The cold wind of recession may have blown very strongly in Central and Eastern Europe but there can be no denying that prior to the economic crisis, the outlook for the markets in these regions was very positive. In fact, according to Datamonitor in its December 2005 report on “The Growth of Operational Leasing”, the company car fleet in Eastern Europe was forecast to grow at an average rate of around 3% a year in the period 2005-2010.

A number of factors lay behind such buoyant growth including EU integration, an increase in foreign investments and the growth of tax benefits.

As a result, the fleet industry boomed, with leasing companies flocking to these companies, while the uptake of full operational leasing grew fast to catch up with outright purchase and finance lease.

However, the economic crisis took its toll on most of the countries in Central and Eastern Europe, with a major impact on the fleet markets and the automotive sector in general.

An analysis of new car registrations for recent years shows the impact of the financial crisis. According to the ACEA, for 2007 – before the economic crisis hit – new car registrations were flat in Western Europe with an increase of just 0.2%, but were fast mounting in the new EU member states, where sales were up by 14.5% and steady growth was recorded throughout the year. 

Contrast this to the figures for 2009 and the picture was much different. The West European market ended the year on levels similar to 2008 (+0.5%). Yet the new EU member states as a whole faced a 26.6% downturn, showing the impact of the global crisis on these regions.

While many markets in Central and Eastern Europe are now recovering, there are wide variations in their economic recoveries, according to Damien Pellissier, who is general manager for Central Europe at Arval, and has specific responsibility for Slovakia, Poland, Romania, Hungary and the Czech Republic.

He comments: ‘If we look at the performance in the individual markets, we get a much clearer picture. There are still some countries like Romania, Bulgaria and Hungary where the situation is quite difficult because there is still a credit crisis, there is a huge budget deficit and taxes are quite high, and the challenges are still there day to day.

‘In the Czech Republic, Poland and Slovakia, things are different. They are still facing the crisis but the situation is not so bad because they don’t have the same central budget deficit and their industries are more developed. In Slovakia for example they have a strong automotive sector and although the crisis impacted heavily on the car market, the government scrappage schemes enabled the factories to maintain output.

‘Meanwhile in Poland, the impact of the global financial crisis was not great and was certainly a lot less than in the Czech Republic as Polish exports account for less than 30% of the GDP.

‘There are some very different situations across Central and Eastern Europe but what we can say is that 2009 was quite difficult for companies in these regions and it seems that 2010 is much better. Also because the companies reacted very quickly to the crisis, they adapted their models, especially so the international business – we faced many questions on how to deal with the crisis and adapt contracts.

‘The ones that have suffered the most have been the small and medium-sized companies, especially that were exporting a lot to Western Europe – and in this case we can say that we saw a big decrease of turnover in many companies.

‘For the ones that survived that during the crisis, I am convinced that they will be stronger post-crisis as a result.’

So has the economic crisis affected the fleet sector in Western and Eastern Europe?

Mr Pellissier says: ‘In terms of fleet business, what I can say is that in two countries facing the crisis, Romania and Hungary, that business is tough. We are seeing some customers who are doing very well, or some tenders coming in from firms because they need now to finance the cars. We have some opportunities in some countries with some public tenders because they are now looking to finance the cars whereas they used to purchase them outright – and so it created some opportunities for the leasing companies.

‘But also there is not a lot of business and the conditions be quite competitive for those that do have the means to do the business.

‘In Poland, the Czech Republic and Slovakia, we can say that the business today is much better compared to 2009. We can see that in 2009 we had a lot of extended contracts and now those cars have had to come back because of their mileage and because they are now starting to cost the companies too much to run.

‘This means that globally business is better in these three countries for the personal leasing companies and the fleet business – we forecast that with the growth that we are expecting for 2011 that most of these economies will come back in 2011 because we will have a better year and the fleet business will probably reach the level that we had before the crisis in 2009.

‘For the countries where the crisis is ongoing, we are still expecting things to remain difficult for 2011 – we don’t expect conditions to return to “normal” before 2012.’

However, Mr Pellissier says that Arval has noticed a pronounced move by government authorities and departments to outsource their fleet acquisition across most of the markets in Central and Eastern Europe.

He says: ‘Across all the countries, we are seeing more and more big tenders – many of the big companies and state-owned organisations are thinking about operational leasing. We’ve noticed an increasingly number of tenders coming from railroad companies in some countries, and with some electricity and the gas companies in others. And in many cases they want to outsource not only the cars but also all the transportation – it’s a big market. They are focusing more and more on their global solution and it creates many opportunities for the leasing companies of the future.’

So are there still differences in the maturity of the Central/Eastern Europe and the Western markets or are the former fast catching up?

Mr Pellissier says: ‘We think that the service is becoming more and more integrated so the companies are looking for full operational leasing. We can see that in Central Europe, we are integrating everything including the insurance.

‘It’s true that some years ago we could say that there was a difference between Western Europe and Eastern Europe, and that Eastern Europe was less mature. Today we are really in a global world and people can travel and work everywhere and so they have the same benchmark.

‘I can honestly say that at Arval we believe the expectations of the fleet market are the same in Central/Eastern Europe and Western Europe – sometimes we find that fleets actually have higher expectations in Eastern Europe because they take the ideas from Western Europe and then want to adapt them and they don’t know where the limits are, so we are pushed by that. In Western Europe, the expectations are probably more realistic. But we try always to meet the expectations of all our customers although it can be hard.’

In fact the only area where Arval can still pinpoint very specific differences between Eastern and Western Europe is when it comes to the implementation of greener fleet policies.

Mr Pellissier explains: ‘Here on this subject, there is probably the biggest gap between Eastern and Western Europe. In Eastern Europe there is awareness of green policies but it’s not a major concern, especially as there are no real financial incentives for going green from the governments. As we are more in the first or second phase of company cars, people are really interested in the product and they do not care about the energy or the consumption – CO2 emissions mean nothing in Eastern Europe unfortunately.

‘When we look at the number of eco cars supplied in Central and Eastern Europe, it is very small compared to Western Europe and when we speak with our customers about electric vehicles, they say that these cars are fine for the West but they don’t think they can be implemented in their countries – so we also need to make sure that the infrastructure for such models is there before fleets will take them up.

‘When it comes to eco policies, I think that Central Europe is 10-15 years behind Western Europe and unless the governments implement economic constraints there is no chance to have environmental policies in Eastern Europe.’

A mixed picture of recovery for the Central and Eastern European fleet markets

Lutz Garschagen, International Business Development Manager, LeasePlan International and Thomas Schroder, Business Development Director Central Europe, LeasePlan International comment on how the Central and Eastern European markets have reacted to the financial crisis.

The Central and Eastern European markets have undergone a dramatic transition in the post communist era resulting in these young economies becoming remarkably successful in recent years. The economic growth ratios have been well above the levels experienced in Western Europe for many years – that is until the recent global economic crisis which strongly impacted most economies in the region. These markets are recovering now, but at differing paces.

The rapid growth of general economies in Eastern European countries was also reflected in the fleet industry. Leasing companies were set-up and full operational leasing – a completely new concept in those markets – has been thriving and rapidly catching up with the previously dominant outright purchase or finance lease. Factors such as the rebuilding of government institutions, stabilization of legal systems and the elimination of issues such as double taxation have resulted in companies being able to fully profit from the advantages of operational leasing.

A professional management of business fleets with full cost control through state-of-the-art reporting, car policy advice, peer-to-peer benchmarking and full driver care is almost as common now in Central and Eastern Europe as in other countries. The full package of supplier network management, fuel and repair card systems or insurance and accident management solutions are increasingly becoming well known as advantages of operational leasing, straight-line payments and balance sheet optimisation. Reducing risk exposure is another important argument for businesses looking to move their fleets to operational leasing as a result of recent turbulent times experienced in Central and Eastern Europe.

The story is not the same in all Eastern European countries however, with full operational leasing being more popular in the more stable and mature markets of the region such as Poland and Czech Republic. In line with the improving overall car sales, so is the operational lease market on the rise again.

For the less developed markets, such as Hungary, Slovakia and Romania, the impact of the global recession has been more severe and the recovery is lagging behind that of other economies. The increase in instability, also reflected in more volatile financial markets, has resulted in more conservative forms of investment, with a number of companies still preferring outright purchases. However this does not refer to subsidiaries of international companies located in these countries as they follow the more mature full operational leasing requirements. The main obstacle for a continued growth of the operational lease market in these less mature countries is the current slow macro economic development accompanied by weak local currencies.