Bynx Auto Finance Update

Auto finance update
July 2012 Issue 3
United Arab Emirates
auto finance
Gary Jefferies, Sales & Marketing
Director of Bynx
Welcome to our third Auto Finance
Update. I hope that you will find it to
be interesting reading!
In this issue Bynx’ auto finance
update editor Professor Colin
Tourick delves into areas of auto
finance that often get overlooked –
despite their likely impact on the
global industry.
Whilst many countries are still suffering the effects of the global economic downturn,
the United Arab Emirates has bounced back and is currently enjoying strong growth
which is benefitting the automotive sector and motor financiers.
“Auto dealers report sales significantly
ahead of 2011, which was also strongly
positive against 2010 - and all without
incentives or support such as the
scrappage schemes widely used in
Europe and the US” says Alan Carpenter,
general manager fleet of dealership
group Al-Futtaim Motors in Dubai.
He paints a picture that many in other
countries could only dream about.
“Growth has been helped by 14 new
product launches by manufacturers. The
market leader Toyota, having launched
five new, or refreshed, products in the last
nine months; including two iconic
vehicles for the market – the Camry and
the Land Cruiser.
Economic confidence
“Doubtless these new model launches
have helped drive growth in the market,
but there is also an underlying economic
confidence to the market that is equally
as important. Construction projects are
clearly in evidence with a steady stream
of new buildings, both residential and
commercial, coming to market with those
projects driving vehicle demand from the
construction sector. The positive oil
revenues, aside from driving a public
finance surplus of almost 3% of gross
domestic product, have also driven strong
vehicle demand from the Oil and Gas
sector, especially for light commercial
vehicles.”
“2012 has been full of positive news
about debt repayment and effective refinancing by many major companies;
witness DIFC and Emirates Airline each
repaying their “Sukuk” – respectively
US$1.25bn and US$550m.” Sukuk are
bonds that comply with Sharia law.”
“High oil prices have driven a public
finance surplus which, in turn, has driven
increased government spending. This is
also supporting growth in the vehicle
market with significant vehicle orders
evident from government departments in
Dubai and Abu Dhabi. In the retail
market the increasing population – a
clear sign of economic growth bringing in
© Asset Finance International, 2012 All rights reserved
Sponsored by Bynx
He examines a burgeoning bastion of
auto finance – the United Arab
Emirates. There, Alan Carpenter of
Al-Futtaim Motors paints an
intriguing picture of new products
and new markets amidst a plentiful
supply of oil and rapidly evolving
lease products.
The reasons for Enterprise Car
Rental’s recent success in China are
next – and this opens into a study of
how added-value products are
working for Alphabet.
From the southern hemisphere
comes news of Australia’s newly
introduced tax changes which are
predicted to have effects not only on
small businesses but also on vehicle
acquisition.
There is also an insider’s update on
the impending changes to the way
that fleet leases are likely to appear
on balance sheets as the
International Accounting Standards
Boards at long last seem to reach
agreement.
Finally, but crucially important for
the industry, we are providing a
critique of experteye’s latest look at
European residual values and
service, maintenance and repair
costs.
1
Auto finance update
NEWS
more expatriate workers - is driving
vehicle sales to both the retail and
corporate sectors. Also the significant
pay increases at the end of 2011 for
many government employees has
doubtless also fuelled the strong growth
in the retail channel.”
“This year’s sales have also been
boosted to some extent by the ‘hangover’
from the vehicle supply shortages in
2011. This is a market strongly
dominated by the Japanese brands with
around two in every three cars sold from
a Japanese brand. With supply of many
of these vehicles adversely affected in
2011 by the Japanese earthquake, and
latterly the flooding in Thailand, it is
evident that there was a degree of pentup demand for these models that helped
boost sales in the early months of 2012.”
“The general economic situation is
creating an environment favourable to
vehicle leasing and fleet management”,
according to Paul Greenwood, chief
executive officer of vehicle leasing and
rental company Al Wathba Services of
Abu Dhabi
Longer term leasing
“The industry is beginning to evolve its
product offering, and local businesses
are becoming more willing to consider
longer term leasing. However there has
been a lack of understanding between
rental and leasing in the region, and
this creates challenges for suppliers of
long term full service leases that want
to price correctly and contract in the
right way. End users are still buying on
price with no real understanding of the
difference. Some UAE rental companies
have had to scale down their
operations and re-think how they price
and what services to provide because
the slow-down crystallised their
errors.”
“Until recently, we basically had a
rental industry hiring out vehicles for
six to 24 months. These agreements
predominantly only offered unlimited
mileage because this was the product
offered by rental companies and that
the market was used to.”
“With relatively short contract
periods, the mileage risks were
relatively low and could be managed by
the suppliers. However the average
rental has now increased to 36 months,
and 48 month deals are becoming
more popular too. Considering a
typical roundtrip commute from Dubai
to Abu Dhabi is 300km, the risks the
suppliers have been taking become
clear. So, for the first time, suppliers
are beginning to limit contractual
mileage in their agreements, making
them look more like Western European
full service operating leases.”
It seems that for the first time the
industry is beginning to offer a fleet
management solution. In the past,
many commentators have said this
product offers a real opportunity for
local suppliers.
“We are the first company to offer
Managed Maintenance and
Maintenance Plans in the region and
we just successfully concluded a
Managed Services Agreement with
Etisalat, the telecom provider, to
manage 2000 vehicles.”
Enterprise enters Chinese car rental market
The Chinese car rental market is one of the fastest growing in the world.
Car rental group Enterprise Holdings which trades as Alamo Rent A Car,
National Car Rental and Enterprise
Rent-A-Car– has announced a strategic
investment and global affiliation
agreement with China-based eHi Auto
Services (eHi).
The deal gives Enterprise
approximately a 15% stake in eHi,
directors on eHi’s board and entry into
the Chinese market.
Greg Stubblefield, executive vice
president and chief strategy officer for
Enterprise Holdings said: “Under this
agreement, not only are our customers
assured of a high level of service when
travelling in China, but eHi’s customers
will also be introduced to our awardwinning and friendly service globally.”
The relationship allows eHi to
benefit from Enterprise’s business
development skills, knowledge and
strategic planning.
China’s car rental industry is one of
the fastest-growing markets in the
world. This deal allows Enterprise to
© Asset Finance International, 2012 All rights reserved
Sponsored by Bynx
offer eHi’s services to its customers
who travel to China, whilst eHi’s
customers will eventually get
worldwide access to Enterprise
facilities around the world.
eHi operates more than 7,600
vehicles and serves individual and
corporate customers from 383
locations in 48 cities across China.
Enterprise Holdings’ worldwide
network includes 7,700 locations with
annual revenues of US$14.1bn and over
70,000 employees. Enterprise Holdings
owns and operates more than 1.2m
cars and trucks, making it the largest
car rental company in the world
measured by revenue, employees and
fleet. It has relationships with many
vehicle leasing businesses, acting as
their supply ‘partner’ whenever the
leasing business’ customer requires a
short term hire car.
2
Auto finance update
NEWS
Alphabet launches corporate car share scheme
In an industry where truly original
product innovation is rare, Alphabet has
just launched AlphaCity, a new ground
breaking service.
Alphabet provides the cars and
technology to help corporate employees
share cars on an ad hoc basis. It claims
that AlphaCity does this with minimum
fuss, and at low costs compared with
alternative solutions.
Alphabet leases the cars to the
employer and then manages the use of
those cars through an online self-booking
system. The cars are operated using
keyless access control technology
These leased cars, therefore, become
an alternative to traditional pool cars,
hire cars or taxis. They are available
24/7/365.
The car comes with a fuel card, and an
in-vehicle system ensures the fuel cost is
charged to the employer’s correct cost
centre. If a user finds a problem they can
report it using the in-car screen and
Alphabet will make any necessary
arrangements.
Alphabet handles cleaning,
maintenance, tyres, insurance & claims
management and can also handle
parking management and airport travel
© Asset Finance International, 2012 All rights reserved
Sponsored by Bynx
solutions. If an employee wants to use a
car for their own private use, the system
can capture information which will allow
the cost to be charged appropriately.
To start using the system, users
register online and are given a keyless
personalised RFID (radio frequency
identification) chip. The chip, an
interactive in-car screen, and the car’s
electronics connect with the AlphaCity
back office, which handles accounting,
fuel costs, checking in and out, and so on.
Alphabet claims the system will reduce
the employer’s total cost of ownership
(TCO) and total cost of mobility (TCM).
The solution is live in Germany and is
now being introduced in the UK, France
and The Netherlands.
For many years, industry-watchers
have been saying that fleet managers will
have to become ‘mobility managers’,
managing every aspect of their staff
mobility in the most appropriate and
cost-effective manner. These pundits
have also said that the leasing industry
has a role to play in helping to deliver this
intelligent, cost-effective solution.
Leasing companies around the world will
be watching to see if Alphabet succeeds
with AlphaCity, because if it does, this
could mark the start of a new round of
real product innovation.
3
Auto finance update
NEWS
Australian taxation changes
Some significant tax changes are being
introduced in Australia that will affect
asset financing.
From July 1, 2012 hire purchase will be
fully taxable for Goods and Services Tax
(GST) purposes. Prior to that date GST
has effectively applied to the asset, but in
future will apply to both the asset and the
credit component.
John Bills, executive officer of the
Australian Fleet Lessors Association
(AFLA) explains: “This presents an
interesting product offering for those
customers entitled to input tax credits
and one that will enhance their cashflows. Financiers will now effectively
have an additional product to offer their
customers. It also enhances the
financier’s GST recovery.”
“Also, from July 1, Australia introduces
loss carry-back arrangements for all
businesses. Companies will be able to
carry-back up to A$1m of losses to obtain
a refund of tax paid in the previous year.
This measure will help businesses meet
their contractual obligations. The Luxury
Car Tax Threshold is also being changed
from July 1, this year.”
The capital allowance regime (tax
depreciation) is being changed too.
To further quote John Bills: “Enhanced
capital allowances for small businesses
apply from July 1. Depreciating assets
costing less than A$6,500 can be written
off immediately, and generally for motor
vehicles A$5,000 can be depreciated in
the first year of allocation.”
“These changes come on top of fringe
benefit tax changes announced in the
May 2011 Commonwealth Budget, and
came into effect from that date. They
relate to the fringe benefits tax treatment
of motor cars, and have generally been
well accepted in the market place.”
The proposed abolition of stamp duty
on chattel mortgage transactions in New
South Wales has, however, been deferred
to July 1, 2013 when all equipment
finance stamp duties will be abolished.
Background on Bynx
Bynx’ suite of automotive software for contract hire,
vehicle leasing, fleet management and rental operators
originated some 20 years ago and now manages over
750,000 vehicles globally for utility and leasing
companies. Bynx employs around 80 people worldwide
and has subsidiary offices in the USA, and Australia. Its
head office is in Warwickshire, England.
Bynx’ software allows vehicle leasing and fleet
management operators to control and manage the
complete life cycle of their vehicle assets, retain asset
value and engage with their customers and stakeholders
directly online.
corporate management solutions (irrespective of
underlying technology or platform). It is available as
individual modules or a complete end-to-end solution.
Additionally, customers can add value to their products
and services by utilising Bynx’ easy-to-create and
implement, web-based portals for the benefit of their
own clients or dealers. Bynx also provides
implementation, project management and managed
infrastructure, outsourcing, training and broader fleet
consultancy.
For more information on Bynx visit www.bynx.com or
call 01789 471600
The suite includes: bynxFLEET, bynxNET and
bynxSERVICES. Based on open architecture and the
Oracle database platform, the software is scalable (to suit
any size operation), can be quickly and easily
implemented, interfaced and integrated with other
© Asset Finance International, 2012 All rights reserved
Sponsored by Bynx
4
Auto finance update
NEWS
ALD Automotive survey reports telematics growth
ALD Automotive has published the
results of research that suggest the
majority of large UK companies are now
using telematics systems in their vehicle
fleets.
ALD was one of the first fleet leasing
companies to sell a telematics solution as
an add-on service to their UK clients, in
the belief that these systems could be a
valuable added-value service for its
clients.
The survey was carried out by
independent research company YouGov,
and found that over two thirds of
businesses with more than 1,000
employees, had already adopted
telematics. These systems allow users to
capture accurate mileage readings on
company vehicles in order to deliver cost
savings.
According to the Automobile
Association (AA) the UK currently has
the eighth highest petrol price in Europe
and the second highest diesel price. With
the average price of fuel currently costing
over 138p/ltr, large UK businesses are
increasingly turning to their fleet
suppliers for advice on cost reduction.
Modern telematics units have come a
long way since the early devices that
simply tracked the vehicle. They allow
companies to identify potentially costly
driver behaviour that contributes to high
fuel consumption, such as harsh
acceleration, unnecessary idling or
excessive speed. Managers can then take
the necessary steps to improve driving
behaviour either by simply raising
awareness, or through driver education
programmes, thereby reducing fuel
consumption and other associated costs.
Keith Allen, managing director of ALD
said: “Businesses are embracing
telematics to help reduce their fuel bill.
We also carried out separate research
amongst 500 business drivers and found
© Asset Finance International, 2012 All rights reserved
Sponsored by Bynx
that 87% would approve of telematics on
board their vehicle if it helped reduce
their fuel bill. It is clear that drivers have
become far more positive about the use
of telematics, recognising the benefits it
can deliver to themselves, as well as their
employers.”
ALD Automotive UK was established in
1958. ALD is the second largest vehicle
leasing group in Europe and manages
900,000 vehicles across 37 countries
worldwide, including Algeria, Morocco,
Brazil, China, Egypt, India, Turkey and
Mexico.
5
Auto finance update
NEWS
Manheim reports growth in online auction sales
SIMULCAST FLEET CAR SALES 2008 - 12
400
INDEX OF SALES JAN 2008 = 100
350
300
250
200
150
100
operated businesses, where the key
decision-maker has limited time to
purchase stock, and so want efficient
solutions that offer lots of choice and
make it easier to find precisely the right
vehicle with the right combination of age,
SIMULCAST FLEET VAN SALES 2008 - 12
600
500
400
300
200
100
Jan 08
Feb 08
Mar 08
Apr 08
May 08
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Jul 08
Aug 08
Sep 08
Oct 08
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Jun 11
Jul 11
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Sep 11
Oct 11
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Dec 11
Jan 12
Feb 12
Mar 12
Apr 12
0
condition and specification.
© Asset Finance International, 2012 All rights reserved
Sponsored by Bynx
Jan-Jun ’12
Jul-Dec ’11
Jan-Jun ’11
Jan-Jun ’10
Jul-Dec ’09
Jan-Jun ’09
Jul-Dec ’08
Jan-Jun ’08
BUYERS LOGGED ON
Jul-Dec ’07
Jan-Jun ’07
Jul-Dec ’06
Jan-Jun ’06
Jul-Dec ’05
Jan-Jun ’05
Most UK automotive finance and leasing
companies use auction houses to dispose
of their vehicles, either at the end of the
finance agreement or earlier if the
vehicle has been repossessed.
They want to get the best possible
prices at auction, which is one of the
reasons they have been enthusiastic
about the growth of online sales, as it
significantly increases the number of
people ‘present’ at each auction.
They will, therefore, be pleased to note
the strong growth in online (Simulcast)
sales reported by remarketing group
Manheim.
Online van bidding has grown strongly
which some might find surprising, given
that these vehicles tend to be older, have
higher mileage and to have received
more wear and tear than cars. Manheim
believes this success comes from the fact
that the bidders are often smaller owner-
INDEX OF SALES JAN 2008 = 100
000
Jan 08
Feb 08
Mar 08
Apr 08
May 08
Jun 08
Jul 08
Aug 08
Sep 08
Oct 08
Nov 08
Dec 08
Jan 09
Feb 09
Mar 09
Apr 09
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Feb 11
Mar 11
Apr 11
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Jun 11
Jul 11
Aug 11
Sep 11
Oct 11
Nov 11
Dec 11
Jan 12
Feb 12
Mar 12
Apr 12
050
As more buyers have been encouraged
to go online to explore the Simulcast
service, so more have shown a
willingness to actually place bids, and
Manheim’s statistics show that once a
buyer has a positive experience of buying
online they are increasing willing to buy
their vehicles online.
The online facility breaks down
geographic barriers and opens up each
auction to buyers who would probably be
unwilling to travel long distances to bid.
This can be seen clearly from the chart
overleaf which shows the locations of
fleet buyers who have bid on vehicles
being sold at Manheim’s Leeds auction
centre.
Jul-Dec ’10
450
6
Interestingly, Manheim has found a direct
correlation between the distance
between the buyer and the auction house
and the buyer’s willingness to buy online.
As might be expected, the greater the
distance between the buyer and the
auction, the more likely the buyer will bid
online.
Many buyers still use both physical and
online auctions. Primarily these buyers
bid online to avoid travelling at busy
times or when there are only a few
vehicles in the auction.
Manheim’s research suggests that
relationships are critical for buyers
taking that first step to purchase online.
Most buyers already know the relevant
auction centre on their first purchase and
have confidence in the ability of the
people there to inspect the vehicle
effectively, auction the car fairly etc. Even
“pure physical auction diehards” who
refuse to buy online take advantage of
the extra vehicle information the auction
house now has to publish online.
As fleet replacement cycles have been
extended and shortages have appeared in
some vehicle sectors, buyers have had to
go to more auctions and travel further to
find the right stock. In this situation,
“shopping online” makes good sense.
Leeds cars
UK Account
Buyers
RED Physical only
BLUE Physical & online
YELLOW online only
WHO confirm diesel definitely causes cancer
Experts working for the International
Agency for Research on Cancer, part of
the World Health Organization, have just
announced that diesel exhaust
“definitely” causes lung cancer and “may”
cause tumours in the bladder.
Until now the Agency had believed
that diesel exhaust “probably” caused
cancer.
They said "The scientific evidence was
compelling and the Working Group's
conclusion was unanimous. Diesel engine
exhaust causes lung cancer in humans.”
And they advised that "Given the
additional health impacts from diesel
particulates, exposure to this mixture of
chemicals should be reduced
worldwide."
The research was primarily carried out
amongst workers in industries who have
a lot of exposure to diesel exhausts, such
as miners and truck drivers. It found that
these workers have a 40% greater risk of
developing lung cancer than the general
population.
However they were unable to
extrapolate from these results to say
whether other groups – such as diesel car
drivers – have similarly elevated risks.
The UK Department of Health have
said they will carefully consider the
report and Cancer Research UK have
called for businesses to reduce exposure
to diesel fumes in the workplace.
Lower-emission vehicles
For more than a decade, governments
around the world have been encouraging
drivers to switch to lower-emission
vehicles. They have used tax incentives
(and disincentives) and have had
considerable success in reducing the
average levels of CO2 emitted by cars and
other vehicles. However much of this
success has arisen by drivers switching
from petrol to diesel engines. Indeed it
was only in March that the UK
government announced the removal of a
3% surcharge in the tax payable by
company car drivers driving diesel-
© Asset Finance International, 2012 All rights reserved
Sponsored by Bynx
engined cars – a surcharge that had been
introduced specifically because of
concerns about the health impacts of
diesel particulates. They also increased
the tax payable by drivers of electric
vehicles and hybrids, which will
encourage more drivers to think about
driving a diesel.
It is likely therefore that this
announcement will have caught many
governments on the hop. Will they react
to this new evidence by making further
tax changes to discourage the take-up of
diesels?
This news comes at the same time as
the Guardian published details of a
leaked European Commission document
setting out proposals to slash new-car
emissions in Europe. The plan is to
introduce a legally-binding 95g CO2/km
limit for new cars by 2020, and to reduce
this even more over the following decade.
Currently the average car sold in the
European Union emits 140g/km of CO2.
The measure is designed to encourage
manufacturers to invest in hybrid
technology. If they fail they would be
fined €95 per vehicle sold for every gram
over the limit.
7
Auto finance update
COMPANIES
Mercedes-Benz Financial Services perspective on
the UK auto finance market
leaving fleet sales to
Segmenting the customer base
increase further as a
343 cars
301+ fleets
Average 118
percentage of total vehicle
=1,137 companies
cars/company
sales.
141,320 cars
Average 69
He offered a breakdown
100 to 300 fleets
cars/company
=2,058 companies
of the business car market
161,385 cars
25 to 100 fleets
– see below – together with
Average 15
=10,478 companies
cars/company
views on the issues facing
1.9 million small VAT
each sector, and how the
?
registered
asset finance industry
companes
should respond.
The general market view
companies know it is no more expensive
for
some years has been that the SME
Paul Harrop, national sales and marketing
to change to a new car than to run the old
market offers good opportunities for
manager at Mercedes-Benz Financial
one, he says, so they aren’t scared about
funders, offering higher margins than
Services, has been giving some
placing an order.
interesting insights into the way he thinks mainstream corporate business,
In this sector Harrop believes clients
customers who don’t require tailor-made
the UK fleet market will develop and his
appreciate
consistency of pricing and
products, and good profits so long as
predictions for future growth.
online
support,
and he advises lessors to
credit quality can be retained.
Speaking at the UK conference of the
set
agreed
service
levels with clients and
Harrop believes that there is limited
Finance and Leasing Association, and
to
strive
to
meet
those
levels.
growth potential in this sector for the
then to Asset Finance International, he
His message to lessors is: to really
time
being.
SMEs
have
been
at
the
said he was confident that fleet sales
understand each sector and its specific
forefront of cutting costs by extending
would grow as a proportion of the total
needs. “A blanket approach just won’t cut
contract terms and reducing headcount
though absolute numbers were difficult
it nowadays.”
and are not showing great enthusiasm
to predict because of the general
In his presentation he offered a
reversing this trend.
economic uncertainty.
comparison
between the pricing offered
He predicts that the big opportunity in
He offered several interesting thoughts
by
manufacturer-owned
and other
this sector is salary sacrifice but that in
on general trends in the market.
lessors,
as
shown
in
the
chart
(bottom
order to untap this potential the industry
Firstly, he felt that more consumers
left).
In
his
view,
manufacturers
have
would move to personal leasing (personal needs to work out how to deliver a
higher
cost
of
funds
than
multi-brand
complex product in a cost-effective way
contract hire), driven by an increase in
lessors – many of which are owned by
through a channel traditionally served by
consumer regulation, broker activity and
financial institutions – but the
brokers.
a general increase in the willingness of
manufacturers maintain a strong
His advice to funders is to focus on
individuals to lease rather than buy.
competitive advantage by having lower
retention of SME customers.
He expects that the general level of
Harrop also advises funders to focus on depreciation costs.
economic uncertainty - particularly
When asked for his predictions about
client retention in the medium fleet
regarding medium-term - will suppress
future
market trends Harrop said it was
sector, saying this is “arguably the most
retail vehicle sales more than fleet sales,
very difficult to tell as the general
valuable sector”.
economic picture is so uncertain. “It
Turning to the
£/month Monthly price comparison
might have been easier to answer a
large fleet sector, he
400
month ago but since then the Greek
350
described this as the
300
situation has become uncertain, France
most “resilient”
250
has elected a new prime minister, Spain is
200
because companies
150
getting a bail-out (and its banks have
have already cut staff
100
been downgraded) and everyone is
and have fixed-car
50
talking about massive mortgage rate
0
policies which they
lease co
manuf
increases. We’ve gone from ok to
are now unlikely to
int
depn
maint
profit
uncertain (again!).”
change. These
© Asset Finance International, 2012 All rights reserved
Sponsored by Bynx
8
Auto finance update
COMPANIES
FASB and IASB reach agreement on
lease accounting
The Financial Accounting Standards
Board and the International
Accounting Standards Board have
announced a breakthrough in the
development of a globally-accepted
method of accounting for leases. After
years of deliberation they issued an
Exposure Draft in 2010 and have now
agreed all major outstanding issues
and will produce a revised draft later
this year. This is likely to become
effective by January 1, 2016 although
companies will need to start
calculating comparative data a year
earlier.
The project had become bogged
down in debate over the way to
account for lease expenses. The Boards
have now decided to have two classes
of lease – those for a relatively small
percentage of the life of the asset, and
those for longer periods – and to
account for these differently. Leases of
more than one year – including
operating leases - would be placed on
lessees’ balance sheets, using the ‘right
of use’ approach outlined in the 2010
Exposure Draft.
Shorter leases would not need to go
onto lessees’ balance sheets and the
hirer would expense these on a
straight-line basis.
In markets where operating leases
are popular, such as the UK and many
European countries, this will mark a
radical change that will significantly
reduce many lessees’ return on asset
ratios and increase their balance sheet
liabilities.
Under the current arrangement,
operating lease rentals are accounted
for on a straight-line basis. The
proposed changes will see lessees
having to ‘front end’ operating lease
expenses because interest on the lease
liability is greater when the capital
balance of the lease is high, and falls as
lease payments are made and the
capital balance outstanding falls.
The lease accounting rules for
lessors will be symmetrical with those
described above.
Lessors will therefore be able to
front-end their income recognition on
all but the shortest operating leases,
which will bring this accounting into
line with today’s finance lease
accounting rules.
FASB chairman
Leslie Seidman
said: “The boards
carefully
considered the
diverse views of
stakeholders
about whether the
income statement
profile of all leases should be the same.
On balance, we decided that those
leases that convey a relatively small
percentage of the life or value of the
leased asset should be recognised
evenly over the lease term.”
Leaseurope has expressed concern
about the proposals. Mark Venus of
BNP Paribas, who chairs the
Leaseurope Accounting Committee,
said: "While we will have to carefully
review the proposals when they are
published, at this point in time we still
do not see any improvement significant
enough to justify changing the existing
guidance for leases. IAS 17 may indeed
benefit from incremental
improvements, such as better
disclosures and a new look at its
classification criteria, it has a lot of
merit and is far from being as broken
as the Boards say it is."
John Lewis of
the British Vehicle
Rental and
Leasing
Association
(BVRLA) echoed
these sentiments,
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“It is very disappointing that so much
expensive time and effort has had to go
into basically ending up where we
started with the modified exposure
draft a year ago, which must throw into
question how the standard setters
view their own responsibilities.”
Leaseurope is also concerned that
no-one is sure about the effects of
these proposed changes. As its
director general, Tanguy van de Werve
said: "The European leasing industry,
as well as other key stakeholders such
as the European Financial Reporting
Advisory Group (EFRAG), have
repeatedly called for the Boards to
develop their proposals for leasing in a
manner that takes into account an
analysis of its effects. However, this has
yet to be done and the benefit of
improved information for users of
accounts still needs to be proven.”
“All that we seem to have learnt since
the project kicked off in 2006, is that
not all leases are the same and that
different types of users of accounts
have different informational needs."
Some lessors will be concerned that
the proposed change will remove one
of the advantages of operating leases
(contract hire in the UK). It is certainly
the case that some cash-rich
companies only lease vehicles because
of the off balance sheet treatment.
However, most industry practitioners
are unlikely to be too perturbed by the
proposed changes, and will expect that
these will only have a marginal impact
on their businesses. As John Lewis of
the BVRLA commented: "Whatever
measures the standard-setters
eventually adopt, we don't see these
having much impact on vehicle leasing.
People lease cars for many reasons and
the accounting impact is generally not
the major consideration in a fleet
customer's acquisition decision".
9
Auto finance update
COMPANIES
Tesco withdraws from used car market
This quarter Tesco Plc, the UK’s largest
supermarket group, announced it was
pulling out of the used vehicle retailing
market. The business had launched
only a year earlier when Tesco
partnered with online sales company
Carsite.
Announcing the closure, Tesco
stressed: "We started Tesco Cars in
good faith and we always aim to do a
good job for customers. However,
following a review of the business
model we have decided, along with
Carsite our partner, that we cannot
offer customers a satisfactory range of
vehicles and, as a result, have decided
it is right to close the business."
According to a variety of sources,
sales volume never rose to the sort of
levels that Tesco aspired to. Whilst
Tesco Cars had plenty of potential
customers, the business did not
manage to attract supply from leasing
companies and therefore didn’t have
sufficient numbers of cars to meet
demand.
This decision has to be seen against
the background of Tesco reporting a
downturn in profits in its supermarket
business, a change in leadership and
the announcement of a ‘back to basics’
strategy.
The failure of Tesco Cars comes just
one year after online retailer
Autoquake went into administration. It
seems this business failed for different
reasons with Autoquake reportedly
having had problems with some large
deals it was working on - and also
because of the high cost of attracting
potential customers.
Nonetheless it was reported that, at
its peak, Autoquake was selling around
four times as many cars as Tesco Cars,
which does show that customers are
willing to buy online from a business
they trust.
Given the bruising these two
organizations have taken, it would be
brave for another newcomer to enter
the market now to try to challenge the
dominance of retail car dealerships in
the used car space. No doubt there
were several companies watching
Autoquake and Tesco to see if these
pathfinders could carve out a
profitable niche in the used car market.
And, no doubt, a number of them are
now saying “If Tesco can’t make it
work, who can?”
Athlon wins mobility award
Athlon Mobility Consultancy has won
the Smart Mobility Award for
innovation for its mobility management
system, Momas.
The award is given to a supplier that
develops and markets a product,
service or tool that helps businesses
significantly improve the
implementation or management of
integrated mobility policies. Award
criteria include employee efficiency,
cost optimization and improved carbon
footprint.
Momas is a web-based mobility
management system designed to help
employers manage their employees’
mobility solutions (e.g. company car,
public transport, allowances, etc.). It
uses process workflow to automate
many of operational processes such as
procurement, operating cost
management, administration, stock
control and performance monitoring.
Momas claims to offer cost control,
benchmarking, process optimization
and employee communication and to
reduce total cost of mobility by 7%.
The jury of 18 experts, all senior
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Sponsored by Bynx
managers or directors in the field of
mobility management, were joined at
the award ceremony by the Belgian
Minister for Environment, Energy and
Mobility.
Alexander Prinssen, vice president of
Athlon Mobility Consultancy said:
“Momas is a state-of-the-art tool that
allows companies to register and
manage all their mobility agreements
online, and is, as such, unique in the
market. We are proud that the
members of the jury, which included
representatives from leading market
players, have acknowledged our
dedication to innovation and rewarded
Athlon Mobility Consultancy for
offering leading market solutions with
this prestigious award.”
Athlon Mobility Consultancy is a
subsidiary of Athlon International. Both
are part of De Lage Landen, which in turn
is fully owned by Rabobank. It operates in
the Benelux and plans to launch in France
and Germany this year and Italy, Spain,
Portugal and Poland in 2013.
10
Auto finance update
COMPANIES
UK Fleet sector pessimistic about RVs & SMRs
According to the Experteye European
Leasing Index, the UK has seen a +6%
rise in service, maintenance and repair
(SMR) costs since June last year, with
forecast residual values (RVs) falling by
-4.6% over the same period. However,
average contract hire rental costs have
fallen by -3%; perhaps a sign of an
increasingly competitive market.
The Experteye survey tracks forecast
RVs, SMR costs and rental rates in six
European countries using data
supplied by major leasing companies.
Alongside the UK, Portugal is also
reporting a -4.6% downturn in forecast
RVs and a +4.6% rise in SMR costs. But
elsewhere in Europe the picture is
mixed with France seeing improved
confidence in the future used vehicle
market with a +2.8% rise in forecast
RVs, but a +4.7% hike in SMR budgets,
Italy is showing a +1% RV and +3.4%
SMR increase, Spain a +1.4% RV and
+0.4% SMR increase and Germany has
the most positive outlook of all with a
+4.1% RV improvement and -1.1%
reduction in SMR.
The consequence is that in a mixed
European market, French, Italian and
Portuguese fleet operators have seen a
rise in their annual rental costs,
whereas customers in Germany, Spain
and the UK have enjoyed a reduction.
Forecast RV
3 mth
chnge
12 mth
change
Forecast Service,
Maintenance &
repair costs
3 mth
change
12 mth
chnge
Current rental
rates
3 mth
chnge
12 mth
chnge
France
+0.6%
+2.8%
-1.0%
+4.7%
-3.5%
2.4%
Germany
+0.1%
+4.1%
-0.9%
-1.1%
-1.4%
-3.4%
Italy
-0.7%
+1.0%
-0.3%
+3.4%
+0.6%
+1.0%
Portugal
-4.8%
-4.6%
+0.6%
+4.6%
+1.0%
+0.9%
Spain
+1.0%
+1.4%
+4.7%
+0.4%
-0.1%
-0.1%
UK
+0.0%
-4.6%
+3.9%
+6.0%
-0.5%
-3.0%
We don’t
We
don’t put boundaries on our softw
software
are
so y
ou don’t
don’t ha
ve to put limits
limits on y
our service.
you
have
your
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Visi
for mor
more
e information.
information.
Auto finance update
RESEARCH
...but optimistic about operating leases
20
Lifecycle Adjusted Index Year on Year Change
15
10
5
%
0
-5
Used vehicle prices are of great concern
to UK vehicle leasing companies because operating leases are the most
common form of UK vehicle lease and a
lessor’s profit is strongly influenced by
the performance of the used car
market.
CAP Motor Research has produced a
report exclusively for Asset Finance
International, showing how the market
has fared.
The new report includes every car
that is available in the UK market. The
values have been weighted according to
the mix of vehicles in the average UK
business fleet (Executive diesel 10%,
Lower Medium diesel 35%, Compact
Executive diesel 30%, Upper Medium
diesel 15% and Supermini petrol 10% all three years 60,000 miles) so that it
reflects the fleet that an ‘average’
contract hire company would have on
its books.
The numbers have been further
modified to reflect the age of the
individual model since launch, as new
models sell for a premium whereas
ageing models tend to lose value.
Therefore this chart effectively shows
how the average leasing company’s
exposure to risk in the used car market
has changed over the years.
CAP says that this is a better
reflection of the health of the market
than the results published by auction
houses. Mark Norman of CAP, who
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heads its Automotive Intelligence Unit
explained: “Auction statistics simply
reflect the mix of vehicles that happen
to have been sold in a particular month.
So their results depend to a great
extent on the model mix of cars that sell
in the auction hall. If there are a higher
proportion of expensive cars then the
average auction report figures go up.”
“Our index is designed to iron out
those anomalies so the prices reflect
true asset depreciation. It is not an
index of average values but more an
index of average depreciation. It gives a
far better indication as to the state of
the market. The steeper the decline in
the index, the more monthly values are
depreciating.”
Professor Colin Tourick is a management consultant, former MD of Citibank's fleet leasing
business and a 32 year leasing industry veteran
Editor: Professor Colin Tourick Editor in Chief: Brian Rogerson
© Asset Finance International, 2012. All rights reserved.
The contents of this publication may be downloaded from Asset Finance International and are intended only for the individual use of the
named individual who has registered to receive it. Contents are for informational purposes only. No liability will be accepted for any
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© Asset Finance International, 2012 All rights reserved
Sponsored by Bynx
12