Some two years plus since the onset of the recession, here’s no doubt that the crisis and the downturn in the used car market has taken its toll on the leasing industry, with some companies having gone bust while others have restructured their business or cut it down.

And concerns still hang over the financial viability of such firms, which continue to battle with ongoing problems with credit, uncertainty over the used car market and a reluctance amongst corporates to commit to new leases.

Philippe Noubel, Arval Group deputy managing director, highlights the problem.

‘The financial crisis is probably behind us but this does not mean that we are back to the pre-crisis situation. The access to (re)financing is easier today compared to a few months ago, but its conditions are still less favourable: the liquidity costs, rather low 18 months ago, remain high. And they vary considerably from one leasing company to another.

‘The crisis registered on the used cars market, unpublished due to its geographic scopes: all the countries and its amplitude is not over. Despite of a recovery since the end of the first trimester 2009, the used car market is still today at a lower level from €600 to €1100 at those “before the crisis”.

‘Thenceforward, the anticipations necessary to offer pricing to the clients are not easy. Is it reasonable to think that the price of used car market will recover their “initial” values? Probably not. This worldwide crisis has probably decreased sensitively the price that the consumers will accept from now on to put in the purchase of a used vehicle.’

All of this means that fleet operators looking to change suppliers should not only ensure that their leasing partner offers the optimum contract for their fleet but also that their long-term future is assured.

Mr Noubel explains: ‘Certainly the price is an important component, but should we also take into account the durability and the stability of the strategy of its provider by integrating, probably more than yesterday, its financial solidity, its financial solidity, its sphere of belonging, the lucidity it used during this crisis, its capacity to invest in areas as fundamental as the board and the quality of its processes.’

But Athlon Car Lease International also brings two other supplier selection criteria to the table, in the form of environmental skills and international abilities.

Senior vice president Valentijn de Jong explains: ‘Recent market developments and the rise of concern for environmental issues by the public have forced governments worldwide to adapt their views on “green” issues. Customers already are or will soon be confronted with country-specific regulation on their fleet. Car leasing companies can provide support in terms of flexible car policies to adapt to further legislation changes. To be prepared for the future, customers need to start thinking about mobility in general rather than just car leasing.

‘In the light of recent industry developments, customers should also pay attention to the background of the leasing company itself. The importance of an international approach when entering a contract hire deal will increase and customers are well advised to choose a partner that can satisfy their needs and provide them with data and support on an international level. Specifically in view of upcoming IFRS changes, customers need to be able to rely on their leasing company to be able to provide them with answers to their questions and the necessary data on an international level.

‘To guarantee a stable and supportive relationship with their lease provider, customers should additionally look for partners whose ratings and long-term strategic interest in auto leasing is supported and confirmed by a strong parent.’

BE VIGILANT ON PRICING

Of course, finding a competitive deal is still a key criterion but here again there are certain issues that fleets need to be aware off, according to Jose Luis Criado-Perez of C.A.R., an international fleet experts company based in Madrid, who comments:

1. Overall, leasing a car today is more expensive than 18 months ago, and the main reason for this increase of costs has been the sharp drop in the second hand market. Hence, residuals have gone down and monthly installments have gone up.

2. The level of service has gone down. Most fleet users keep saying that they chose a leasing company because of their service level, but that is not true. Cost has been the driving force in decision-making, and last year more than ever. This has pushed leasing companies to reduce their operating costs and therefore to a reduction of the service level.

3. Internally, leasing companies are facing big losses in the sale of used cars, a shortage of funding, an increase in their costs of funds and a tightening of their credit policies. These weaken companies and in some cases have put them out of business.

‘My suggestion would be to openly discuss the above issues with the leasing company and to search together for costs reductions and agree on service levels, more than simply choosing the lowest monthly installment. Brand concentration, choice of model and options, funding alternatives and above all, control of the use of the fleet, are the real origins of cost reductions.’

So perhaps now, more than ever, when there is a lot at stake, it is important for fleets to gain a better understanding of vehicle selection is by using the whole life cost methodology.

William Townsend, international sales manager at ING Car Lease, explains: ‘There are many factors that drive the total cost of running a vehicle including purchase price, maintenance budget, fuel consumption, local taxation and the residual value stability of key models. For example, at present the more environmentally-friendly vehicles, which are cheaper on fuel and tax, are selling better so have higher residual values over the longer term.

‘Fleet managers should be looking for full transparency of costs so they know exactly what is being charged where, including the margin of the finance against the market rate. This way they will get the best deal for the duration of the whole contract, not just the month they sign up.’

Fleets should also continue to continue to educate their own organisations in the fact that cost control doesn’t equate to just minimising the lease rate, according to GE Capital.

John Kelly, Key Solutions leader at GE Capital, comments: ‘The fleet manager of 2010 must ensure that the true “total cost of ownership” is understood, communicated and acted on and that the key internal stakeholders fully embrace a truly strategic fleet approach. Fleets need to truly fight for the recognition that a properly structured, managed and maintained policy deserves. With the number of truly dedicated fleet roles lower than ever, this will be a challenging task.’

He adds: ‘Finally, beware the sourcing trap issue. All too often organisations make short-term lease rate based decisions with the objective of saving pennies, often believing that multi-supply arrangements will deliver cost savings. The smart fleet manager can counter the sourcing team’s monthly lease rate commentary with a truly holistic argument that encompasses internal productivity benefits, management information systems, compliance and the all important “employer of choice” stamp for a strong, driver-friendly policy. As we emerge from recession and the HR agenda returns to keeping top talent, a strong, attractive and well managed fleet policy will be key.’

Yet Alan Carpenter, managing director of Noetic Consulting Limited – a specialist consultancy in financial services and automotive fleet, argues that the simplest way to ensure you retain competitive pricing over time is to acquire your fleet through more than one provider.

He adds in: ‘Agree the services and service standards with each of your suppliers for a two or three-year period and then get competitive quotes for each vehicle from each of your contracted suppliers.’

Meanwhile Maurice Bond, commercial director, IFS, argues that fleets should be turning to the management specialists to undertake the fact-finding for them.

He states: ‘Ensuring that products or services are competitive relies on the acquisition and analysis of accurate and objective market data. In today’s market, quotations and other pricing indicators are less available because there is less competition as suppliers withdraw altogether or constrain their growth by targeting higher-margin business. There is also greater pressure on fleet operators themselves to understand and control all the cost factors of fleet operation; it is only then that alternative supply options could be followed with confidence.

‘For the major fleet operator, with hundreds of vehicles in their operating countries, this implies greater effort in collection of market data. The traditional hierarchy of suppliers has been disrupted, and relative similarity across the board for the cost of finance is breaking apart. The asset risk to the vehicle owners, rather than operators, simply makes finance for contract hire less available and at a higher cost for many suppliers. It may well be feasible, on financial grounds, for a major corporation to use its own credit facilities rather than rely on the credit rating of a third party.

‘Many mid- to large-fleet operators, do not have the additional resources to gather and re-evaluate market data. Nor do they have the experience and resources to explore the alternative finance and service options that may be available. The use of an international fleet management specialist will offer objective market data across countries, and allow flexibility in products and services without compromising the cost control possible from integrated fleet management.’

BALANCE OUT SERVICE LEVELS

Ensuring that your contract is structured to include the right services for your fleet set-up – and that these are being provided – is another must and this is regardless of the economic climate.

Mr Carpenter of Noetic Consulting says: ‘Fleets should ensure that they have a clear agreement with their leasing providers on the services and the service levels that will be provided. Keeping abreast of service offering developments over time will be important – through trade publications, networking and of course tendering or RFP processes every two to three years.

‘Make sure you have the services you need and that you don’t have the services you don’t need. Make certain that the service levels meet your requirements on an ongoing basis and enforce this through a regular review with your suppliers with pre-agreed resolution processes for any deviations from the agreed standard.

‘Structuring your fleet this way should balance service standards and pricing over time in the most effective way.’

GUEST OPINION – An evolving partnership

Hans Damen, managing partner Global at fleet consultancy business Fleet Vision, gives his outlook on the changing relationship between fleet customers and leasing providers.

In most European markets, leasing companies were hit hard by the economic down turn. Funding lines became aggressively more expensive or even none existent Residual value plummeted to a €1500 loss per vehicle. In their response, many leasing companies quickly agreed instant interest rate mark-ups or fleet wide contract extensions, resulting in contract recalculations and very helpful postponement of the resale of vehicles.

Companies choose carefully to outsource the management and funding of their fleets to the fleet management leasing industry. With that decision comes the outsourcing of the risk. Ironically, it now seems that part of the risk was quickly put back on the customer’s plate.

Now, the majority of countries are reporting residual value recovery. Not to the extent of values back to before the down turn, but certainly not as poor as they were. Funding shortage is reducing and order stops have become rarer.

But where does this leave fleets? Have leasing companies responded as quickly as they did in 2009 and undone the temporary needed measures? Are new contract recalculations offered, returning where possible to the original contracts? If yes, does this reverse recalculation generate the original monthly charges as you would expect? Fleets now need to knock on the door of the leasing company.

Fleets should look at their leasing providers as strategic partners. A partner that can deal with the downturns. But with these partnerships, a fairer balance between short-term measures and long-term profits seems appropriate. Price-level agreements, profit sharing and audit options could provide a solid backbone to these partnerships.