Making a correct prediction of who might takeover whom is an impossible task, given that most leasing companies are up for sale if the price is right.
A string of acquisitions targeting independent mid-sized leasing companies suggests that would be the most vulnerable area for takeovers, but the sale of First National Vehicle Holdings shows that leasing companies of any size are fair game in the current market.
It will certainly be interesting to watch for any developments between the two top 10 players Lex Vehicle Leasing, half-owned by HBOS Group, and Bank of Scotland Vehicle Management, wholly owned by HBOS.
Moreover, when last year's FN50 was published the largest company LeasePlan was for sale, only for its parent company ABN Amro Lease Holdings to withdraw subsequently the 'For Sale' signs.
The signs of consolidation are clear in the FN50, with the largest company listed growing to 137,000 vehicles this year, compared to 68,146 vehicles needed in 1994 to secure first place, a jump of 101%.
To be a top five leasing company, a business now needs a fleet of 90,231 vehicles, compared to 52,000 in 1998 and 39,400 in 1994.
At the same time, the smallest firm has dropped from 4,493 vehicles in 1998 (the first year the league table included 50 companies) to 2,000 this year, a decrease of 55%. The bottom five companies between them only run 13,839 vehicles in this year's table, compared to 28,500 in 1998.
Further analysis reveals even more about the true extent of consolidation. In 1994, the top 10 fleets ran 446,446 vehicles, but this year the top 10 fleets operate 862,429 vehicles, or 65% of the top 50.
By contrast, since 1998, the combined fleet size of the bottom 10 fleets has plummeted from 64,108 to 35,148 vehicles this year, a fall of 45%.
The top 25 companies between them currently command 1,192,565 vehicles, or 89% of the market, compared to 1998 when the top 25 had 916,201 vehicles and 81% market share.
The combined fleet size of the bottom 25 firms has dropped from 210,998 in 1998 to 143,529 today, a 32% fall.
Yet against this background, leasing company managing directors are not convinced that the market has completed its transformation.
Jon Walden, managing director of Lex Vehicle Leasing, said: 'The Top 10 have got about 60% of the market place, if that, and in my view that is an industry that is nowhere near fully consolidated.
'I think it will be finished when the top five have got 60% or even 70% and there would still be a bit more room to go, even at that level.'
This level of consolidation is typical of other industries, he argues, and it is only a matter of time before the leasing industry follows the same route.
This could mean as few as two to three key players serving the market, according to Andrew Cope, managing director of Zenith Vehicle Contracts. However, this could be disrupted by the large number of businesses interested in having a stake in the leasing industry, from manufacturers to banks and independent businesses.
Cope said: 'The market is very fragmented and that may be a reason for the contract hire market to continue with a large number of players. However, I think there will be fewer at the very top – significantly fewer.'
He was backed by Shankar Ramanathan, managing director of newly-expanded Lombard Vehicle Management, following its purchase of The Leasing Group's fleet.
'My gut feeling is that we are half way to two thirds through the industry consolidation and there are still plenty of organisations looking,' he said. Some will come more by the parent company being acquired than anything else and the leasing division will just happen to be included.'
But although the industry's future is being shaped by consolidation, that does not necessarily mean opting for the largest supplier is a good thing for fleet decision-makers.
'People who worship at the altar of turnover are believing in a false god,' said Walden. 'Sales are important, but they are not everything. Quality counts in this market.'
And as Mark Twain once said: 'It's not the size of the dog in the fight, it's the size of the fight in the dog.'
FN50 fleet size history (year and fleet size)
2002 1,336,094
2001 1,294,643
2000 1,256,490
1999 1,125,533
1998 1,127,189
1997* 958,266
1996* 841,490
1995* 763,838
1994* 718,084
* Figure only covers top 40 companies
New trading conditions may enhance bigger players' ability to buy cheaper
NEW trading conditions may begin to undermine the UK contract hire industry as the exception to the rule that the bigger a company the better its buying power and the cheaper the products and services it can offer.
While shoppers would expect to buy cheaper groceries from a major supermarket chain than a corner shop, contract hire buyers find there is precious little difference between the rates offered by the biggest and smallest suppliers. Moreover, a leasing company offering a competitive rate on one make and model may be uncompetitive on another.
The reasons why small contract hire firms can compete with large are due particularly to the attitude of car makers.
Manufacturers still insist on maintaining a level playing field between every contract hire company. Support or discounts are equal and available to all, with no favouritism showed to larger firms.
Car makers may increasingly acknowledge leasing companies as 'influencers', but the real customer is the fleet buyer and its driver. Not surprising then that more fleets are acting in the same way as the 2002 Fleet News Award winning Nightspeed and negotiating discount terms directly with the manufacturers and then taking these rebates directly, rather than having them factored into their lease rentals.
With car acquisition on a level playing field, the next most costly area of expenditure is finance, and even here the bank-owned institutions have failed to show that they can provide funding significantly cheaper than their rivals. But there is no reason why a bank-owned 90,000-plus vehicle leasing company would secure funds any cheaper than a bank-owned 7,500-strong leasing firm.
Moreover, with interest rates at a post-war low and finance in ready supply, the interest element of a contract hire rental is insufficient to differentiate between the rates of large and small players.
This leaves residual value setting as the principal means for leasing companies to differentiate their rates, with a leasing firm prepared to take an optimistic view of residual values able to engineer lower rates than a firm with a pessimistic residual value outlook. This is not an issue of large or small, however, but merely of risk appetite and profit expectations. Technology is also helping smaller companies to maintain similar ratios of staff to fleet size, and the development of automatic authorisation systems will further this.
However, there are two areas where contract hire buyers may find that the major players start to leverage their buying power to telling advantage in the future, and both are connected with the block exemption.
The first is in service and maintenance work and the possibility that independent garages set up huge multi-marque workshops that are hungry for work and that will negotiate parts discounts and labour rates on a volume-related basis. A similar situation has already occurred in the crash repair industry where the largest insurers and accident management firms have negotiated with the largest bodyshops competitive terms that are reflected in their prices.
The second area is in new car pricing, and the possibility that large independents will enter the car retailing market to challenge franchised dealers, when the block exemption rules relax in 2005.
Under these circumstances, these new players will be eager for leasing companies that can forward order high volumes of cars and offer attractive terms to incentivise the deal.
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