Fleet News

Industry insight: Alphabet and the relationship with BMW

Alphabet: BMW’s own spaghetti soup of a leasing company – or a serious multi-marque player?

It’s certainly serious enough to have made impressive progressive over the past three years, even though it has climbed just one place up the slippery pole of the FN50 leaderboard.

In 2005, Alphabet was the 13th biggest contract hire company with 28,000 vehicles on its books.

A year later, the company had trodden water: 13th, but the company’s book had gone up to 36,470 vehicles.

And now, in the 2007 list, Alphabet is 12th, but this time with 40,588 vehicles: a 45% upswing on 2005.

Richard Schooling

Some result. No wonder, then, that Richard Schooling, commercial director, was smiling when I met him.

Just the day before our interview, BMW had recognised this achievement by promoting Richard to chief operating officer, with increased responsibilities for BMW Group Financial Services.

Also with Richard was Mark Sinclair (left). Mark takes over as head of Alphabet from Richard.

Trained as a chartered accountant, and with a CV that includes BMW Financial Services and seven years with Alphabet, we’ll be hearing more from Mark in the future.

So, two for the price of one: can’t be bad. Fleet News should get the proper low-down on Alphabet, then.

Let’s start with Alphabet as a multi-marque leasing player.

I always thought Alphabet was a good way of disguising the company’s owners, because it distanced the contract hire company from the holding company’s own products.

But is Alphabet serious about being multi-marque, or is Alphabet just another channel for selling BMWs?

“Calling ourselves Alphabet obviously helps. And while we fund all BMW management cars, we do have very good relationships with the likes of Lexus, Audi, Mercedes-Benz, Nissan and Volkswagen. Being called Alphabet certainly helps with any political sensitivities there,” says Richard.

“But we must have strong relationships with these manufacturers to operate as a multi-marque company.”

But surely the lustre of the blue and white BMW propellor plays a part in the attractiveness of Alphabet to companies?Mark Sinclair

“Well, yes and no,” counters Mark. “In some ways BMW is so powerful as a marque it often outweighs any advantage. But, on the other hand, it does give us financial stability.

“The other thing is, we don’t do special deals on BMWs, even though that’s the market perception. Other companies can get better discounts than us! But obviously we have a focus on BMW so we do well on contract hire with them.

“But really the customer decides where the value lies. For example, Alphabet has one of the strongest residual values in the market on Audi. In fact, we’re strong on all the premium brands,” continues Mark.

“Our cars have a good reputation in the used market. They are rarely over three years old, they’ve been well looked after and have a low mileage.

"That gives us an edge in RV setting. Only 25% of our used cars go to auction: the rest go to dealers or used car buyers.”

So, multi-marque, but with a distinct German upmarket flavour seems to be the Alphabet deal.

Certainly, for a young company – just 10 years in the market – Alphabet has a very confident tone of voice.

“I think that, when we started, we had the opportunity to create something new based on the experience of older players within the industry.

So we’ve had a confident voice from the start and that confidence is also expressed visually in the way we present ourselves,” reckons Richard.

“We’re also confident in the way we approach customers. We’re about long-termism, doing what is right for the customer.

"So that might mean we’ll challenge blue-chip tenders. We might be harder to deal with, but the answer isn’t always yes. You don’t want to store up problems for later on.

“We’ve certainly never lost a company on service, although we have lost a customer because we weren’t big enough.

"So FN50 size does matter to some customers – but it’s the service delivery that is critical to us.”

That’s useful to know. But how else can Alphabet help fleet managers?

“Running a fleet is all about the basics,” replies Richard. “It’s about getting some of the softer issues right which is an area where we can help. Let’s take the environment – today’s hot topic. How should a fleet manager tackle this issue for their company?

“Go out and plant trees? That’s such a cop out. It’s a case of educating people.

So we use Deloitte’s wholelife cost tool to identify the greenest cars; we have Fuel Sense, a driver’s guide to more economical driving.

There are lots of little tricks – like turning off your engine if stationary. These are all things that a fleet manager can get his drivers to do now.

“I think the other area where we’re strong is helping fleet managers with staff employment incentives.

"On the one hand you have sophisticated fleets that have either a company car scheme, or a structured employee car ownership (ECO) scheme. Or both. But in the middle are those companies that offer just cash.

"How can you service these customers properly? How can you keep the staff happy and motivated? But how can the company fulfil its duty of care and stop their staff just wandering into a dealership looking for the lowest-cost deal?

“I would advocate that fleets didn’t offer cash, but an ‘ECO-lite’ product. It’s not tax based. It’s a scheme where employees can take the cash alternative but under the employer’s own rules.

“It’s a case of the market maturing and understanding how best to service these changing requirements. That’s very much the case with my new job.”

Looking ahead, it will be Mark’s responsibility to push Alphabet further up the FN50 ladder. Will they scramble up to 11th?
“We’re looking for stable growth. I think if we find a couple of blue-chip companies in 2008 that would be good.

"Bigger businesses tend to play to our strengths: breadth of financial products and service delivery. It’s a good way to enable growth for us.”

Alphabet re-order

Richard Schooling, formerly Alphabet’s commercial director, is now chief operating officer of the company.

In addition, he has director level responsibilities for BMW Group Financial Services – a group with a portfolio worth £4billion and is an umbrella organisation for six separate businesses, each with its own head.

These are:

• Alphabet: the contract hire company.

• Alphera Financial Services: retail finance for non-BMW franchises.

• BMW/MINI Financial Services: dealer-based financial products.

• Insurance: from motor to life.

• BMW Bank: BMW/MINI credit cards.
• Rolls-Royce Financial Services: dealer-based financial products.

Schooling’s new responsibilities include group marketing and group pricing. “My role is to make the business scaleable and prevent duplication of management,” says Richard.

“There is a steady erosion of the boundaries between fleet and personal leasing, and retail and commercial finance channels. As a group, we are well placed to anticipate the effects of these market changes.”

Alphabet’s first deal
Richard recalls the first sale Alphabet ever made 10 years ago. It was for a Hyundai Coupé, a Fiat Coupé and two Ford Mondeos. The model mix has broadened since then, he assures us.

Schooling’s tips from the top

Golden rules for success
Honesty: it’s simply a question of doing what you say you were going to do.

What makes Alphabet tick?
Have fun doing things well. It’s a unique part of the way we work.

And a bit of advice for fleet managers?
Don’t get taken in by people offering a great deal today that’s not sustainable tomorrow. And don’t overcomplicate the tendering process.

What’s the best piece of advice you’ve been given?
Respect customers.

ECO car or company car: what do you drive?
Well, it has to be an ECO car from us! I currently drive a BMW X5 but I’m moving to a 3 Series Coupé next.

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