Mercedes-Benz Financial Services has
taken advantage of favourable market conditions and the absence of
bank-backed competitors to double its business volume over the past
two years. And its director of commercial vehicles says he’s not
about to take his foot off the gas any time soon.
Those seeking new business with regional
commercial fleet operators take heed; Alex Matthews, director of
commercial vehicles at Mercedes-Benz Financial Services UK (MBFS),
wants to get there first.
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With responsibility for developing the
commercial side of the German vehicle manufacturer’s finance arm,
whether through retail or corporate custom, Matthews is in no doubt
where his priorities lie at the moment.
“We’ve had
customers across the board,” he says. “We’ve got one-man bands and
we’ve got a number of major corporate fleets but at the moment we
are trying to concentrate on dealer business – major regional fleet
business.”
Matthews gives a rough customer breakdown of
MBFS Commercial as consistently 40% in retail and inconsistently
40% in the big corporate fleet sector – penetration rate with
corporates can fluctuate wildly, he says, because “you either win
or lose the deal”.
The remaining 20% of customers belong to his
coveted SME sector which Matthews defines as anywhere between 25
and 200 vehicles.
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By GlobalData“These local, small-town SMEs are major players
in those regional markets,” he says. “When you compare them with a
supermarket chain, yeah they are fairly small, but in a regional
area a company that runs 50 vehicles is a big player.”
Matthews says he wants to tighten up the way
MBFS approaches SME business, a strategy he says is being
implemented across the whole parent group.
MBFS reports into the Financial Services
division of Daimler in Germany and Matthews says it is a key part
of the business.
“If you look at Daimler AG, it’s got four major
pistons: passenger cars, van, truck and bus and financial
services.”
The financial ‘piston’ contributes between 15%
and 20% of the group’s overall profit, which in 2011 stood at €6bn,
up 29% from 2010.
Growth has been forthcoming in MBFS as well
with the UK commercial division doubling its business volume over a
two year period from £152m (€190m) in 2009 to £305m in 2011.
Matthews says the business has gone from
strength to strength and, with the penetration rate doubling over
the same period to 30%, equivalent to one in three Daimler
commercial vehicles being funded by MBFS, he seems to be right.
The division has also started 2012 well and
Matthews has targeted £350m in finance and a further increase in
penetration rate for the end of the year. However, he believes the
contribution of financial service is about more than profit.
“Those are the tangible results but we’ve also
found if we finance a vehicle we’ve got greater chance of retaining
the customer and a greater chance of renewing earlier,” he
says.
One reason for the success of MBFS in recent
years may be its pricing model. The company has moved to a RORAC –
return on risk adjusted capital model – as opposed to set pricing.
Looking at probability of default in the RORAC model, says
Matthews, allows MBFS to give strong rates to strong customers.
Residual shift
As MBFS has shifted price, its customers have
shifted across finance products, according to Matthews, who says
customers are moving away from a hire purchase product towards
residual value-based products.
Within MBFS’ Agility finance product, Matthews
has seen residual value products, including contract purchase,
operating lease and full contract hire, rise 243% in the HCV sector
and 168% on LCVs between 2009 and 2011. “They’ve got flexibility
compared to straight hire purchased where you basically pay-off a
loan and are left with a four-year-old vehicle,” he says.
The move to residual value products is also in
MBFS’s interest and it is something the company has been targeting.
“We’ve got a lot of faith in these vehicles and have no problem
selling them second time round,” says Matthews. “But also, for the
customer, it makes the cost of the vehicle more digestible.”
Digestible
cost remains an important selling point in the current uncertain
economy which Matthews describes as both an opportunity and a
threat.
“There are small green shoots from the economy
so I think we will see certain sectors becoming more favourable.
It’s a confidence thing and as soon as it begins to turn,
confidence breeds confidence,” he says.
Matthews says customers are renewing across the
board but cannot say whether that’s down to the economy turning,
the deals on offer or the number of customers running old vehicles
in need of replacement. “A number of operators have run their
vehicles with a big question mark over what happens in the future
so they are at a stage now where they need to renew because it
costs more to keep an old vehicle on the road than it would do at
£370 per-week on contract hire,” he says.
Matthews points to rising fuel prices as a
further challenge for customers but concedes he needs to see more
of a trend before giving an assured verdict on the economy.
Banking on a return
From the point of view of MBFS, it’s the return
of the banks to a recovering market which concerns Matthews. “One
of the reasons for our success over the last two years has to be
the fact we haven’t seen as many bank competitors in the market.
It’s not the only reason, but the banks being out of the arena
while we’ve remained here has helped. They will come back at some
point, so we’ve got to watch out for that.”
While the bank-owned lenders are a concern to
Matthews, he is bullish about how MBFS fares against them on the
open market and cites penetration rate and pricing as well as an
approval rate of eight out of 10 for retail customers and zero
declines in fleet transactions so far this year as evidence of
MBFS’s commitment to finance Mercedes-Benz commercial vehicles.
Commitment from the banks, says Matthews, comes
when a high-value client is at stake. “What we do find is if you’ve
got a customer who has a very strong credit covenant the
relationship bank will fight hard to keep the entire banking
relationship and that includes asset finance. That’s where the
banks fight the hardest,” he says. “However, for some of the major
transactions that we’ve won, when you come up against it some of
the bank offers aren’t as good as the headline points. We are
punching at the right level and standing toe-to-toe with the
banks.”
One reason the commercial vehicles chief gives
for MBFS competitiveness is its strong funding model. MBFS benefits
from funds coming from the Daimler treasury, both from group equity
and borrowing on the open market, the latter made easier by a
recent upgrade by rating agency Standard & Poor’s from BBB+ to
A-, and from deposits in Mercedes-Benz Bank.
Part of
the MBFS UK portfolio has been converted into a branch of
Mercedes-Benz Bank, an online, deposit-taking bank in Germany.
“Liquidity has never been an issue for MBFS in
the UK,” says Matthews, “and that helps us in terms of funding
costs and the offers we can give to the customer.”
Outside of the bank-owned lenders, MBFS is up
against other major commercial vehicle captives such as MAN Finance
and Volkswagen Financial Services, but Matthews doesn’t see it that
way.
“I don’t see those as competitors because we
are not putting the vehicles up against each other. You don’t
decide you want a Volvo and then go to MAN Finance. You decide you
want a MAN vehicle and then you fund through MAN, likewise with a
Mercedes-Benz,” he says.
“What I’ve got to do is make our offer as
competitive as possible because once I put those vehicles on a
level playing field with the competition then I’m confident.”
Joined-up thinking
While Matthews has plenty of confidence in the
vehicles, it’s confidence in finance he wants for the Mercedes-Benz
commercial vehicle dealers in order to target his desired SME
fleets.
“We are tightening up the way we approach those
customers, both from a Mercedes perspective and from a commercial
vehicle dealer perspective,” says Matthews.
“We are training the dealer sales forces in,
for example, contract hire because that’s an element of our
business where we need to do more work – to get people comfortable
with not just selling the metal.”
Matthews’ ambition for MBFS is for a potential
customer to be able to walk into a dealership and speak with a
single sales person who is adept at selling finance as well as
selling vehicles. It’s a synchronised approach across MBFS’
commercial vehicle division and Matthews says the local SME fleet
customer is good example of how the joined-up service should
work.
“It’s not just what their custom means to us
but the commercial vehicle dealer themselves in terms of
maintenance and repairs and workshop time. We want to give
consistent, superior service; to make us as easy to do business
with as possible has got to be the aim. That includes finance,
repair and maintenance and buying the vehicle in the first place.
It’s a one-stop shop.”
It’s a strategy already in place at MBFS
headquarters in Milton Keynes, says Matthews, where the sales teams
are responsible for both vehicle sales and finance sales.
“It is two sides of the same coin,” he says,
“and there is strength to be had in going to market together. The
guys out in the dealerships need the support of the specialists
here and to have the team joined gives us the strength of being
able to go right back to the customer, whether finance or the
vehicle, with exactly want they want.
“The pinnacle for me,” says Matthews, “is to
have every sales person proficient in rolling in finance as just
another part of the overall deal, making it an integral part of the
sales process because it helps sell more vehicles.”
