Claire Hack discovers
budgetary pressures mean players in the specialist wheeled asset
sector must find cost-effective solutions.
Go deeper with GlobalData
The leasing market for
specialist wheeled assets remains dominated by the demands of the
public sector.
This means the segment is
subject, more than most, to changes in government, as well as
additional requirements during the tendering stage, and deals tend
to be on an operating lease basis.
In the UK, for example,
vehicles must be purchased through the Public Sector Buying
Solutions framework.
Hitachi Capital Commercial
Vehicle Services divisional managing director Jon Lawes says: “This
ensures pricing is competitive ahead of public sector spending
reviews.
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By GlobalData“By going through this Buying
Solutions agreement, it is cheaper and less time-consuming than
going through a full tender process.
“In light of the recent
spending review, it’s essential organisations such as NHS Blood and
Transplant can prove they have negotiated the best possible
procurement terms.”
Biagio D’Addesio, head of
UniCredit Leasing’s Vehicles & Fleet Management Competence
Centre, adds: “Procedures differ completely from private to public
customers: commercial approach, credit evaluations, invoicing and
contract modifications, and expiration must follow the rules and
the content of public tenders.”
Inevitably, lessees, the
greater majority of whom are local authorities and public bodies,
have been affected heavily by the recent spate of government
cutbacks in the UK – and the picture is similar on the continent,
too.
D’Addesio says: “Being mostly
city halls or publicly owned companies, they have been affected,
for instance, by budget tightening that modified their payment
behaviour.
“In general, we would say
that in recent years, the creditworthiness of public bodies,
particularly in some CEE countries, did not improve, and it is not
expected to get much better in the near future. Government spending
cuts put more pressure on discounts and other costs like interest
and fees.”
This has, nonetheless,
presented leasing companies with an opportunity to increase their
market share, as public bodies look more and more towards
alternative forms of finance to supply necessary
vehicles.
In the first quarter of 2011,
for example, as the full extent of austerity measures became clear
in most European regions, some lessors noted a marked rise in
requests for funding.
Lawes says: “With pressure to
reduce budgets, and funding cuts in the public sector,
organisations are being challenged to rethink the ways in which
they fund and manage their fleets to find a more cost effective
solution.
On the flipside, the
reduction in government spending has meant certain highly
specialist vehicles are falling out of use and authorities are
looking to extend the life of fleets, instead of procuring new
vehicles.
Ken Hunnisett, a director at
Cranmer Lawrence, a provider of equipment operating leasing, says:
“We have already seen evidence of a reduction in investment in
vehicles deployed in some discretionary services such as mobile
libraries.”
Ambulances, refuse collection
vehicles, snow ploughs and fire engines all figure highly in the
segment, but it is not dominated solely by specialist vehicle
funders or bank-owned lessors.
For example, captive funder
Siemens Financial Services (SFS) has been financing refuse
collection vehicles in the UK, as well as other wheeled assets used
by the public sector, for the last decade.
David Martin, general manager
of commercial finance for the UK at SFS, notes: “We specifically
focus on the public sector and we finance all types of assets in
that market.
“That includes any type of
wheel-based asset, that might range from a small van doing specific
deliveries for a council, up to larger vehicles such as refuse
vehicles, fire engines, snow ploughs or gritters, depending on what
services the council is providing.”
Vehicle cost, Martin
explains, can range from about £80,000 up to about £150,000, and
can start from just one vehicle depending on the lessee’s
requirements.
“From what we have seen with
local authorities generally, no two deals are the same,” he
says.
“It will come down to which
vehicles they have used before and what they are used to. Also, the
cost of the assets is playing a major part now.”
Martin adds that some lessors
may be prepared to take more competitive residual values on
top-of-the-line models, but that a balance must be struck between
this and keeping leasing rates low.
“Authorities look at how many
vehicles are required to manage services. That varies the length of
contract, depending on what other contracts they have in place and
what other services they have to provide,” he says.
Some funders such as ING
Lease UK do operate in the private sector, although they are
generally in the minority.
ING Lease UK communication
manager Jo Morris says: “While we do finance specialist vehicles,
they tend not to be for the public sector as we do not offer an
operating lease product and this is generally what is
required.”
She adds that private sector
funding for specialist wheeled assets had been “relatively
consistent” over the last few years.
“We are happy to accept deals from our introducers for
specialist wheeled assets that are written on a finance lease
basis,” Morris comments. “This sector of the market is very much
geared towards products with a residual value risk, which is
something we don’t offer and many of the commercial deals are
written on this basis too.”
