy to deal with. Our administration systems are pretty straightforward and flexible and we can react quite quickly. So if we’re within £x of the cheapest we may still get the order on the grounds that we’re much easier to deal with.”
The danger is that the self-serve quotation portals on larger procurement frameworks portray leasing as a commodity, which is why Alphabet places great store on subsequent account management.
“The customer sourcing that car must fully understand how that lease company will support them during the life of the contract and treat that vehicle upon its return,” says Dean Hedger, head of public sector at Alphabet. “It’s about ensuring that if it’s cheap at the front end will it remain cheap throughout the life of the vehicle.”
He has a four-strong field-based account team, responsible for the account management of Alphabet’s 17,000 public sector vehicles, as well as new business acquisition.
Much of their work involves LCVs and, increasingly, electric vehicles and green mobility schemes, both areas where a consultative approach can add value to the relationship.
“A lot of public sector bodies are very forward thinking in terms of mobility requirements and trying to align them to local air quality,” says Hedger. “They are early adopters in terms of electric vehicles, and so we are always trying to work closely with them.”
“For an electric vehicle you can just go on to a portal and get a range of different prices. But that doesn’t actually show you which leasing companies are really committed to the electric vehicle agenda – just being cheap does not mean they are supportive. If a customer is looking to take on electric vehicles we can help them establish their network of charge units, understand what is in their area to support electric vehicles. It’s understanding what there is beyond the rate.”