Good fleet managers are “worth their salt” to their business. But their numbers have been in decline which is “a real shame”, according to Andrew Mann, managing director at JCT600 Contracts.
“There is more need for fleet managers now than there has ever been with all the complexities involved in running a fleet,” he says.
“They will come up with the best initiatives because they are in direct contact with drivers and the business internally. They have to distil a vast range of vehicles into one policy and put in restrictions to create an allowable range that makes cost-effective sense while motivating the employee.”
Mann believes fleet managers “come into their own” when running fleets in excess of 50 vehicles, although the case becomes irrefutable when running a few hundred vehicles.
“The process is always easier for us when we are dealing with a fleet manager,” he adds.
The leasing sector has endured tough economic conditions over the past four years, from the residual values collapse and banking crisis in 2008 to the double-dip recession and sluggish recovery. JCT600 Contracts, though, has emerged relatively unscathed.
Even at the depths of the crisis, the Yorkshire-based business was making solid earnings; its accounts from 2008 reveal pre-tax profits of £1.8 million on turnover of £13.38m. Groups with significantly higher turnover couldn’t match those returns.
Its franchised dealer parent company JCT600 is renowned as a prudent operator which reinvests its money. “That approach sits well with Contracts because we are a conservative business which doesn’t take massive risks,” Mann says.
Despite this philosophy, the economic conditions have forced JCT600 Contracts into one notable change: it has started dipping into its parent’s pocket to support some clients’ funding needs. Fortunately, JCT600 is cash-rich.
‘’The group has proved most supportive over the last few years as our funding model has been forced to change from agency – both disclosed and undisclosed – for 97% of our business to a mix of agency, back-to-back and group funds. This has been invaluable when the banks have stepped away from the direct support of some of our clients,” says Mann.
He describes the sector as being “as competitive as I’ve ever known”, adding that: “The gaps in pricing are huge.”
However, JCT600 Contracts enjoys an enviable position with many of its customers, built up over many years.
Contracts tend to be multi-supply arrangements where JCT600 Contracts is one of several funders, but most of its customers will offer it a second chance to win their business if its initial quote comes in too high.
‘’We have such a good relationship with our customers that they often give us a second opportunity to win their business and we agree to cut our margin,” Mann says. “However, part of our success has been in judging which business to accept and which to walk away from.’’
In the current market, this second bite of the cherry is helping JCT600 Contracts to secure business at relatively sensible rates.
The majority of its business comes “the hard way” from knocking on doors and picking up a handful of vehicles which gradually builds up as the customer relationship develops.
This approach has resulted in a risk fleet typically consisting of job-need vehicles. Most customers operate between 10 and 500 vehicles although Mann considers any size of business. His biggest is a near 1,000-vehicle fleet for which JCT600 Contracts provides the majority of the funding.
Growth is about steady organic fleet conquest. JCT600 Contracts has considered acquisition, but has not found a business that fits its structure and philosophy at the right price. However, Mann expects more opportunities to arise over the next 12 months.
“The industry has done better than expected this year because demand has been remarkably good for used cars, keeping residual values strong,” he says.
“But money for the less well structured and endowed independent leasing companies will get tighter. They are unlikely to go bust but they will probably find it difficult to maintain their fleet size and so may become prey to their acquisitive competitors.”
JCT600 Contracts launched in 1988 with no cars, no sales literature and no customers. The motivation for the franchised dealer group to enter leasing was simple: it saw rival Hartwell with a thriving contract hire business and wanted some of the action.
Mann had already been involved in the leasing sector for 14 years with the likes of Avis, Swan National and Appleyard Contracts. He became a founder member together with Nigel Stead, who went on to oversee the Lloyds Autolease and Lex merger, and Brian Kirby, now systems director.
The company employed a degree of poetic licence in its early marketing, producing a glossy brochure with pictures of cars from the group’s dealerships to create the impression of a bustling leasing operation.
It no longer needs to embellish. JCT600 Contracts has a solid customer base, many of which have been with the company since the beginning, including its very first fleet.
And while Hartwell Motor Contracts was acquired in 2000, JCT600 Contracts continues to flourish.
People are crucial to its success and the average length of service is 10 years, even taking into account the apprentices on its new graduates programme (see panel above).
Mann’s challenge is to convince fleets that he is not selling a commodity to be bought at the cheapest price.
“The vehicle is a commodity but the service isn’t,” he says. “It’s about more than just the rental price.
“We win clients through relationships and trust and once we have won them we look after them.”
Andrew Mann on...
Dealer group ownership
“The advantages are industry knowledge because the relationship between manufacturer and leasing company is different to that of manufacturer and dealer group. It can speed up processes. We are owned by a prudent and wealthy owner – and we have made our own contribution.”
“Our average recharge is £78 across all our returns but for those vehicles for which we raised a ‘fair wear and tear’ charge (19% of the total) the figure averages out at around £165. We reckon that our approach whereby we see all returning vehicles and have an independent repairer provide the estimates is unusual. In 95% of the cases where an assessment is made we commission the repair and pay the estimate i.e. there is no profit or commission element.”
“It’s a worry. The EU has a production capacity of 20m vehicles but a market of 13m. Manufacturers have to run their plants at 70% at least to be profitable. Something will have to give.”
Leasing acquisition opportunities
“We have looked at a number of candidates and backed away for three reasons: unrealistic price tag, our focus is on organic growth and it’s hard to make customers stick – if they wanted to do business with you, they would’ve done so before.”
Growing your own staff
“We rely on quality sales people.” That simple statement prompted JCT600 Contracts to set up a graduate trainee scheme last year.
It took on three apprentices, a significant commitment considering the company has just six sales staff in the field all of which are based from home. The programme is run in-house, complemented by external sales courses.
“This approach means we will have staff who know what we are all about as a business and who understand the market,” says Andrew Mann.
He expects them to be “half-fledged” within the first year, adding: “We go for loyalty which comes from nurturing them in the right way. They can make a good living.”