Fleet News

Special feature: Motability

Special feature: Motability Considering that, as head of Ford’s fleet operations, he pulled the Blue Oval out of Motability because of serious reservations over the way it was run, it is ironic that Mike Wear now finds himself running Europe’s largest fleet.

But then the Motability Operations of old was a very different beast to the one that chief executive Mike Betts and manufacturer and dealer relations director Mike Wear now oversee.

Riven by red tape and bureaucracy, with a vast cost base, dictatorial in the way it sourced and leased vehicles, with a disposal system struggling to manage the 130,000 cars coming back each year, Wear admits that there was plenty of work to do when he joined from Ford in 2003.

It was fortunate then that Betts, who himself had only become chief executive the same year, had already embarked on a massive programme of sweeping reforms and changes.

Wear remembers: ‘When I joined, Motability was in the middle of a programme called ‘Together’, which was effectively a huge change programme. This sort of program can be very ‘surfacey’ but this was real stuff. Under Mike Betts we went from 930 people to just under 600, which is dramatic.

‘Costs were reduced by 25%, outside of headcount. Virtually the whole of the senior management changed.’

One of the major issues the operation was grappling with was the new responsibility for disposal of its cars. Heading Ford’s fleet operation at the time this happened in March 2002, Wear didn’t believe there was enough knowledge in the organisation to manage the defleeting of hundreds of thousands of vehicles while maximising their residuals.

He said: ‘Suddenly there were 130,000 vehicles a year to dispose of, with most in a relatively narrow window of upper B and lower C segments. That’s a brave thing to do with no experience, coupled with the market conditions at the time.

‘When I was at Ford, I took the decision to resign from the scheme for a couple of weeks because we weren’t happy with the used car activity. We certainly don’t want to go back to the bad old days.’

So the new slimmed-down Motability, operating from its building by the Thames, right opposite the Financial Times, set out on a new era.

New operating practices similar to those employed by major leasing companies, the adoption of technology to cut down on paperwork, a more ‘touchy-feely’ relationship with dealers and manufacturers and more expertise in disposals has ultimately led to success in the area that defines its existence: getting more and more disabled drivers mobile.

Wear said: ‘It’s a massive operation. It’s been a fantastic scheme in what it has allowed disabled people to do more in terms of mobility. There’s a lot of passion and it’s hugely supported by Government.

‘It’s a not-for-profit business, but if it was it would be up there in the FTSE 100 in terms of turnover, which last year stood at £900 million, with £2.5 billion of assets. And we will hit the £1 billion turnover mark this year because the fleet size has grown. At the moment we have 425,000 vehicles, but this is likely to grow to 450,000 in the course of this year.’

Wear reckons the biggest obstacle to growth is awareness. In a survey of the 1.7 million people qualified for the scheme, 55% knew nothing or little about it and even more had little understanding of what was involved. That means only 30% are benefiting from its offering. And to reach those other potential ‘customers’ will prove difficult. If you are selling a specific item, you can usually get to specific sections of the population through targeted marketing channels.

But disability is no respecter of age or class.

Wear said: ‘The marketing challenge is that those 1.7 million people are spread all over the country so reaching them involves us working very closely with the dealers as they are out in the field, so to speak, with open days, advertising and the like.’

To hear Wear speak, it sounds as though Motability is touting for business. Does that mean it steps on the toes of potential retail or other fleet sales?

Wear reckons quite the opposite, claiming it is Motability’s unique nature that makes it especially attractive to manufacturers. He said: ‘We do know the majority of Motability users would not normally be in the market for a new and nearly-new car, so there’s the attraction to the manufacturers because it’s incremental business.’ Getting those residual values right is key to a successful operation – that way everyone’s a winner

THE Motability fleet is thinking much more like a leasing company now, and the monthly rentals reflect that: if a car does not have the manufacturer support and strength of residuals, it will have a high monthly lease.

As a result, getting the residual value predictions right are vital. If you are defleeting 130,000 cars a year, getting it wrong can have devastating financial implications. Motability predicts its own residual values, based on CAP figures, but its fleet is unusual in that most of its cars are fairly low mileage: 24,000 is the average after three years, and the vast majority either go back into dealers via its defleeting arm MFL Direct, who like them as low mileage, one careful owner used buys. Any that do not get sold back into dealers go into auction.

And a new strategy with customers has proved beneficial to residuals. Wear explained: ‘Customers used to be penalised for every scratch and ding – draconian habits where they became frightened. We’ve relaxed those, but not to the detriment of residuals. There is now a good condition bonus of £200 for returned vehicles and half of our customers managed to get that in the first year.

‘We need to encourage good habits and this has been dramatically well-received. ‘There’s an element of self interest obviously but we often see customers invest that £200 into their next vehicles. Everyone wins.’

Why car manufacturers just love Motability’s business

So how come manufacturers are so keen on Motability business? The hoary old cliché is of carmakers halfheartedly dumping all their unwanted vehicles into Motability, and that the used market takes a collective gulp as all these unloved cars flood back into the market.

Wear is adamant that with the new, slicker organisation this is not the case: lots more manufacturers, desirable cars, all remarketed properly. There are now over 3,000 models to choose from, from mini MPVs to 4x4s to convertibles.

‘The portfolio of manufacturers has been expanded. We’re now doing business with firms like BMW, Skoda, Saab, Daihatsu and Proton. Previously they were on the scheme but dormant,’ he said.

‘It’s been a big undertaking – manufacturers had to retrain dealers and there have been some spectacular successes. Look at Saab – they are not cheap cars, but they have been very popular on the scheme.

‘Manufacturers are key. We don’t have oppressive pricing rows with them. There was big change – we had to get the manufacturers and dealers wanting to do business with us rather than because they had to as it was a big slug of the market.

‘We try very hard to work with manufacturers on a partnership basis. We have got a big scheme and it has shown dramatic growth over the past couple of years.

‘The central thing is nobody’s forcing anybody to do anything. It’s a business proposition – we say these are the vehicles we’d like to offer and at these prices – it’s up to you to decide if you want to do it. We don’t wave a big stick, we don’t row. That’s one advantage of coming from Ford – the relationship was broken and I was on the other side, so I could see what was going wrong.’

Things have certainly changed. The leopard has changed his spots: Wear is especially complimentary of his lifelong foe, Vauxhall, which recently won the best manufacturer at the Motability awards.

He said: ‘Vauxhall is our biggest supplier and has proved itself to be remarkably businesslike, proactive and flexible and has the best links with its Motability dealers.

‘It was ironic handing Vauxhall, and Maurice Howkins (Vauxhall’s director of fleet sales), the award: he’s your mortal enemy for 30 years and then he’s your best mate!’

Encouraging dealer relationships

Another part of the massive change in attitude was in the relationship with dealers – the key channel for selling and supplying cars to customers.

Wear said: ‘The dealers were saying there was nothing in them for it. It was complicated, with no margin.

‘It was vital to get consistent good quality service from dealers. In the past it could be patchy and it has to be the same across the country.’

So the Motability Dealer Partnership was started in 2004 which set out how much a dealer would get for each sale, plus an ongoing service charge, internet-based control systems and a shorter payment periods to aid cashflow.

There are numerous dealer seminars, updating them on the strategy and plans, attracting 2,000 people. Wear says the increase in enthusiasm is tangible.

It was a worthwhile investment from our point of view,’ said Wear. ‘We swept away most of the paperwork in 2004. Now 96-97% of vehicles are online making it very simple. Dealers are also paid within three days rather than 19. And customers don’t have to sign anything – it’s all done with PIN numbers now. There used to be nine different paper forms they had to sign before, which is confusing for a lot of people.’

So where next for the new improved Motability? Estimates suggest that in 2008 there will be 1.9 million recipients of the higher rate disability allowance. Market share for take-up of the Motability scheme peaked at 28% of a then 1.3 million people in 2002.

Wear believes there is again no reason to have 28%-29% in 2008, which means a fleet size of nearly 600,000, a staggering figure that will be vindication that not only is Motability the biggest fleet in Europe but one of the best run too.

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