Fleet News

Facing up to new Euro challenges

IN this special feature, Tony Elliott, European Sales Director, DaimlerChrysler Services Fleet Management, looks at changes in European fleet strategies and the challenges and opportunities that European fleets face in the future.

##Tony Elliott--right## 'Running a vehicle fleet on a classic pan-European model, controlled from a central purchasing point, creates tremendous opportunities for efficiencies and cost reduction. This has been the established line of a number of multi-nationals operating in Europe.

Some, most frequently from the USA, also made the mistake of believing that they were doing business in a European federal super-state rather than a grouping of differently constituted and regulated nations.

The introduction of the Euro as a common currency over much of Western Europe further encouraged companies to bundle their European purchasing power to get the best prices. But while everyone agreed with, or at least paid lip service to, the concept of single pan-European fleet strategies, inevitably local issues involving tax, commercial practice and market conditions created barriers to conformity.

So, what was accepted doctrine two to three years ago has now been tempered with time and experience. Corporate fleets are no longer so eager to seek a one-stop-shop across Europe from a single supplier, but tend now to select more than one company, taking note of which is strongest and offers the best service in the particular countries in question.

A new strategy of seeking a co-ordinated approach rather than imposing iron controls has therefore emerged and is proving successful. It recognises that applying a commodity method of purchasing to something as complex as full service leasing is likely to run into trouble.

Leasing providers are being asked what they're good at doing and where they're best at doing it; so local issues have a much better chance of being identified and solved. In fact, full service leasing may not be the best option for every European country.

For instance, the services element of leasing is taxed in the Czech Republic and is therefore not recoverable. There are also other European regional variations to contend with, such as Denmark's luxury tax and the different vehicle specifications available.

A more flexible approach to pan-European fleet outsourcing has meant that a 'letter of intent' or 'memorandum of understanding' has to a large extent replaced the 'master hire agreement” and the idea of the single European car policy has been put on the back burner for the present by the most realistically minded multi-nationals.

This accommodates the European leasing market's regional variations and also recognises the different levels of maturity that currently exist.

Challenges and opportunities

Eastern Europe, because of its political history, lags far behind the more commercially sophisticated countries in the EU. But the market potential is huge.

The leasing industry has been at fault here for believing that it has already penetrated that market, when the truth is that it has been primarily dealing with the local offices of multi-nationals that have already absorbed Western Europe's financial practices.

Operations are frequently being run remotely from other countries and high margins are being made that are not being invested back into creating infrastructure or educating the Eastern European market. This, in time, could work against the leasing industry. It could, unwittingly, be biting the hand that's feeding it.

A more immediate issue has come with the Basel II Accord, due to be implemented in 2004, by which banks will be insisting on the declaration of previously off-balance-sheet assets. The UK is currently following the lead of the US Accounting standards board, which is thought to be softer on this issue, and this is bound to lead to conflict with the rest of Europe.

The impact of Basel II is likely to be very significant and is difficult to fully assess at present. However, I believe that fleet management companies need to concentrate on promoting the total benefits of their products, rather than going for the easy sell of off-balance-sheet leasing. Otherwise, come Basel II implementation, customers may believe that the main advantages of choosing to acquire their vehicles via operating lease have disappeared.'

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