Fleet News

Big is beautiful in the world fleet market

SIZE and scale have become critical issues for leasing companies as the shape of the global motor industry changes beyond recognition.

Customer demand for international supply arrangements, expensive IT investment requirements, and the opportunity to leverage international buying power have combined to fuel the 'big is beautiful' concept.

Moreover, significant scale strengthens the defensive position of independent leasing companies as car manufacturers reposition themselves as automotive service providers (although this security may not become fully apparent until the September 2002 expiry of the current block exemption that governs car distribution across Europe).

Lease Plan has already started to implement a strategy that will ensure it is a major international force in full service leasing for years to come, having revealed plans to buy Dial. It is also understood to have an American leasing firm in its sights.

'In certain markets we decided that scale was important because of the power it gives you to negotiate with suppliers and to leverage your fleet management costs to provide lower costs to your customers,' said Vahid Daemi, chief operating officer of ABN AMRO Lease Holding (Lease Plan's parent).

'It's never been a secret that the Lease Plan group has been interested in being in a leading position in all the major markets,' he said.

Expansion will also allow the group to amortise its IT investment costs over a larger worldwide fleet, and enable it to compete with manufacturers' captive leasing companies if car makers start to bypass dealers and sell directly to customers in a post-block exemption world.

'Scale is important because if you are in a position to compete with manufacturers then you can compete,' said Daemi.

'Manufacturers are certainly getting more interested in leasing because of the extra value chain it creates for them.'

Scale is now measured in global terms and ABN AMRO Lease Holding is assessing investment opportunities for Lease Plan in Eastern Europe, Asia Pacific, and South America.

Balancing Lease Plan's global vision with local service delivery is one of the main challenges facing Daemi, as the group pursues its preferred development strategy of launching start-up operations in new markets.

He acknowledged the need to find a compromise between local entrepreneurship and central control to ensure group objectives were shared across all countries. This occasionally requires local operations to put the interests of the group ahead of their own profit and loss concerns, and devote the time and resource to service an account that would not normally qualify for such terms or attention if it were not part of a bigger deal.

'If a customer has a global deal and in one country has a large number of cars, but only has a small fleet in another country, the treatment of the customer should be the same in both countries,' said Daemi.

He argued that only corporately-owned networks can guarantee this continuity of service through issues such as pricing, invoicing, customer satisfaction reviews, and the provision of management information.

'If you do not own companies you cannot influence these processes to the same degree,' he said.

Local service delivery of full service leasing also depends on the relative sophistication of national markets, although participation in global contracts is exposing Lease Plan's newer operations to best practice from the group's longer established companies.

'Internationalisation is really happening, and it's amazing how quickly,' said Daemi. '60% of our growth has come from global contracts and of the 50,000 cars added to our fleet, excluding acquisitions, 31,000 of them were from global deals. Countries are maturing and it's not taking them as long as it did in the first markets. We see that countries that are not mature will reach the same stage as the Netherlands or UK within five or six years.'

This process is being accelerated further by the centralisation of certain departments common to all Lease Plan operations, such as marketing, sales tracking and database management, purchasing and IT development. Daemi can even envisage a situation where a single call centre would provide direct driver support to all Lease Plan customers wherever they may be.

'We are looking at ways in which we can more efficiently serve our customers, but the most important thing is to make sure we meet customer expectations on a local basis,' he said.

The terms of many pan-European and global contracts reinforce this position as multinational fleets shy away from imposing a single supplier on all their subsidiaries. Without central enforcement, international agreements simply signal the start of negotiations between supplier and customer on a local basis.

'Winning the tender just secures a local introduction - it's really a double sales process,' said Daemi.

This second sales process against an incumbent supplier will undoubtedly have a strong price element, mirroring the money-saving focus of the majority of international fleet tenders.

Yet the opportunity to achieve major fleet savings lies with the end customer, rather than its leasing provider whose management fees account for a tiny proportion of the total cost of running a vehicle.

'We can charge the same margins across Europe, so although prices may differ between countries because of tax and costs, the margin we are making on them is the same in all countries,' said Daemi.

'We have not found one case where we could not reduce a customer's fleet costs, but the customer may not want to change its company car policy, particularly if it has a strong human resource element.'

In the longer term, however, he predicted that vehicle manufacturers will eventually drop their resistance to signing global supply deals with international leasing companies, paving the way to significant savings for multimarque fleets — Lease Plan is already leveraging its purchasing power for the supply of tyres and windscreens.

'We want a partnership with manufacturers. Partnerships with all our suppliers and customers are the most important things to our business,' said Daemi. (May 2000)

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