“Arval is doing everything we can to lower vehicle prices and lease rates”

Few people are more deserving of the title Monsieur Arval as François-Xavier Castille. He’s been with the company for 23 years now, managing key markets and key areas. Since the middle of last year he does both, as Managing Director of Arval Europe and Arval Latam, and Deputy CEO of Arval Group. “I know the company, its culture and its values very well”, he says, and we believe him.

Mr Castille’s track record at Arval is as impressive as it is long. He got his start in 2000 as Key Account Manager at Arval France, was promoted to General Manager of Arval Portugal in 2004, then General Manager of Arval Spain in 2007, before returning to Paris in 2011 as General Manager of Arval’s home market in France. In 2018, he became Managing Director of Arval International and on 1 June last year, together with Bart Beckers, Deputy CEO of Arval Group. Additionally, he’s also the Managing Director of Arval Europe (i.e. the four biggest markets: France, the UK, Spain and Italy) and Arval Latam (with presences in Brazil, Peru, Colombia and Chile). One of his key responsibilities as Deputy CEO is also for Strategic Sourcing on a global level.

What has kept Arval interesting for you throughout all those years?
“Since I started, Arval has grown exponentially. We opened up entities in a lot of countries, launched many new products and services, reached new customer groups. There was never a dull moment!”

“Also, Arval made sure I was never bored, offering me exciting positions in France, Portugal and Spain, as well as the opportunity to take on international roles. There are always new challenges, new targets. That’s what keeps me motivated, driven, and entertained. Also, when your company is dynamic, growing, doing well, you stay!”

Arval is present in a lot of European countries. Why is Arval Europe limited to just four?
“At first that may sound strange. But those four countries are much bigger than the rest. They make up two thirds of our European business. Plus, they’re on the same IT system, have similar organisational structures, and comparable levels of market maturity.”

Today’s market is surely more complex than 23 years ago. Is it as interesting?
“Absolutely. When I started with Arval, the leasing product really took off. So that was exciting. Today’s situation is more complex and challenging. I see four main challenges: getting the right vehicles, transitioning to mobility, going carbon-neutral, and last but not least: inflation. Why? Because due to inflation, fleet costs have gone up with 25% to 30%, and we understand this is challenging for our customers.”

Let’s go over those four challenges. What is to say about the evolution of the vehicle delivery situation?
“We see the delivery times improving slightly, with varying situations in terms of brands, models and markets. We continue to work closely with OEMs to get better access to new vehicles and answer our clients needs.

So, what’s the solution for your customers?
“All we can do is support them wherever possible, by helping them order the right kind of vehicles, by adjusting policies, by suggesting alternative and more flexible solutions, and also, taking this as an opportunity to engage in energy transition.”

So, is 2023 be the year we transition to mobility solutions?
“Mobility is everywhere already but how fast will it become global and massive? That depends on a lot of factors. Those include: endemic congestion in our cities, and increasing demand for alternatives by younger generations.”

“As a European leader in the leasing industry, it’s Arval’s duty to our 300,000 customers to invest in mobility. In solutions like carsharing, MaaS, medium-term renting, etcetera. We want to have the most sophisticated, most interesting mobility offers in all of our European markets, and beyond. It’s a strategic choice, just like it was to be ready for electrification and energy transition. At the end of 2022, 35% of our new orders were electrified vehicle (of which, 14% BEV).

That still leaves a lot of ICE vehicles in your fleet. Won’t those be a liability in a few years time when they need to be remarketed?
“No. The second-hand market for ICEs is doing very well and will continue to do so. The decision to halt the sale of new ICEs from 2035 leaves time to buy and drive used ICEs. Even as ICEs are phased out, there will still be use cases, outside big cities, for example.”

Europe is a leader in electrification. How is it going in Latin America?
“You’d be positively surprised. Even in Peru, a country with very few public charge points, so to speak, we have customers who want EVs – with home charge points, of course. In Chile, we recently delivered 220 e-LCVs. Yes, in general Latam is behind in terms of electrification. But they will get there too. Two things: countries like Chile and Peru are oriented towards the Pacific and will have easy access to Asian-manufactured EVs. And because of the endemic traffic jams in places like Sao Paulo and Santiago, we see a lot of interest in carsharing, mobility budgets, e-scooters and other mobility solutions. We will soon have an offer for that demand, also in Latam.”

Last of your four points: inflation. Lease companies have recently posted huge profits. Why not share some of those profits with your customers?
“Good question, and interesting reflection. First, let’s also remember that during the time of economic crisis in 2008-2010, with used vehicles prices drastic downturn, leasing companies have assumed the induced financial loss without – obviously - asking their customers to compensate it. Today, yes, we’re in a reverse situation and lease companies currently have very good results. But those don’t yet fully reflect the impact of inflation on fleet cost. Vehicles are leased at fixed rates, but the costs for maintenance, tyres, etcetera may increase at above the expected rate.”

“And secondly, this also goes for the Residual Values. They have increased, but we are now adjusting our forecasts accordingly. So, that source of revenue will be much smaller in future. Considering the efforts we’re currently making to lower prices for our clients, our results will be lower again after this peak.”

Of those four challenges, which is the biggest one for fleet managers?
“The increase in vehicle price and costs overall. That means it’s up to us at Arval to do whatever we can to lower that price. To do so, we have partnered up with OEMs, to secure vehicle supply; and we’re working with the after-sales market, to ensure the best possible prices as this will have a direct impact on the lease rates we can offer.”

Your partnerships increasingly are not just with banks, but with OEMs, as you say. What is your goal there?
“Our original goal was to capture the retail market. We know how to reach our usual customers: large accounts, national fleets, mid-markets. Private customers are harder to reach, and that’s why we want to rely on those partnerships. Two years ago, we even created special teams for those partnerships. And of course, partnering with OEMs also means that we have privileged access to vehicle volumes at the source.”

Some of your main competitors have merged. How will Arval grow?
“We decided some time ago to focus on organic growth. In 2022, we grew almost 6%. But we don’t say no to acquisitions. We recently acquired a company in Romania. And before that one in the Netherlands, with 40,000 vehicles. We’ve bought out the share of our partners in Chile, Peru and Colombia. But our main growth engine will remain organic growth. We’d like to focus on our customers and on innovation. In a drastically evolving market, we believe it’s best for us to concentrate on these rather than handling major integrations.”

Some fleets who prefer multiple suppliers are left with a single one after the ALD Automotive I LeasePlan merger. Are some of those now coming to you?
“I’m sure we’re getting some new interesting businesses from that. And I confirm this is already happening.

Final question, on connectivity. How important is this for you – and for your customers?
“We aim to have 100% of our vehicles connected. To do what? For preventive maintenance, for insurance, cost reduction, road safety, and for lots of other things. There’s a lot of debate as to who owns vehicle data: the driver, the OEM, the lease company? The final answer isn’t clear yet, but it won’t be just one party at the exclusion of the others. We must learn to share. This will help lower costs, quite dramatically in the case of insurance, for example. Already, we have about 200,000 customers using connected services, and we have more than 500,000 vehicles connected – 1 in 3. In terms of new vehicle orders, the share is much higher: up to 100% in some countries.”

Thank you, and good luck!
 

Copyright picture: Arval, 2023.