Rental and leasing emerge unscathed
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CM was on the ball in forecasting enormous growth in this sector despite difficult market conditions. A special correspondent investigates
THE GROWTH of self-drive vehicle leasing and rental companies in recent years can best be described as prolific. Scarcely a village in the United Kingdom does not boast at least one hire firm.
Strain on capital resources and spasmodic demand are two of the main factors affecting businesses. There has also been a noticeable development in the entire distribution concept where operators provide warehousing facilities.
Credit for the development of this concept must go to the National Freight Consortium, its pioneer more than 15 years ago.
We recall vividly the British Road Services group of the day being more than a little upset when we reported that they were to develop contract services at the expense of general haulage. The report was refuted.
NFC's companies are today heavily engaged in profitable contract work. And did they not make an immense impact on the rental market with BRS Truck Rental?
Probably the largest customer area in self-drive is the do-it-yourself householder moving house. We warned members of the British Association of Removers at their conference in Windsor 10 years ago that it would happen. They disagreed then, privately; today, they agree.
Vehicles in greatest demand are in the 7.5-tonne category because of the driver's licence situation.
Gazing again into our crystal ball, CM foretold the increase in contract work. There was a gradual but perceptible move by manufacturers of consumer goods to get out of transport and use their resources for their principal activity. This meant contract business for those who were far sighted enough to get in early.
Our forecasting did not stop there. De-stocking was a sensible move in the depths of the recession. That meant warehousing by the manufacturer. It also meant tight delivery schedules.
The end of the development is still a long way off.
Inter Company Camparisons has this to say: The vehicle rental and leasing sector of industry has come through a difficult period relatively unscathed.
This is the picture that emerges overall from ICC's latest and updated Financial Survey and Company Directory entitled: Vehicle Rental and Leasing, Sixth Edition, which examines the financial performances of 219 companies.
The figure in the survey shows how reasonably successful the industry has been: • 74 per cent of companies increased their sales.
• 68 per cent of vehicle rental and leasing concerns enjoyed higher profits.
Several factors have contributed to the optimism of this report: fleet management facilities have become increasingly popular with many customers; there is the introduction of credit cards from individual vehicle leasing companies; promotional activity aimed at farmers, doctors, and so on; and diversification from the basic hire market.
However, the report says that the industry has not enjoyed a healthy period entirely across the board since 35 per cent of companies in the survey in their latest accounting years declared a loss. In the short-term, self-drive vehicle sector overheads can be very high.
Nevertheless, the recent signs of improvement in the economy are encouraging. Larger companies are likely to perform more successfully through the benefits of scale.
The Financial Survey analyses the companies in terms of two years' comparative figures on turnover, total assets, current liabilities, profits before tax and payments to directors (and also shows their principal place of business, principal trading activities and holding companies, if any).
Copies of the survey entitled Vehicle Rental and Leasing, are priced £85.80 and are available from ICC Financial Surveys, Fourth Floor, 28-42 Banner Street, London EC1Y 8QE, (telephone 01-253 9736; telex 23678).
"There has been no halt in our growth record for the year," said marketing manager Richard Robinson of Interleasing (UK). "August was a record month in terms of net additions to the fleet."
How does Interleasing account for this growth and how will it benefit customers old and new?
Managing director Tony Hughes explained that increasingly companies are recognising the benefits of contract hire over outright purchase. "Potential contract-hire customers are becoming more educated, more discerning, more aware," he said.
"And that's great news for Interleasing, because the size and scale of our operation and professionalism of our service is there for all to see."
It is a service which has been enhanced as a result of Interleasing's consolidation into the Cowie Group of Companies. As part of the Hanger Group, one of Interleasing's claims was its motor industry knowledge — it has never been just a finance house. Now, as part of the Cowie Group, Interleasing enjoys total independence of any manufacturer.
Moreover, it is Interleasing's size and breadth of operation which allows for a total flexibility in contract foundation that increasingly gives it its appeal.
Birmingham sales manager Penny Hartley, with her 15 years' experience at Interleasing explained: "We can genuinely build our contracts to suit customer needs when it comes to contract periods and mileages, relief vehicles, vehicle types, incurance cover options, fuel cards, fuel man agement, methods of payment and so on."
So far this year food brokers, medical equipment suppliers, construction companies, chemical manufacturers and distributors, heating engineers and many more have already joined the Interleasing fold.
And for 1985? Enhancement to the Interleasing service will bring greater benefit for Interleasing customers.
Commercial vehicle contract hire has received a major boost which will make the option much more attractive to ownaccount operators. The Chancellor's decision to revise the corporate tax structure, including the removal of capital allowance and stock relief, will have a major impact on the vehicle market. "It signals the end of a system that encourages investment in low yielding and loss making assets," said Charles Hart, truck sales manager of Interleasing.
Along with changes in the accounting practice which will require financed lease assets to be capitalised, it leaves contract hire as the only effective method of "off balance sheet funding".
Charles Hart said it is a market change for which Interleasing is already gearing up with an expansion of his truck contract hire sales force to cater for the envisaged doubling of the contract fleet in the next 18 months.
Charles Hart argues that the market is artificially inflated by the current tax system. Until this year commercial vehicle users have been able to claim a 100 per cent capital allowance on their vehicles. This has made outright purchase an attractive option. The eventual phasing out of the allowance will make own-account operators look closely at vehicle acquisition.
Initially, he believes, the change may simply be towards extending the operating life of each vehicle. But in terms of breakdown and maintenance this creates a higher operating risk, and one which fleet operators can ill afford. The most viable alternative is contract hire where maintenance is included in the fixed contract price and the contract payment is an off balance sheet transaction which is allowable against profits for tax purposes.
"Often, the only reason that own-account fleet operators have opted for outright purchase has been the capital allowance. The phasing out of that heralds a new era for the truck market, with the emphasis firmly on contract hire."
Interleasing's expansion plans to cater for this growth in demand are geared specifically to trends also dictated by government legislation. Although the overall market has increased by just six per cent this year, changes in vehicle excise duty and weight restrictions imposed by the environmentalist lobby have meant a 20 per cent expansion in the two-axle rigid (7.5 to 16-ton) sector.
A "new company" was launched on the leasing and contract hire market in September. It claims to be a company with a difference. Leaseline started business with nearly 8,000 cars in its fleet.
It is also involved in truck, spot and contract hire and has updated its cornputerised fleet management systems.
Leaseline is the former Wadham Stringer Vehicle Contracts of Waterlooville, a member of the TKM/Wadham Stringer Group. So perhaps its claim needs closer examination; after all, Wadham Stringer is not new.
The company was formed in 1976 to service business customers using Wadham Stringer retail outlets on the South Coast. Inside three years it was writing new business for organisations outside of the group.
The change of name was made to allow Wadham Stringer Veh-cle Contracts to establish its own identity, instead of retaining its image of being a dealer-based organisation.
Leaseline has installed new hardware and software; it has also opened its first London office, under the management of David Heavens, formerly fleet sales manager with a rival firm.
Through its fleet management system, Leaseline offers a range of specialist services. The basic service provides a computerised short and long-term analysis of a firm's fleet The system has been developed to cover both domestic and commercial vehicle users, and is used for the company's own fleet of over 60 petroleum tankers and 20 curtainsided lorries and boxvans.
Since 1976, the company has been developing its range of services to cover all forms of leas:ng and contract hire. This includes contract purchase, open-ended leasing and a payby-the-mile scheme.
Leaseline has also been developing in the competitive medium and short-term hire market.
This year it launched a new company, Temporary Transport, which specialises in medium-cost, medium-term hire, to companies requiring re lief vehicles. The fleet is made up of ex-demonstrators from the group. Leaseline has also opened a franchised car rental operation in Portsmouth.
This activity comes under the same management as Nightingale Hire, the company's truck division. Petroleum tankers are available for hire with or without drivers. During the winter as many as 120 drivers are on Nightingale's payroll. More recently, the company added curtainsiders and boxvans to its fleet, which is based in London.
But why the new name?
"The importance of the new name is mainly in the recognition that we have come a long way since starting as a dealer-based operation and it is now appropriate for us to go into the market place in our own right," said Simon Down, director and general manager of Leaseline.
The Speedwell Transport Group of Macclesfield, Cheshire, is a haulage and storage operation which specialises in distribution to all parts of the United Kingdom. Warehousing includes temperature controlled storage.
Fred Stevens runs a very tight ship at the Clowes Road site. "When a customer puts his trust in you to take on the responsibility of moving his products into his market place; you have to ensure that they arrive at the right place, at the right time and in the best possible condition."
The Speedwell Group operates 28 vehicles and these include a mixture of Leyland and Mercedes-Benz, 16-ton curtain and dropsiders. Sixteen are on full maintenance contract hire from the West Midlandsbased commercial vehicle contract company Ackers Jarrett Leasing.
The trend for haulage companies to avoid contract hire as a financing alternative to outright purchase in the past has been due to the high incidence of "owner operators" within the industry. However, in situations where the bulk of a haulage company's business lies in warehousing and distribution rather than spot hire, the ability to project accurate figures for budget control is essential when calculating a fair rate for the job. This was the reason why Fred Stevens considered the contract hire concept in the first instance.
Many companies are in the contract-hire field. Fred drew up a short list of three and chose Ackers Jarrett Leasing. "They spoke my kind of language," Fred said.
But talking the language is not enough.
There are other ingredients within the overall mix which appealed to the Speedwell Group operation. These include the regular on-site six-weekly inspection of every contracted vehicle by an Ackers Jarrett engineer. Previously, downtime on Speedwell's own vehicles had amounted to the equivalent loss of one vehicle for a year.
Fred Stevens is convinced that full maintenance contract hire is the way ahead. He plans to change all his vehicles over to Ackers Jarrett Leasing management and get out of the ownership business. "They look after every detail like road fund licences, replacement tyres when required and DoT documentation and plating which would normally need the services of a full-time employee on my pay-roll," he said.
"Since we went over to contract hire, our business has run a lot more smoothly — and that's the way I like it!"