One development helping to boost LeasePlan’s cross-border appeal is a new remarketing system which enables it to sell cars in other markets to expand the potential buyer base.

“It’s small at the moment and the service will be bigger in mainland Europe than here, but it increases the customer base and gives us more control,” Brennan says.

“We are looking to increase our channels to market on the back of the internet to ensure we get the best net yield.”

Net yield is total profit minus total costs and takes into consideration elements such as speed of sale. LeasePlan is keen to take a more intelligent approach to remarketing, one which includes weighing up the cost of accepting a lower re-sell value at auction than budgeted versus the losses caused by re-showing the car at auction at a later date.

Its open book policy makes maximising residual values crucial. A large proportion of customers have profit share agreements whereby if the vehicle achieves a better than budget price, a proportion of the spoils is shared with the fleet.

“If we get the price wrong, we lose not the customer. But if we get it right, we share the profit,” Brennan says.

The percentage can vary from zero to 100%, although a higher return will be reflected in the lease rate. The figures vary by industry sector. However, those facing tougher economic conditions tend to opt for the lower front end lease and little or no profit share.

“More and more customers are looking for transparency from their leasing supplier. They value open contracts so that if we have been too conservative then they will get some money back,” Brennan says.

“It alleviates the risk that they have overpaid.”

The intention, of course, is to get the residual value spot on. This dark art of price setting is easier to achieve with common fleet vehicles, such as Volkswagen Golfs or Ford Focuses, where the level of accuracy is generally +/-1% than it is with more niche vehicles where the margin of error is wider.

Manufacturers, themselves, can also upset the equation by taking unexpected action to force the market, typically by pumping large volumes of unsold stock into the short-term daily rental sector.

“If the manufacturer distresses the business model in a way we hadn’t foreseen, that affects the residual value,” Brennan says.

“If we see a car that is being actively distressed we will reduce the residual value. We have had conversations with manufacturers that aren’t happy about that. But it’s our residual value and we have to react.”

LeasePlan adjusts its valuations monthly on an individual car line. Each quarter it reviews everything: residuals, maintenance and all financial products. It used to do this every six months, but the market has become increasingly dynamic so the company needs to react more quickly.

Brennan has seen some aggressive action by certain manufacturers in recent months, although not enough to give cause for concern. He is keeping a close eye on registrations data and believes the market is heading towards 2.1 million this year, up on 2012 but still a long way short of the 2.4m peak of 2007.

This will ensure an on-going shortage of used cars which will keep residuals strong. However, any uplift in sales beyond 2.1 million could unsettle the market.

Throughout the economic downturn, LeasePlan has been able to grow its risk fleet and managed business every year. It is halfway through a five-year plan which set out a target of 150,000 vehicles under management by 2015; it’s already at 145,000, of which 135,000 are funded.

“Our scale gives us access to competitive rates of funding which enables us to offer sharp pricing,” Brennan explains.

“When we go to see customers we say that we have the best service and we have independent proof of that . We have to continue to build our reputation.”

'There will be more M&A activity in the UK'

The UK market continues to be highly fragmented compared to other countries despite the acquisition activity of recent years.

It’s a major challenge for LeasePlan which is the second biggest leasing company but has just a 10% share of the market. In other countries, its share as either the market leader or number two is typically 50-60% and it is competing against two or three other companies.

David Brennan believes one explanation, in addition to the size of the UK fleet sector, is the massive funding required to run a leasing company.

“To buy a leasing company you have to be confident that you can fund it in the future. That means the sector doesn’t consolidate,” he says.

“There is also a gap between buyers and sellers – sellers are pricing too high because the residual value market is strong.”

Nevertheless, Brennan does anticipate further merger and acquisition (M&A) activity in the coming years.

“If the economy continues to be strong and funding continues to be available, there will be more M&A activity in the UK,” he says.

“There are plenty of potential buyers – overseas investors, private equity companies, manufacturers that are looking at the BMW and Volkswagen ownership models, leasing companies like us… everyone is looking for the right opportunity at the right price.”