It’s a nice round figure, 100,000. That’s the number of vehicles Lex Autolease wants to add to its risk fleet as part of a rolling five-year plan.
Managing director Tim Porter set the target after joining the vehicle leasing division from parent Lloyds Banking Group 18 months ago; D-day for completion is 2017.
Ambitious? Put into perspective, that growth alone is bigger than all but four of the leasing companies in the FN50.
So far, Lex Autolease has added 27,000 to its risk fleet in a little over 18 months, just over a quarter of its target. The company now needs to achieve an average rise of 24,000 vehicles a year for the next three years.
If it does this, it will end 2017 with a risk fleet of 375,000, although the next phase of the rolling five-year plan will see Lex Autolease break through the 400,000 mark a year later.
The strategy is centred on five key pillars. Three relate to target customers – SMEs, business critical fleets and ‘mega’ corporate fleets; two relate to the company’s internal processes and efficiency measures – the recently-opened Coventry remarketing centre and digital. Existing customers will also contribute to growth. “The efficiency measures are key to ensure that our growth is profitable,” Porter says.
Has the company bitten off more than it can chew? Porter believes not. It is, after all, his plan.
“100,000 is our ambition. We have the plans to deliver it and we have the investment to deliver the plans,” he says.
“I’m the first to acknowledge that it’s stretching. Some will be share growth from rival leasing companies; some will come from expanding the leasing sector – SMEs and business critical fleets will increase the leasing market. This is why I think it is achievable.”
Porter rebuffs suggestions that Lex Autolease could be forced to offer excessively competitive deals if progress stutters. “It’s not chasing volume,” he says. “We still walk away from business that is not commercially appropriate for us.
“If it is not good for us, it will not be good for our customers because it leads to a compromised service.”
The SME sector – typically fleets up to 50 vehicles, although the majority run fewer than 10 – is expected to contribute an 25,000 units to the plan. It is divided into three channels.
Firstly, direct business, which is primarily referred from the bank. Historically this didn’t happen, “an obvious omission”, according to Porter. Research by Lex Autolease revealed that SMEs liked the benefits of leasing but they didn’t understand the proposition.
“We hadn’t done a good enough job of explaining ourselves in terms of cost of ownership, end of lease and servicing programmes,” says Porter. “We had to unpick our leasing proposition and repackage the deal to give them key details such as cost, value and peace of mind.”
The referrals process is being backed with a considerable investment in advertising in national press and on radio; it offers the greatest growth potential in SME.
Sustainable business package
The second SME sector is brokers. Lex Autolease has around 120 partners and they have contributed most to its growth in the SME market to-date. Although not willing to name specifics, Porter says Lex Autolease is doing a few things differently with its brokers, in areas such as aftersales back-up, pricing and trading agreements.
“It’s about making us easier to do business with,” he says. “It’s not about being just price-based; we have put together a package with brokers for sustainable business.”
The final channel in SME is white-label branded schemes. Lex Autolease has contracts with a number of manufacturers, including Mitsubishi, Volvo, Honda and Jaguar Land Rover to run their dealer finance programmes.
Pillar two, business critical fleets, refers to those companies for which vehicles are essential to carry out their operations, such as bluelight, utilities and construction. In many instances, if they do not meet their service level agreements (SLAs) they will be subject to financial penalties.
Typically these types of organisation buy most of their vehicles, particularly vans, because they feel this gives them the best opportunity to control crucial performance criteria such as downtime. Porter says: “They need the confidence that a leasing company can provide the back-up; they’ve not had that in the past.”
He points to three key criteria: provision of vehicles with specialist equipment; timeliness and constraints, and KPIs on SLAs. The Lex Autolease proposition, he claims, puts all three together within a competitive solution.
“It is a fully-outsourced solution which is where fleet management becomes more important than the vehicles: they have to be convinced that we can run their fleet for them,” Porter says.
It certainly impressed Balfour Beatty. The 5,800-vehicle fleet outsourced its car and van management to Lex Autolease, including a sale and leaseback deal, in July (Fleet News, July 24) after a 12-month discussion. The five-year contract is worth more than £100 million.
And it’s not the only one; Porter says three other fleets have since signed up – two were existing customers that had their car fleet with Lex Autolease and have now moved their vans across, while the other was a new customer. Fleet sizes vary from 400 vehicles to just 50.
“Balfour Beatty was a helpful development for us – it went with us before we’d completed the proposition, so we created some of the business critical proposition with it,” Porter says.
He adds: “Leasing is founded on car fleets and they are relatively straightforward. When you get into these trickier vehicles, you get under the skin of what running a vehicle fleet is really all about – it’s a proper solution for customers.”
Business critical challenges
Business critical fleets are expected to add 20,000 vehicles to the risk fleet as part of the 100,000 growth plan.
Among the specific challenges this area of business presents are some quite technical elements around aspects of the vehicle build and maintenance, Porter says.
“Take tyre provision,” he explains. “It’s the most frequent service requirement and it’s highly bespoke with type of tyre and the need to get them to remote areas within a time-critical agreement. It’s one of the first questions fleets ask about because it’s their number one SMR issue.”
What was the key selling point that persuaded Balfour Beatty to change its entire approach to fleet management?
“Price and safety, certainly not price alone,” Porter says. “Initially it’s about service provision and KPIs – it has to be confident that we can do it. It is time critical and that’s a big part of the conversation – it can make or break the deal. The conversation about price comes last.”
Ultimately, of course, price is a crucial part of the equation. Porter estimates that over the course of a three- or four-year contract, a large corporate could “save millions of pounds”.
“Any firm would expect to get an advantage with a leasing company on scale economies. But it’s not so much on the vehicle discount; it’s mainly on SMR,” he says.
However, establishing the size of the savings is not straightforward. “We are often more accurate on price than the company is. They don’t always know their overhead cost and that makes it hard to compare,” Porter says.
The final part of the customer jigsaw is the mega fleets, businesses operating more than 5,000 vehicles. Their demands can be very similar to business critical fleets in terms of assurances over service levels and the need for bespoke contracts.
The Lex Autolease forecasts puts growth from this category at between 25,000 to 30,000 vehicles. That leaves 25,000 to 30,000 vehicles to hit the 100,000 target, which will come from growth among its existing customer base.
The strength of the fleet market this year – which has seen a number of large corporates start renewing their vehicles after a long period of inactivity – gives Porter further confidence that each of his target categories will hit their figures.
“I am pleasantly surprised at the strength of the market this year,” he says. “For companies like us that are looking to grow quickly, it’s very helpful.”