Fleet management – increasing competition
Written by: Jason Hovet
Photo by: Petr Poliak
It can be quite difficult for a company to choose what car to stock in its fleet – not to mention the wide array of financing options. But for leasing and fleet management providers, the choice is simple: now is the time to be in the Czech market.
CURRENTLY, THERE ARE an estimated 600,000 vehicles in company use in the Czech Republic, according to Incoma Fleet Monitor, and every sale was hard fought. More importantly, Incoma’s research shows that nearly half of all companies plan to expand their fleet in the next year. These companies have also grown wise to the option of outsourcing company cars to leasing providers, where the financing and care of the car are joined as one service.
For leasing companies who provide full-service leasing, this is the good news: that their services are becoming more known and better favored. What may be bad news for some, however, is this has also been a driving force behind increased competition in the last few years. “Fleet management has become more and more known [in the past few years],” says Jaromír Hájek, general director for LeasePlan CR. “Demand has started to grow and as a result more and more competition has entered the market.”
There are many reasons to use a full-service leaser. With 45 cars, Nutricia, a producer of specialized nutrition products, doesn’t have a large fleet. However, it appreciates the benefits of time and cost savings when it uses a leasing company who does everything for them but drive. “LeasePlan provides the full service,” says Richarda Sklenářová, Nutricia’s office manager, of the leasing firm Nutricia has chosen. Competition has also helped to improve these services offered, according to Radek Mužík of Incoma Research, the firm that prepares Fleet Monitor and also organizes an annual Fleet Management conference. Mužík points out that competition also has not only come from other leasing companies, but also car companies starting to see a market here and beginning to offer more leasing services to clients. “Leading [car] brands are very active in selling to fleet customers,” he says. “They definitely realize the great potential in this segment of the market.”
In the company car segment, Volkswagen (VW), Škoda, and Ford have the largest share of the market. Škoda – which supplies to most state bodies including the police, Česká pošta and the government – is by far the biggest supplier of the three. Also the leader on the general market, corporate sales were nearly 15% of Škoda’s revenue in 2003, according to Leoš Hajzler, from the company’s sales department. He adds that most local clients want “the whole range” of cars.
VW, Mercedes-Benz and BMW may still be top choices for upper management, but for other car companies, middle-management cars and utility vehicles are a bigger sell. This includes Renault and Ford, who also both supply cars to Česká pošta. “Česká pošta is one of our biggest clients and has [just] renewed,” says Lukáš Port from Renault’s public relations department. Port adds that all the Česká pošta cars from Renault are small utility vehicles such as the successful Renault Kangoo.
Česká pošta is a valued customer for car companies. In its fleet, it operates 3,840 vehicles ranging from Škoda passenger and utility vehicles to Ford and Renault transport cars. Česká pošta is also a good example why car companies see great potential in the market. “[Česká pošta] vehicles are in the ownership [of the company]; we don’t use leasing currently,” says Česká pošta spokesperson Ladislav Vančura. This seems to fit in well with Mužík’s reasoning for the increased activity many car companies are experiencing – one business sale is equal to many sold cars. “This type of sale is very effective,” notes the Incoma analyst. Add that to research showing that 35% of customers are replacing their fleets within four years, and corporate sales become even more significant.
Renault has put a particular focus on corporate clients in recent years through Renault Leasing, a company started in 1999 and owned by CAC Leasing and the France-based RCI Banque. “Corporate sales are one of the most important for our company,” Port says, adding that they have trained several managers in recent years to handle this business. Port wouldn’t put a number on how much of Renault’s business is corporate, but claimed it was “a percentage that is constantly rising.”
At Ford, too, “sales to business customers are very important,” says the firm’s public relations manager, Martin Linhart. He adds that corporate sales account for 60% of Czech sales and revenue. “The main ‘fleet’ models for [Ford] are Focus, which accounts for around 50% of corporate sales, as well as the Mondeo and Transit,” Linhart confirms. He also agrees that the market is getting competitive and that price isn’t the biggest issue any more. “Today firms are more and more demanding,” he says.
One demand of companies across the board is a variety of brands and models for the diverse preferences of their management. For this, Philip Aarsman, managing director at Business Lease, thinks leasing companies like his are the best place for clients to turn. “Compared to the so-called ‘captives’ (car companies) we are completely independent,” he says. “We are focused on the real needs of our clients.”
LeasePlan’s Hájek seconds this opinion. Part of the Holland-based LeasePlan Corporation, Lease Plan in this country has about 500 corporate clients and a staff of 70. Much of its revenue comes from leasing services connected to fleet management. Hájek says the greatest demand for this is in passenger cars, and according to him, LeasePlan “is considered the market leader.” Managing a fleet of 11,000 vehicles, mostly passenger cars, LeasePlan’s largest client is Skanska, with 1,100 vehicles. The firm’s services include everything from insurance and bookkeeping to maintaining a full gas tank and having the car washed. According to Hájek, another thing clients are starting to demand more of are “new technologies [for] stricter cost controls”. These new electronic tools typically encompass such things as monthly expense reporting.
It looks as if interest will continue to rise. “The demand [for these services] is really growing,” Hájek says. “We have grown in the last two years by some 150 customers and 4,000 cars.” The same can be said for ALD Automotive, which is owned by the same parent company as Komerční banka. The two companies have also collaborated to create KB FleetLease, which offers complete financing and care for company cars. ALD, which manages 6,300 cars in the Czech Republic and more than 500,000 vehicles throughout Europe, has seen its turnover increase by 24% since 2002, according to the company’s marketing manager, Marcela Nováková. She says that demand for fleet management services is on the rise. “Yearly growth is around 15%, and after EU entry more rapid growth is expected,” she notes.
Also changing – although slowly – is the financing options that companies choose to operate their fleets. Financial leasing, where clients pay monthly installments with the goal of owning the vehicle, is still the most common way for companies to operate a fleet and is used in more than half of transactions. Outright ownership is the next most popular option, representing about 30% of transactions. Both of these approaches, however, have seen a small drop in the past few years, which may have been to the benefit of operational leasing. Use of this financing option, where fleet operators basically rent a vehicle without taking on the risks of ownership, has doubled since 2001, according to Incoma Fleet Monitor. Still, only 5% of transactions involve operational leasing, and most analysts don’t see that number growing too quickly, although with new corporate tax rules that could change (see sidebar below).
This trend would favor Aarsman’s firm, Business Lease, which concentrates mainly on operational leasing. The Dutch firm started in the Czech Republic in 1996, and has seen interest increase each year. “Operational leasing is getting more and more accepted as a perfect tool for car fleet management,” observes Aarsman, who feels this is based on the positive references of satisfied clients over the last seven years. “In the Czech Republic we have more than 200 clients relying their car fleet to our management, many of them international companies,” he says. “We can offer them a coordinated approach throughout central Europe.”
If demand for fleet management services continues to grow, the resulting increase in competition should also bring about an improvement in related services. If Incoma’s “Market Quality Index” is a reliable indicator, 70-89% of clients were satisfied with the fleet management services they received. Compare this to, for example, the 30-75% of local customers who have claimed satisfaction with their general banking services.
|Mobile advertising – the Smart choice
Companies using outdoor advertising sometimes forget about the cheapest and most mobile ad space around: the company car. In recent years, however, Smart, a unit of DaimlerChrysler, has reminded them.
smart is the birth of a new car category – or at least that’s how Jiří Čáslavka, a product manager at DaimlerChrysler Bohemia, pitched it when he presented the car at the annual Fleet Management seminar in 2003. The car is, to say the least, small. But then that’s the point: at 2.5 meters long, Smart is a definite attention-grabber. “Companies that want to draw attention to themselves and want to differentiate themselves use Smart,” says Čáslavka, who counts car rental companies, marketing firms and sport centers among the brand’s customers. “For firms, Smart is the ideal advertising medium.”
|Tax adviceHoping to add a little extra to its coffers, the government may have inadvertently changed the look of company cars in the future.
As part of its reform package, passed last September, a clause was added that affects not only financial leasing but car ownership as well. The clause, which took effect Jan. 1 this year, places a CZK 900,000 cap on the value of company cars that can be written off.
|Managers’ Cars 2004The Czech managers’ car market remains limited to about 5,000 cars a year, of which only 500 are in the highest luxury category. While Škoda continues to assert itself, the German brands enjoy the greatest popularity and prestige.
This season this category is being enlivened by two new models presented at the beginning of March at the Geneva auto show. It is clear that the second-generation Škoda Octavia, which will be available in June, will score well in the lower and middle managers’ segment. Compared with its predecessor it features more space for rear-seat passengers, it has a truly huge, well-shaped luggage space, and overall it creates a very elegant and more luxurious impression. Its competitors are the well-established Renault Laguna, as well as the Peugeot 407, expected in April. The next higher class is joined by the new Audi A6, a luxury sedan chock-full of state-of-the-art technology whose more powerful version comes with Quattro all-wheel drive as standard equipment. From the front, the new Audi A6’s design is very similar to the larger A8, which last year clearly dominated the largest class of luxury cars. In the upper-middle class, in which the Škoda Superb is the clear leader, the new A6 should bring the four-circle brand back into the battle for first place among imports.