May 2009

Small and medium companies will revitalise the car outsourcing market. The market, which after the huge expansion in previous years has slowed down a bit in last twelve months.

It’s been a tough call in the time of global crisis. For example, Polish branch of French homeopathic medicines manufacturer Boiron faced the dilemma: whether to replace their used cars with new ones or to extend their exploitation - fleet consisting of 43 Ford Focuses and Mondeos - while a three-year lease of 13 of them has just ended.

Boiron with a help from ALD Automotive Polska decided that will get new cars and also leave their management to ALD that is a part of Societe Generale Group. Cars of sales representatives, that make tens of thousands kilometres a year, has already been worn out, but they still had to run every day.

- Our effectiveness depends on the mobility of our sales representatives. Thanks to car fleet management company, we are sure that our cars will not let us down. - says Mirosław Kisiel, CFO Boiron. Despite an unstable market and financial situation, we decided that new, reliable fleet would secure our current and future existence, so we invested in it.

There are black clouds above car fleet management (CFM) market. Many clients are about to review their car fleet policy. Nowadays, in most cases that policy is set by two main factors - mileage and prestige of the brand. First is growing, second goes down. Long-term car fleet rental, operational lease including its management, like in case of Boiron, usually lasts three years. Recently, many entrepreneurs extend that period to four years. When they eventually decide to replace their fleet with new vehicles, the cars they purchase are usually volume cars, which are cheaper than premium ones. More and more clients ask about Fiat models, which were not that popular in previous years. There is similar interest in Hyundai’s and Kia’s.

The other side of the crisis. 

- Instead of salary bonus, selected employees receive higher car allowance, and that creates for them an opportunity to jump in the car of a higher - says Artur Sulewski, LeasePlan Fleet Management Sales Director in Poland.

Global market turbulences may, at the most, slow down CFM market that has been very successful in recent years. CFM experts estimate that market will grow by 10% in 2009. In comparison, in 2008 the growth reached nearly 33%. Keralla Research Institute from Wrocław has announced that CFM market consists of 124,000 cars. This year optimism is absolutely justified. Clients started to express their needs adjusting them to the current economic situation. And there also companies, which believe that CFM can be a remedy to survive the global crisis.

Market situation has created a new product, incomplete long-term rental with limited range of management services. It is also an opportunity for increased popularity of the lease back. Cars are sold to CFM company and then leased + purchase of management service package. First of them helps to lower an operating costs, as the other one allows releasing own financial resources and to engage them in defending market position or investing in the business expansion.

Leasing map of Poland 

Car leasing, both personal and commercial vehicles, drives the whole leasing market. The last report of Polish Leasing Association shows that in 2008, the value of the car leasing market reached nearly PLN 17.8 billions, while the whole leasing market in Poland exceeded PLN 33 billions. Although, the total car leasing value in comparison to 2007 decreased by PLN 360 millions. That was caused by a smaller commercial vehicles lease volume (personal cars sales volume was higher).

- In record high year 2007, transport companies took an advantage of very good economic situation increasing and renewing their fleets. Leasing was responsible for the purchase of tractors for PLN 5 billions and trailers for PLN 2.3 billions. But in the first half of 2008 their situation became worse. It was caused by strong Polish currency and the raise of fuel prices - says Adam Bugajski, General Director of Polish Leasing Association. He predicts renewing of the car fleets and general increase of the leasing in next year. In 2008, leasing was commonly used when purchasing machines and units mainly for building, agriculture and plastics sectors (market value nearly reached PLN 9.8 billions). Value of the real estate leasing reached nearly PLN 3.3 billions, which is equal to PLN 12 millions growth in comparison to year 2007.

According to FlotaMonitor Institute, number of cars serviced in the formula of incomplete long term rental increased in 2008 by 54%, reaching almost 13,400. Statistically, entrepreneurs have chosen two or three services from the full service leasing package that usually consists of maintain services, replacement cars, tyre service, insurance, liquidation of damages, fuel cards service and fleet reporting tool. That was typical for Masterlease customers, the main player on the incomplete rental market (more than 8,500 cars out of 19,200 managed by Masterlease by the end of 2008). Grzegorz Czarnecki, Corporate Sales Director in Masterlease, explains that incomplete leasing service is a popular solution, especially within the offer of GM Business Services by Masterlease, and also Fiat Biznes programme, which is a joint venture with Fiat Auto Poland. Santander Consumer Multirent, partnership of Santander Consumer Bank has also opted for incomplete leasing service. Within Safe Multileasing programme they offer leasing with free of charge access to the Insurance Claim Centre, replacement cars and telephone legal support. Nonetheless, dominating position of full service leasing, where clients’ monthly fee include full after-sales service stays unthreatened. Such rental was responsible for 84% of all Arval services in 2008, ING Car Lease Polska - 85%, Daimler Fleet Management Polska - 88%., LeasePlan - 90%., and Transpost from Poznań - nearly 100%. Lease back in terms of car fleets has just started to gain its popularity. According to Paweł Partycki, Arval Service Lease Polska Sales and Marketing Director, yet this year large group of clients would decide for lease back. There have already been first contracts signed and many questions from clients interested in lease back offer.

This is significant. Usually, transaction of selling own assets to a leasing company has a big value and applies mainly to fixed assets, such as buildings or production lines.
If the subject of the transaction are vehicles (in 2008, there were more than 6,200 cars sold to CFM companies), then it may cause cash flow problems, and at least a concern for enterprise good condition.

Paweł Partycki is convinced that especially small and medium companies will show their real interest in lease back. - When financing sources availability is questionable, banks has revised loans eligibility criteria. Lease back is an effective tool to get the means that in difficult economic situation should be invested in a general business activity only, says Paweł Partycki.
Leszek Pomorski, Vice-President of ING Car Lease Polska believes that the small and medium companies are responsible for the fast growth of the market. His words are backed with decreasing average number of cars managed by CFM companies per single client. In 2007, it was 14 vehicles per client, and in 2008 only 9. That indicates small companies’ intense purchases. Results of market leaders confirm that thesis. Small and medium companies use 15,000 out of 24,700 vehicles managed by Masterlease in the end of March 2009 and about 3,000 out of 13,000 managed by LeasePlan.

Numbers are significant, but - as pointed by Tomasz Ślepowroński, ALD Automotive Polska Managing Director - long-term rental has just started to gain clients among small and medium enterprises. And he also advances another argument for further growth of the market. European Tribunal of Justice acknowledged that from February on, Polish taxpayers are allowed the VAT deduction on so called cars with grating (category N1 with a load exceeding 500 kg). Tribunal stood out against VAT deductions by Polish Revenue Office and with sentence from 22 December 2008 restored binding force of the Act in wording of regulations from 30 April 2004.

Many entrepreneurs postpone the purchase of vehicles to the moment of an official announcement of the importers complete list of estate cars, vans and SUV’s with goods van/commercial homologation from which VAT deduction will be allowed. 

Further growth of the market is also backed by the fact that CFM companies try to meet their clients’ needs: more flexible offer, simpler procedures, and also there are new players on the market.

For instance, LeasePlan introduced electronic invoicing system, which modifies settling accounts for both parties and allows making corrections. So called open calculations system also becomes more and more popular. Artur Sulewski, LeasePlan Director says that this gives customers the full transparency of the fleet maintenance cost. If it appears to be higher than planned in the leasing instalment plan, the loss is covered by LeasePlan. If lower, the gain will be divided between LeasePlan and the client in two equal shares.

Arval, together with Irish Greenval Insurance, introduced the insurance services package, and customers of Toyota Bielany Corpo Cars more often use reporting tool to get information about each utilised car. - This reporting tool lets me know how much my cars are worn out and when I should replace them with the new ones - says Marek Pysklo, President of Polish branch of Swiss company Ewopharma, which more than one hundred Toyotas are managed by Toyota Bielany Corpo Cars.

One of the long term rental market newcomers is Handlowy Leasing. Partnership of Citi Handlowy bank offers to its customers - mainly small and medium business entities - financing of full service leasing in cooperation with Toyota Bielany Corpo Cars, which manages and services car fleets. Paradoxically, the global crisis may effect in increased profits for both, CFM companies and their clients.

Bogdan Możdżyński