How consolidation will change the dynamics of the fleet market, by Andrew Cope
MERGER and acquisition activity in the fleet management and leasing sector is greater now than for many years. This increase in activity is not just in the number of large-scale mergers at the top of the market, there are other important trends developing within the sector.
Venture capital organisations are getting more confident and now have a greater insight and understanding of the market and even overseas investors are looking to gain a toehold in the fleet arena.
Two of the companies currently sitting just below mega-company Lex/HBOS in the FN50 league table (the Fleet News list of the top 50 leasing companies by funded fleet size. Click to see list*, right-click to download
) are likely to merge within two years. This activity will eventually change the dynamic of the market.
Many large financial institutions will be questioning where they will sit in the new-shaped market. They will be wondering whether fleet operations are core or non-core and if they form part of their wider development strategy.
For the smaller player, however, all is far from lost. Even with the creation of a new premier league of one or two, maybe three, very large players, the fundamentals of the market will remain unchanged.
It is difficult to extract real economies of scale simply by creating volume in terms of fleet size. Just because you sell a lot of cars, it does not mean that you can make your cars worth more than the company selling far fewer. The important performance variances are down to the skill, experience, knowledge and systems that a company can bring to its various fleet operations. The same is true for many other elements that go to make up the standard vehicle contract hire quotation for vehicle fleet funding and management.
The market still remains broadly fragmented and all the while the requirements of many customers are becoming more sophisticated and bespoke. This fragmented and service-orientated reality bestows certain advantages on smaller faster-moving niche players.
The market will polarise into two main groups. On the one hand, consolidation of the major banking and manufacturer groups will continue, thus creating several large players; while the private equity involvement will drive consolidation and growth among the smaller - but important - niche service providers.
Looking ahead, the choice will be between those companies playing a high-value, bespoke service game and those trying to drive growth through a volume scale agenda.
Andrew Cope is chief executive of Zenith Vehicle Contracts
The FN50 top five, 01.08.06
1. Lex, 258,586 vehicles
2. Lloyds TSB autolease, 132,952 vehicles
3. LeasePlan, 117,200 vehicles
4. Lombard Vehicle Management, 111,059 vehicles
5. Masterlease, 99,000 vehicles
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