Europlan: Leasing penetration of just 5% is unacceptably low
Established in 1999, Europlan is proud to be independent of banks, the government, and oligarchs. Europlan leads the automotive finance market with 50,000 vehicles on Russia's roads, and 16% market share in the country's annual new business in automotive leasing. The company leases around 30,000 vehicles every year, all with full pay-out finance leases contracts. We speak with Europlan's Vice-President Alexander S. Mikhaylov.
"We have been growing new business with CAGR (2007-2013) of 23% annually. The market grew approximately 7% for the same period. For the first 9 months of 2014 car sales dropped by 13%. Europlan increased its new business by 16%", says Alexander S.Mikhaylov.
"Looking to 2015 perspectives now, we do not expect such a growth, of course. Car sales may drop by 20%, commercial vehicles even more than 25%."
Have you always done finance leasing?
A. S. Mikhaylov: "Yes. The customer basically uses leasing as the way of purchasing a car – they pay advance payment and the rest in instalments over an average term of 30 months. We follow these customers’ needs. That is why our annual number of vehicles leased is comparable to total fleet of all operational lease companies in Russia accrued by them for 5-7 years of operation in the country. Russian businesses prefer to use financial leases instead of operational that is why finance leasing of cars is 10-20 times larger than operational."
How do you see the growth of finance leasing?
A. S. Mikhaylov: "At the moment, it is very hard to comment on the future because everything will change, especially with the current situation. Having said that, Russia is a big country of more than 143,000,000 people and 2.6 million cars sold annually. So leasing's penetration which achieved just 5% of total car sales remains unacceptably low and the part of direct purchases looks unacceptably high. The Russians are not so rich to buy vehicles with outright purchase by they still do. This says to me that we, automotive finance professionals, have to do even better and develop accessible products to finance those purchases.
Also there is sizeable potential in leasing for individuals. Being the only federal company (110 offices around Russia and 2500 employees) we see some switch from car loans to car leases from private users."
Why do you focus on SMEs? Will you diversify?
A. S. Mikhaylov: "Around 80 million people of working age in Russia. Despite the picture of the country abroad, not only big oil and gas companies in the market. Millions of SMEs and entrepreneurs registered in Russia. It’s actually not very simple to work with this segment, but we have been doing this for fifteen years and found the way and sustainable business processes. It doesn’t mean that we don’t work with big global corporations – we do this and have many clients from Fortune-500 that operate in the country. But we really focus on SMEs and now we have expertise in their needs and are able to provide them the best of automotive lease financing.
Also we learn European experience in additional services to leasing. Being one of the largest and stable buyers of cars in Russia, we package pure financial lease with value adding services delivered with help of our purchasing power. Our analysis of car owner's spending and geographical span of the country tells us a lot where and how to develop fuel management, technical costs, seasonal change of tyres, road assistance, and substitution cars. So there's room to expand."
How many offer finance leasing in Russia?
A. S. Mikhaylov: "There were about 100 companies. Now top-10 does 88% of new business in car leasing and 78% in commercial vehicles leasing."
Do you expect this to reduce or get bigger?
A. S. Mikhaylov: "I believe some companies will simply disappear, many will put on hold new business. They do not have money or capital, and they don’t have the history that we have so they'll just run out of portfolio if they can't access funding. It is the right time to buy leading leasing companies, especially by automakers that have long-term presence in the country but didn’t develop well their financial services that have to support sales in hard times."
What makes you different from other leasing companies?
A. S. Mikhaylov: "We are more than just a leasing company – Europlan became a federal automotive finance company. The main difference is that we have our own bank and our own insurance company – so we can provide a very wide range of financial services for car owners. No other leasing company has either of those things."
What is your relationship with Rolf?
A. S. Mikhaylov: "Ten years ago we purchased their leasing company and promised to finance their customers. With our growth three times exceeding the market growth, we have been one of the most stable and beneficial partners. When dealerships were trying to develop their own leasing divisions they thought it would be easy. But some developed businesses of 20 million dollars and realised that they couldn’t finance it further. So there was a need for more and more money. Rolf Leasing’s balance has become huge for the dealership business and hurdled the investments in key business. If we hadn't bought them, the company would not have such performance as it had within specialised Europlan."
How would you describe the maturity of Russian fleet managers?
A. S. Mikhaylov: "The business as a whole needs to develop a lot; and our company too. There's a need to enhance the knowledge and expertise of fleet managers here by talking to them and having them attend conferences and so on. We need to learn from European professionals.
Although we are not here to judge, I do think there are many areas they could improve, such as a knowledge of basic cost saving, budgeting, taxation, fuelling and the servicing of vehicles."