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Sweating the assets
Page 30
Page 31
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What goes up must come down
— often with a bump. Rental and
leasing giant Transamerica has certainly learned that the hard way in the UK. Brian Weatherley reports.
11 t seems like only yesterday that Transamerica was busy buying trailers like they were going out of fashion, while on the Transamerica stand at every major truck show, sat the latest word in trailer technology. The message was unequivocal: "You're looking at the next number one in the UK trailer rental and leasing market." Unfortunately it never happened.
Today, Transamerica remains number two behind TIP. It has also had to bite the bullet on used trailer residuals.And to cap it all,AEG ON, its owner since 1999. has publicly stated that Transamerica's transport and finance business is up for sale — even though it seems in no hurry to sell itso this is not exactly a story with a happy ending, or at least not yet.
Transamerica's troubles stem from the notoriously fickle nature of the UK trailer rental market. Like the little girl with the curl, when it's good it's very, very good — and when it's bad,it's horrid.
Back in the late 1990s Transamerica had every reason to spend on new equipment. Business was brisk and residuals reliable. It's a different story now, as Rick Reid, vice-president trader of the UK trailer division ofTransamerica, and the man in charge of handling what comes back from operators, freely admits: "We built up in a period when the economy was in extreme growth and bought all there was to buy. In '95 and '96, we procured 3,000-4.000 trailers as we expanded."
By the time Reid arrived in the UK some three years ago the market was already cooling. "Within that time my view was that rental was looking pretty grim, there wasn't a lot of money to be made in it. The industry started contracting and new build prices went down 30%."
More worrying to Transamerica and Reid is the fact that all that smart equipment bought during the boom years. and now returning from lease customers, is worth significantly less than was predicted. "We had unrealistic expectations on residuals, although at the time they were the right decisions.We've had to change with the market and we're dealing with the over-valuation and have been challenged by it." he says.
No longer 'buying big'
One thing is for sure. liansamerica won't be buying 'big' again for some time. "We haven't been buying trailersjust to buy trailers," reckons Reid." We won't he buying 3.000 trailers in 2004 -it will probably be between 500 and 1,000."
Equally, as Transamerica 's vice-president of European operations Clive Francis explains. they'll be a lot more focused on getting the right trailers in the fleet in the first place. "Historicatty. if we needed 'x' trailers we'd do that deal," he says. "We made big investments in mega trailers, but it wasn't the type of equipment people rented.The past three years have been difficult but we've been improving."
The residual conundrum certainly isn't made any easier as long-term rental periods continue to reduce, reflecting operator uncertainty over customer contracts. It creates what Francis describes as: "An interesting dilemma. But what we say is 'If it's a five-year contract, it's a five-year contract." The underlying message being that early termination is possible at a price. However, he adds: "If a customer wants a five-year deal on a one-year price the risk profile is completely different!
So what is Transamerica's strategy for 2004 and beyond? "We've adopted the philosophy for the last three years of being "rental ready" so my UK trailer refurbishment capital budget is around L2m." reports F "Every trailer that's coming it a contract is immediately repa It may be five to six years old we're in transition from lea to becoming leaders in the rental market by force.We ha tremendous fleet coming off tl to five-year contracts."
The bottom line is that Trt merica will "make do and me with its current UK trailer fl which stands at 10,700, conc trating more on the rental ; service side of business.
just sweating the asset." ins Reid matter-of-factly, while Ft cis adds:"! think those decisi were right.We could have cart on buying but it becomes a qt. tion of asset management."
There appear to be no conce about a potential sell-off eitt According to Francis: "AEG( has responsibilities. It has $40 in place out there and its vies it's 'business as usual'. Is ther for-sale tag? I'd say no. As fat AEGON is concerned we ; in profit."
One of the benefits of an 'old fleet-the average age of Tran merica's UK fleet is six yet compared with five in Euro is that it's cash generati "That's somethi that makes th( think," not Francis. "A we all waiti for a white knight to come a rescue us? It isn't going to ha pen!" However, he says: "They' very good at leaving us alone. Overall, we're the black by several million and at the end 2002 the UK operation was profitable it's n a great number but it's in the black."
As our interview winds down Reid firm quashes any suggestion that Transamerica h retreated from the UK market. "We havet run away we've just had to focus on genii a higher rate of return.The job in 2004 is tog the message out.
"We're concentrating on the rental side ax growing it daily. We've just got to keep fightin We think we've done the right things. We askt ourselves 'how broken is it?' I think it's tt industry that needs fixing!".