Bruce Howard explains
why UDA offers a much better proposition in the car leasing
market.
Go deeper with GlobalData
The growing appetite for
banks and other lenders to participate in the contract hire sector
via undisclosed agency (UDA) agreements may be a win-win situation
when it comes to business car fleets. However, it presents specific
obstacles when applied to the truck business, argues Ryder Europe’s
contract hire director Bruce Howard.
The reason for this, he said,
is the flexibility needed to deal with high value, specialised
assets when faced with a situation in which lessees need to
terminate a contract early due to changes in their
business.
To illustrate, Howard
referred to a deal in which Ryder had shared risk with another
finance house on a customer’s contract hire trailer fleet, and the
customer had requested early termination due to decreased fleet
needs.
“With the trailers on our
book” he explained, “it was very easy for us to talk to the
customer about shortfall and disposal options – we could store the
assets, and either relocate them elsewhere in our business, or sell
them on to get the best deal for the customer”.
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By GlobalDataThe trailers on the book of
the other finance house, however, were harder to deal with. Howard
explained that options were limited due to the need for the
termination balance to be paid by a certain date, and to the fact
that, as a bank, the other party had no ability to store, renovate
or modify the trailers.
“We were able to take our
trailers to a bodybuilder and subsequently sell them on for a
reasonable fraction of their original value, while the others had
to be priced for scrap,” he said.
Howard added that it is not
the case that undisclosed agents are unwilling to help customers,
but that the UDA mechanism just does not work in the constantly
changing world of specialised commercial vehicle
leasing.
“As newbuilds stay on the
drawing board, and the refurbishment and renovation of commercial,
retail and domestic properties are sidelined, many builders
merchants are taking a serious look at their transportation needs,
many with a view of downsizing or finding a more flexible
solution.”
Since the exit of GE from the
sector in the last year, Ryder is unique in the UK truck leasing
market in being self-funded – no other lessor uses its own money to
both purchase assets and finance client deals.
“From a bank’s point of view,
a leased truck or trailer represents a bottom line rather than a
living, breathing asset, and that restrains us, as the asset’s
manager, from getting the best possible return for a
client.”
Howard conceded, however, that UDA offered a much better
proposition in the car leasing market, where customers are “better
trained” in changing their fleet arrangements, and less likely to
request large-scale terminations on the back of losing important
contracts.
