Arval sets up China JV

Champagne corks were merrily popping in Shanghai, China back in June as Arval, a subsidiary of French banking giant BNP Paribas, signed a joint-venture deal with Shanghai Ba-shi Car Rental Service. With a 5,000-strong fleet of vehicles leased to businesses of all sizes, the latter is said to be the city’s biggest full-service leasing operation.

‘We want to ally the strengths of the two companies to create an enterprise that will become the leader in full-service leasing in China,’ Arval chief executive officer, Philippe Bismut says.

‘This partnership is another key milestone in the group's development plan so far as the Asia Pacific region and China in particular are concerned,’ says BNP Paribas Asia Pacific chief executive officer, Eric Raynaud. ‘China represents a key market for us.’

Active in China for two years, Arval signed a partnership agreement with the Bank of Nanjing in 2013. At present the Chinese contribution to Arval’s coffers is comparatively modest, but Bismut, Raynaud and their colleagues are clearly convinced that this will not always be the case.

Car registrations in China, now the world's largest car market, rose by 12.3% in the first half of 2014. Fellow French group PSA Peugeot Citroën saw its unit sales rise by 28% thanks to the positive performance of joint ventures Dongfeng Peugeot Citroën Automobile and Changan PSA Automobile.

China is not the only global market outside Europe with growth potential so far as Arval is concerned. With its own operations in 25 countries and present in 14 more through partnerships, the company leases almost 700,000 vehicles to customers worldwide and manages an additional 40,000.

Last year saw its activities in Turkey expand by 28%, in Brazil by 11% and in Russia by 8%.

All three are countries with a variety of political, economic and social problems; but such difficulties do not necessarily mean that demand for vehicles acquired under operating leases is always choked off.

Long-term outlook for Russia encouraging?

Viewed by many as a global pariah in the wake of its annexation of Crimea, suspended from the G8 group of industrialised nations and facing existing sanctions that may be followed by others of worsening severity, Russia was already suffering an economic slowdown prior to the Ukrainian crisis. Subsequent events have not helped.

‘Add to this the prospect of increased constraints on access to foreign funding and one would expect extra downward pressure on the leasing industry and increased negative sentiment among independent lessors,’ says Peter Kainradl, managing director, Austria and Germany, at White Clarke Group. ‘Yet a period of stasis in the economy could actually work in favour of alternative methods of finance as it forces businesses to be more discerning with resources and encourages them to diversify sources of funding.

‘Russian lessors are realistic in their view that the short-term prospects are lacklustre but have grounds for optimism for a return to growth,’ he adds. ‘And while auto leasing, especially of passenger cars, is low, with bank loans being the primary source of finance, the fleet segment is seeing signs of growth in leasing with increasing prospects for operating leases.’

New markets attractive for leasing majors

The fact that leasing remains a novel concept in a number of major global economies and the growth possibilities they offer when compared with more mature markets is one reason why companies such as ALD (now responsible for over 1m cars), Arval, and LeasePlan are eager to expand into them.

Active in over 40 countries from Algeria to the USA on its own account and through partnerships, ALD saw its activities grow by 67% in Mexico, 43% in Brazil, and 33% in China in 2013. ‘Whereas in the UK or the Netherlands full-service leasing accounts for over 50% of the corporate car parc, in China or Russia it’s single digits, with massive growth potential,’ says chief executive officer, Mike Masterson.

12 months ago LeasePlan set up an offshoot in Russia. ‘With the leasing market still relatively new there we intend to play our role in bringing innovation and value-added leasing services to clients in the market,’ says chairman and chief executive officer, Vahid Daemi.

Southern Europe – challenging economies

Another reason behind the enthusiasm for going global is the sluggish performance of the economies of some of those countries where Arval – now celebrating its 25th anniversary – and its competitors are more firmly established. ‘The situation remains challenging for Europe’s Mediterranean region – Spain and Greece in particular – which continue to suffer from the economic crisis,’ the company observes.

At the same time however its Belgian subsidiary grew by 10% in 2013; evidence perhaps that not all of the European Union (EU) is in the doldrums.

None of the foregoing should be taken to imply that the big leasing groups are neglecting more familiar markets in the dash for worldwide growth.

LeasePlan – new Canada operation complements US

Last January saw LeasePlan set up shop in Canada. Along with its existing operations in the USA and Mexico that means it can offer complete North American coverage, and its US and Canadian operations are working closely together.

‘They’ve partnered to create a regional fleet management solution that includes consolidated data and one-point-of-contact account management which means we can provide our regional clients with an integrated service offering,’ says LeasePlan USA chief sales and marketing officer, Jon Toups.

The current rate of growth achieved by some emerging fleet markets should not be exaggerated warned Volkswagen AG head of international fleet sales, Martin Jahn, in a recent interview with IFW.

‘Fleet business is still small in India, and while we all have high hopes for China I have to say we are a bit disappointed by the current level of development of fleet business there,’ he observed.

How can leasing companies remain competitive?

No matter whether they operate in Austria or Australia, a key question for many leasing companies is what sort of packages they will have to deliver over the next few years to attract and retain customers.

Arval is attempting to cover all bases at present with the introduction of 60-month leases back in March and the subsequent launch at the other end of the time scale of what it refers to as Mid-Term Rental in selected markets such as France, Spain and the Netherlands. Still referred to as a lease, Mid-Term Rental is perhaps something of a misnomer given that the duration of the agreements written under it starts at as little as one month with a maximum of two years.

The idea behind Mid-Term Rental is that it will aid businesses that have a short-term need for vehicles, possibly as the consequence of a seasonal surge in demand. It is a need that can also be satisfied by flexible long-term rental deals such as those offered by daily rental group Northgate in the UK.

Arval is also looking at the increased provision of on-board telematics to lessees with an eye to persuading fleet drivers to drive more responsibly. As a consequence they will hopefully burn less fuel, emit less CO2, inflict less wear and tear on their vehicles and have fewer accidents.

Mobility as a service

Lessors may have to start offering more alternatives to conventional leasing arrangements if Mobility as a Service (MaaS) starts to take hold, especially in urban areas.

‘It is arguably an idea that has already arrived via services such as car sharing and wider solutions involving multiple modes of transport booked through a single provider,’ says KPMG’s Global Automotive Executive Survey 2014. ‘Respondents from the TRIAD nations (shorthand for North America, the European Union and Japan) are the most optimistic about the potential for MaaS with a significant proportion forecasting that up to a quarter of city inhabitants will use these services by 2029 – a huge increase on the corresponding 2013 survey results,’ it adds.

The idea is less popular among the BRICs – Brazil, Russia, India and China – although they are not rejecting it entirely. ‘The likely penetration of MaaS in these key emerging markets is between 6% and 15% with the exception of Russia, where respondents have significantly higher expectations of the number of potential mobility customers in their country by 2029,’ the survey observes.

Hertz is among a number of major global rental groups expanding into MaaS, offering zero-emission and alternative-fuel vehicles as well as car sharing as part of its Living Journey sustainability programme. Its latest move is to join Spain’s Zero Emissions Mobility to All (Zem2All) scheme under which it is offering Nissan's battery-powered Leaf for hire from selected locations in partnership with Spanish electricity and gas company Endesa.

Not to be outdone, leasing and fleet management specialist Alphabet International, a division of BMW, offers a corporate car sharing programme under the AlphaCity banner as well as electric vehicles under its AlphaElectric branding. Now with approaching 540,000 vehicles of all makes on its books, Alphabet grew by 8% last year with especially strong growth in Germany, the UK and – despite its stagnant economy – France too.

European market to retain importance

While Alphabet concedes that the demand for fleet management in countries such as China and Australia will expand over the next few years it is convinced that Europe will remain its most significant market for the foreseeable future.

Operational leasing remains the cornerstone of Alphabet's business model but it recognises that there is increasing interest in flexible mobility solutions. ‘More and more of our customers are asking about them,’ says Alphabet International head of marketing and business development, Carsten Kwirandt.

Car sharing and more

In response the company has come up with Alphabet Mobility Budget, combining car sharing, cycling and public transport. It is now being offered in the Netherlands, and would seem to be an eminently practical solution for people living and working in cities such as Amsterdam, Rotterdam and Utrecht.

‘In the UK Daimler’s car2go point-to-point car-sharing scheme was successfully launched in parts of London and Birmingham in 2013 joining a number of other initiatives,’ says John Leech, KPMG’s UK head of automotive.

That success did not last however, with car2go pulling the plug on its British operation completely in May of this year citing the UK’s ‘strong culture and tradition of private vehicle ownership’ as a key reason; evidence that car sharing is not quite the panacea its advocates suggest, although it seems highly doubtful that the UK is any more wedded to car ownership than the USA. Over there, upwards of 40,000 residents of Seattle alone have registered as car2go members.

Petrol, diesel or hybrid?

Despite all the interest in electric vehicles and hybrids, the odds are that most car acquisition packages will still revolve around the internal combustion engine, albeit in downsized form says the KPMG survey. Combustion engine optimisation and downsizing was a key issue for manufacturers to address, according to 76% of survey respondents. Engine downsizing is affecting light commercial manufacturers too.

Also sold in rebadged guise as the Opel Vivaro, Renault’s new Trafic panel van is equipped with a 1.6-litre diesel. Its predecessor was fitted with a 2.0-litre.

That is not to imply that vehicles powered by alternative fuels are unimportant; but it will be plug-in hybrids rather than pure electrics that will win out between now and 2019 the survey suggests.

‘Plug-ins are becoming the dominant e-technology and are expected to take an increasing market share in future,’ says KPMG global head of automotive, Mathieu Meyer.

September will see the launch by Mercedes-Benz of the S 500 Plug-in Hybrid. It will be capable of travelling 33km on battery power alone says the manufacturer and users will be able to recharge it using wireless technology; Daimler and BMW have agreed jointly to develop and implement a single common technology for wireless recharging.

Autonomous driving

Another technological development – the driverless vehicle – could potentially make the need to acquire cars either outright or subject to a lease deal redundant in the long run. ‘The ability to order a car, have it arrive whenever you want it then have it take you wherever you want to go may make it unnecessary for you to actually own it,’ Leech observes.

Developing the driverless car and getting it into production may end up looking like the easy bit in a few years time. Devising a suitable regulatory framework plus insurance and funding packages to underpin its use could turn out to be a lot harder.