A challenging crossroads for the fleet leasing business
Probably one of the key successes of the Fleet leasing companies’ business model has been their ability to become a consolidator of outsourced services for their fleet clients. This has not been an easy win nor a quick one. In fact the struggle has never stopped and maintaining that role requires a constant effort with very diverse results per company and even within companies, and per market. Today that challenge is at a new peak.
In Europe, financial leasing of fleets had an almost 20 years' head start over full service leasing, and that market is the one early players fed from, eventually to overtake it and then to expand it very successfully.
The first level of consolidation was in the late 60s and early 70s when a higher residual value, reflecting the expected end of contract sales value, became the defining feature of the product. That was immediately followed by the inclusion of the maintenance and repair cost as services. Indeed, controlling the maintenance of the car was an obvious need if the leasing company bore the risk of the end of contract sale proceeds, .
This was rapidly followed by other services like road tax, tyres, insurance, fuel, lead-in and replacement vehicle, tolls, fines… Sometimes with varying results. In some cases because of local market regulations and in others because of the commercial strategy of the different leasing companies. In the UK and the US, for example, insurance is generally not part of the product, while in Central and Southern Europe the insurance penetration in the product is very high.
Another example happened around the turn of the century. Seeking cost reductions, some fleet users changed from a sole supplier policy for their fleets to a multi supplier policy. That led to the appearance of fleet management companies that attempted to be the consolidator of leasing companies. During this process leasing companies reacted very differently. Some accepted reducing the client contact and be consolidated, some totally rejected the model, even at the risk of losing the client. At the end of the day, the consolidation was only a matter of reporting tools in most cases.
In recent years, mainly due to technology but also because of regulations, the concept of mobility is going through a major shift and all sorts of new services are appearing for fleets. This is a challenge that leasing companies have to decide how to tackle: to aim at maintaining the position of main consolidator, or to becoming a supplier in someone else´s consolidation.
Telematics and the use of data intelligence for mobility is an area where leasing companies will find tough competition. Will data companies become a supplier of leasing companies or the other way around? Clients will probably choose a main supplier who can help them best in cost control and reduction. The increasing capacity of smart data will become one of the main battlefields.
But changes are not just related to data. Increasingly, mobility is becoming multimodal. A driver of a leased car might need to rent an electric vehicle to access the city centre. Or hire a taxi, Uber or equivalent. Or find a parking space. Or use public transport. Will they be able to access those services through the leasing company´s app? Or will somebody else consolidate those services?
More and more, companies are considering not just the business mobility of their employees, but also their private mobility. How do people get to work and get back home? Promoting car-pooling or sharing among employees and even employees of neighbouring companies are increasing demands from clients. And somebody has to facilitate and control it.
To make all this even more interesting, these developments are coinciding with a big growth in the segments of small companies and private leasing all across Europe. Is it a coincidence? Probably not. And it is not just tax driven. As mobility becomes more multimodal, convenience grows as a valued feature. Accessing services in a simpler way is what drivers, both corporate and private, value. And when the client and the driver are the same, all the more so.
Be a consolidator or be consolidated
In recent months I have proposed and facilitated this discussion among management of leasing companies, and in my opinion, it is an internal strategic decision all companies should make in the coming three to five years. Do we want to position ourselves as the main mobility consolidator towards clients? Or do we want to become a leasing services supplier and allow somebody else be the consolidator?
My personal choice would be suggesting to aim at being the consolidator. All mobility services should be accessed through the leasing company platform and be included in the leasing company’s invoice. But this might not be the right decision in all cases. The targetted degree of consolidation could also vary from company to company. I do believe however, change will continue and the leasing industry will evolve. If the reader is the manager of a leasing company, the only suggestion I feel confident about, is that wherever your company finds itself in a few years should be because you chose it and not because ‘it happened’ to you.
Author: Jose Luis Criado (pictured), Global Fleet Expert and LatAm Advisory Board member