22 Sep 16

“Most of the existing fleet software in Europe is from the stone-age”

ARI is often still considered to be the new kid on the block despite their entrance into the European market nearly five years ago. ARI promotes the unbundled fleet management approach, which has been the foundation of its proven success in the North American market, contrary to the close-end operating lease programs offered by most traditional European car leasing companies.

Majk Strika, Managing Director, ARI Europe, on the future and the success of the unbundled model in the European fleet market.

Majk Strika: We entered the UK market nearly five years ago and the European market nearly three years ago. In both markets combined, we will grow our managed portfolio by almost 20, 000 units both this year and next year, which to me is a strong proof of market acceptance. In addition, this growth has spanned different countries and different market segments – the interest in our unbundled solution has been universal and very robust.  

The interest in our solutions, however, has not been limited simply to businesses and organizations with fleets. We are also providing a white label solution for a European-based bank which is active in dealer financing, particularly with medium and small clients. This is allowing us to expand our business into this area of providing our fleet management experience to dealer financing companies..

Which countries are you targeting this year?

Majk Strika: Our initial goal was to have an alternative unbundled fleet management model supported by finance lease capabilities ready by 2018 in all of the major Western European economies. We are on track in our planning to be able to provide all the products and solutions we already supply in the US and the UK in Europe according to our initial goal.

For example, we’ve recently been approved by BaFin to go to market with a finance lease product in Germany, but we are not going to get into the closed-end operational leasing business in the European market. Our solutions will be completely transparent and TCO-driven just as they are in North America and the UK.

In terms of specific markets, we plan to target Benelux and France in the fourth quarter of 2016, with Spain and Italy to follow in 2017. We are already operating to some degree in some of these countries, but we plan to expand our offerings and available services in these countries over the next several years.

Our main goal at this point is to focus on companies who are interested in proactive, data driven, transparent fleet management solutions. Our five year plan is committed to investing for the long-term so we can support the introduction of the kinds of products and solutions that have worked for our clients in the North American market as well as new ideas as they occur. As a private company, we have the latitude to be able to take the long view and work with clients without the pressure of meeting quarterly expectations. We think this gives our clients additional added value.    

Looking out beyond our five year plan, I anticipate we will be fully integrated into our five core markets (Germany, Benelux, France, Spain and Italy) and be well positioned to consider our next steps. Whatever those next steps may be, however, our focus will always be on providing top quality, proactive, transparent, cost effective fleet management solutions for complex fleets. And, we’ll provide those solutions harnessing the power of technology, data, analytics and the real life experience and deep seated knowledge of the market.  With more than 100,000 units in our portfolio when you combine our UK and continental European operations, I think I can say that there is an appetite for our approach to fleet management and we consider our best-in-class TCO model to be competitive when compared to the other options on the market today.

Tell us more about the importance of IT.

Majk Strika: I think technology is absolutely critical when it comes to modern fleet management. All of the advances we have seen in terms of lower total cost of ownership and transparency of operations have come as a result of advances in technology and a deeper understanding of data. That’s why at ARI we invest 25 percent of our operating budget, year after year, into technology and information systems. I don’t think any of our other competitors can make that claim.  

At ARI, we’re not just interested in data for data’s sake, however; we want to be able to dive into what the data is telling us so we can offer our clients predictive solutions. We want to be able to not just tell you what is happening now, but also what will happen next. If you have a vehicle in the shop for routine preventive maintenance, and we know from the data and from benchmarking that the vehicle is likely to need brakes within the next few weeks, we can recommend you take action now to prevent that vehicle from being out of service again and again. No other fleet management company can even come close to this kind of technology.

You are not in agreement with those who believe that full service leasing, where everything taken care from start to finish, is the best solution in difficult economic times. Why?

Majk Strika: I have been in this business a long time, and I can tell you that the claim that a full service lease is the best solution during difficult economic times is nothing but simple marketing.  Closed-end full service leasing is like selling a life insurance to an immortal man for 100,000€ , and telling him there will be a pay-out of 80,000€ when he passes away. Everyone knows he is getting the losing end of that deal.

During the 2009 crisis, the company I was with at the time – like most others – was looking at a potential loss of perhaps 2,500€ per car. And customers were told that if they had bought the cars, this loss would have been theirs alone. So the lease companies worked with their clients, sometimes extending the lease period for example, and reduced their own losses significantly. The consequence of those changes, however, were price increases in every new contract going forward by 50€ or 100€ per month. Companies that had just helped their lease partners reduce their losses were paying the price – literally.

Compare that to our model. ARI gives clients full visibility into their total cost of ownership and offers them flexibility on the contract setup. Our clients do not have to pay hidden margins, or inflated lease rates through conservative RVs. They just pay for what they consume and as a result will profit from a significant reduction in TCO. Truthfully, we have found that clients that dare to follow that route are surprised how easy it is to save money.

Is unbundling only of interest to very big fleets, because they are the only ones which can take advantage of the benefits?

Majk Strika: It should be remembered that in North America, around 95 percent of the lease contracts are finance leasing – in other words unbundled. I would like to see the leasing companies in Europe working totally transparently in terms of finance leasing as well; but these companies are under great pressure from the banks to produce 20 percent returns, and this can’t be done with transparent finance leasing. With the changes coming in leasing standards, I think that many companies are going to lose their appetite for fully bundled packages.

And of course, the OEMs and captive leasing companies simply want to build driver loyalty to their brand, whereas a bank doesn’t mind whether you drive brand A or brand B, so long as it’s financed through the bank. So in short, I think there are dangers with the existing leasing models, and fantastic opportunities for independent leasing suppliers like ourselves.

You mentioned the new accounting lease standard – IFRS 16 – coming into effect from 2019. Is this good news for ARI?

Majk Strika: I think this is fantastic news, and it is one of the pillars we based our strategy on some years ago. We are already getting requests from larger corporations who want to participate in pilot featuring a finance lease model versus the classic closed-end operational lease in order to better understand the benefits and differences. I believe it will lead even more customers to ask themselves why they need the closed-end lease model, operating “off-balance sheet” when it’s not off-balance sheet any more. One of the drivers for the big leasing companies has always been the off-balance solution, but now more of them will have to come with a transparent finance model, and that’s exactly our core strategy.

Will you be moving down the route of mobility services?

Majk Strika: To be honest, I’m not sure that “mobility” is much more than a buzz word at the moment. Our approach is driven by the more pragmatic needs of a client with a complex fleet. It is with that in mind that we are investing heavily into solutions around downtime management and pool car management. Being a competitor to an airline or train ticket provider is currently not part of our plan.

Authored by: Steven Schoefs