From a “storage cupboard” and seven staff to a £36 million purpose-built head office and 600 staff: that’s how Volkswagen Financial Services (VWFS) chief executive officer Graham Wheeler describes the rise of the UK’s fastest growing contract hire and leasing company.

“This company has grown up; we were the best-kept secret in automotive financial services, now we have the look and feel of a successful company,” Wheeler told Fleet News at the official opening of the new building in Milton Keynes by business secretary Vince Cable last month.

Volkswagen Group Leasing (VWGL), one of VWFS’s four key operations in the UK, has grown by a staggering 900% since 2006 (more than 90,000 units) and has just become the sixth leasing company to pass the 100,000 risk fleet threshold.

Such figures are unprecedented, not least because they have been achieved purely through organic growth. VWGL is not against acquisition but, until now, it simply hasn’t been part of the agenda to hit its growth aspirations.

Success has come in three areas: SMEs via dealers and brokers; public sector on the government procurement service CCS; and, recently, large corporate businesses.

Four years ago, around 80% of VWGL’s business was with SMEs; that proportion has fallen to 55% as the company broadened its portfolio to appeal to larger corporates and public sector fleets.

In January it appointed former ING Car Lease managing director Ian Tilbrook as interim director of fleet with the express objective to continue the push into medium-to- large fleets.

Announcing an interim position doesn’t sound like much of a commitment to Tilbrook or large fleets, but Wheeler says the decision was taken to keep the relationship “open-ended”, which he believes is “more flexible”.

He adds: “But we see it as a long-term appointment – we hope that he will be with us for a long time.”

As VWGL pushes harder into bigger fleets over the next couple of years, its mix of business will flip to 55% large corporates/public sector and 45% SMEs. It remains on track to achieve a risk fleet of 150,000 by 2018, and has actually nudged ahead of its growth plan in the past year.

What is so appealing about 150,000? “It was our ambition to be in the FN50 top three and that was the number when we set the target ,” Wheeler replies. “By the end of this year we will hit 110,000.”

That will take last year’s sixth largest leasing company to fourth (notwithstanding further growth from its two closest rivals, Arval and ALD).

Then what? “After that we will see more growth and expansion of other services. We are working on ideas and concepts to expand and diversify.”

Future growth areas

Insurance and telematics are two areas into which VWGL will move. Indeed, it is already providing a telematics solution via Volkswagen Commercial Vehicles in partnership with the RAC, while a separate VWFS division, Volkswagen Insurance Services, provides insurance products such as GAP through franchised dealers.

Wheeler anticipates bringing together all of VWFS’s services, which include managing maintenance contracts for around 575,000 vehicles primarily for SMEs and retail customers (more than any other business bar Motability), to offer a fully outsourced fleet management function.

This will be achieved within the next couple of years and will not just include cars and vans, but also companies with trucks and motorcycles, too.

Ultimately, Wheeler believes VWGL – like all major leasing companies – will need to evolve into a provider of mobility services.

“We are starting to see more flexibility in vehicle use – the idea of having one vehicle contract for three years is beginning to move, but the UK is behind other countries,” he says.

“In Germany, multi-vehicle contracts are more commonplace so you can swap into another vehicle if it better suits your needs. We will head that way as well.”

VWFS has a rental business in Germany which is a “prelude to a mobility package”, Wheeler adds. “We are looking at that model in the UK. It’s multi-use and flexible in terms of their lifestyles.”

Volkswagen Group Leasing is already enjoying more personal contracts business in the UK both for smaller businesses and private buyers, a clear sign of the move from ownership to monthly rentals.

Tilbrook says: “People are used to this with their mobile phones – it’s becoming part of the culture.”

It also opens up further opportunities in the consumer sector: “We see our competitors trying to get into it but we are already there,” he adds.

New role at VWGL

With much of the growth expectations over the next couple of years placed on the shoulders of Tilbrook, what does he make of his new responsibility at VWGL?

“It’s a new role for me and a new role for the organisation. It’s for us to build; the expectation is that it will be a very successful partnership,” he says.

Tilbrook spent a decade as ING Car Lease managing director, overseeing the acquisition of Appleyard Vehicle Contracts, before moving to Alphabet after the two companies merged to act as integration director. Latterly he was managing director of residual value pricing experts Glass’s.

Such a CV suggests that organic growth may no longer be the only way VWGL intends to expand. Tilbrook doesn’t take the bait.

“Our biggest challenge is to grow organically,” he says. “We will look at acquisitions if they are beneficial to the group but the leasing sector is stable so our business priority is conquest wins and to target channels where there is a low take-up of leasing.”

He adds: “There is still a high proportion of outright purchase – around 45% of cars. Most of our SME conversions were largely from outright purchase.”

To be successful with larger corporates, contract hire companies have to balance a competitive leasing rate with a high-quality service. In the past VWGL has arguably focused too much on the former and not enough on the latter, hence Wheeler’s earlier comment about expanding the breadth of services available to fleets.

Tilbrook puts it slightly differently, suggesting that parent company VWFS had simply focused on the easier wins of a captive retail audience through the Volkswagen Group franchised dealer network.

“There has been a large reliance on retail; we are under-represented in corporate for a company of our size,” he says.

“But the support from the parent company is now focused in this area.”

His priority is to build the capability of the business – although he admits that the organisation is already “pretty good, and better than I expected” – and improve its awareness in the marketplace, not least as a multi-marque funder for both cars and light commercials. Around a fifth of the risk fleet is non-Volkswagen Group brands, up from just 5% in 2010.

“The big challenge is awareness – for example, that we are multi-marque. We have a number of sole supply customers, especially corporates, that need more than Volkswagen products,” Tilbrook says. “If we are set up with fleet management and outsourced services, we have to be able to offer more than just group brands.

“We are seeing a growing trend for companies to work more singularly with a partner that can meet all of their requirements for leasing and fleet management. We are developing our organisation to be the most optimised for a sole-supply agreement.”

Sole supply and outsourced services requires a trio of services, people and products – with an emphasis on people, Tilbrook adds.

“You have to be able to handle drivers in a particular way,” he explains.

“We have that heritage with our SME business where we look after customers that require a high level of service – they have no fleet manager and they want a direct service today. We can provide that.”

The proposal in many ways is a simple one: to ensure drivers and their workloads are optimised, keeping them mobile. The solution is more complex and, for VWGL, will incorporate all elements of its parent company’s expertise, from banking to leasing, fleet management to insurance.

The leasing division remains VWFS’s fastest growing, and is likely to remain so for some time, according to Tilbrook, despite some naysayers forecasting the demise of the corporate sector.

“Leasing is here to stay and the company car is here to stay,” he says. “It’s in a good place and that gives us stability and confidence in our future.”

Insurance ‘is a growth opportunity’

Several leasing companies are  looking at launching car insurance as  a supplementary service to funding; Volkswagen Group Leasing already  has access to such a service through  its parent company’s insurance division.

However, success here isn’t as straightforward as some suggest, claims Ian Tilbrook.

“Insurance is an opportunity but it has to be packaged in a way that is competitive,” he says. “Companies typically buy vehicle insurance  packaged in with other insurance,  such as property. It isn’t segregated.

“We are looking at it through our in-house insurance business where we can offer full insurance cover for companies, from cars to property – this is the real growth opportunity.”

VWGL is also looking at ways to better exploit its in-house accident management service with fleet customers.

Tilbrook says: “Others outsource it in a drive for efficiency; I think we can offer a better level of service by managing it with our own resources.”

Need for ‘Transparency and trust’

Volkswagen Group Leasing takes a “prudent view” on residual values, according to Ian Tilbrook.

“We have a lot of information we can use to track for future residual values,” he says. “We have a robust policy; we have good cost of funds and an efficient organisation so we are competitive. We also have a large fleet to build a quality residual value function.”

The fleet sector is divided between companies that continually shop around for the best price and those that opt for a sole supply arrangement, the latter of which Tilbrook describes as a more “structured partnership approach”. They tend to be outsourced contracts, with fleets demanding good value – which means service, price and cost.

“Why don’t all fleets do sole supply?” adds Tilbrook. “Most believe in it as a concept – it’s an efficient way of working – but they have a fear about not getting the right deal. We have to have a mechanism to show there is a cohesive pricing structure. We have to satisfy them so they don’t have to shop around: that means transparency and trust.”

Major manufacturer players in the leasing sector

Different models have applied to the approaches taken over the years by vehicle  manufacturers to the leasing sector.

Ford Credit (35,000 vehicles), Peugeot Contract Hire (30,000 vehicles) and Vauxhall Master Hire (25,000 vehicles) were all top 10 players in the first FN40 in 1994.

Subsequently, other manufacturer-owned leasing companies came to the fore – including Daimler-owned Debis Car Fleet Management, which entered the UK  market in 1998 with the acquisition of Masterdrive Leasing and Rental before rebranding first as DaimlerChrysler Services Fleet Management and latterly Mercedes-Benz Financial Services.

A white label strategy by other manufacturers has contributed to the expansion of ALD Automotive in recent years as its brands include Chevrolet Lease, Ford Lease, Hyundai Contract Hire, Kia Contract Hire, Mazda Contract Hire and Vauxhall Leasing.

Meanwhile, Mercedes-Benz Financial Services (43,031 vehicles) last year announced a partnership with Leasedrive.

It leaves BMW-owned Alphabet – which entered the FN50 in 1998 following the manufacturer’s acquisition of Rover and the exit of the latter’s leased vehicles from the British Car Contracts’ fleet – as the leasing industry’s largest manufacturer-owned provider, followed by Volkswagen Group Leasing and Citroën Contract Motoring.