Jo Tacon talks to Simon
Oliphant, CEO of Hitachi Capital Vehicle Solutions, about how to
weather the fleet industry’s annus horribilis.
In its recently-released annual results for the year ending March
2009, Hitachi Capital Vehicle Solutions (HCVS) announced a profit
before tax of £3.2 million – a big step down from its pre-tax
profit the year before, of £10.8 million. But given the current
market conditions, says chief executive Simon Oliphant, the fact
that HCVS managed to stay in the black is testament to the strength
of the fleet management and leasing company’s strategy for avoiding
the pitfalls facing all lessors in the present turmoil.
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“I joke to our staff that I never thought
I would say that this is a good result, but in the overall market
context I believe that it is a highly positive statement,” he notes
wryly.
In the official results statement, Oliphant notes
that “achieving a positive financial result for the year is a
reflection of our experienced and committed management and staff
responding to the economic situation.”
Expanding on this point, he says that HCVS has
negotiated with relative success the twin main dangers to fleet
operator profitability at the moment: the fall in residual values
(RVs), and funding.
“HCVS has no issue with funding, thanks to our
parent company, Hitachi,” Oliphant states – an enviable position
for a fleet lessor. And even on the former point, he believes that
HCVS’ past prudence has insulated it from the worst fall-out of the
slump in RVs.
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By GlobalData“At the end of the day we faced severe issues due
to the downturn in vehicle values,” he says. “However, we’re in a
better situation than many of our competitors, as we have always
had very strong controls around RVs.”
Oliphant points to HCVS’s avoidance of tactical
pricing and its focus on a diversified remarketing strategy as the
reasons for its continued profitability.
“Auction is a good place to sell vehicles, at times
the best place, but there was a point last year when things were
very difficult, so instead of sending as many vehicles to auction,
we used retail channels, sale and return, sales to friends and
family and so on, and boosted our non-auction sales by 32 percent.
If you have options, you can mix and match,” he observes.
“Now, once again, auction is a viable route, but we
don’t use it exclusively – it’s about striking a balance. Auctions
are an early barometer for what’s happening in the market, and a
very useful disposal route for us.”
But over-caution on setting RVs must also be
avoided, Oliphant emphasises: “You should be accurate rather than
conservative, otherwise you can’t be competitive.
“But you can’t ignore history. On occasion
residuals become unlinked from past performance and that’s when
companies end up taking an over-aggressive stance – it’s a
short-term tool to grow the business but can also lead to major
problems,” he warns.
As one example of the success that can be derived
from a diversified disposals strategy, HCVS has worked with online
reseller Carsite to market cars to customers before they are
defleeted, using Carsite’s Preview platform. Pre-termination sales
online have risen markedly, HCVS reported, while the average number
of days to disposal has nearly halved.
Appetite for acquisitions
In late 2008 HCVS acquired The Driving
Instructor Centre (TDIC), a business which supplies cars on
contract hire to driving schools and teachers.
“We have a history of making strategic
acquisitions, and TDIC definitely fits into this mould – it’s
complementary to what we do, as well as being a good cultural fit,
and available at a fair price,” Oliphant comments.
HCVS is, he adds, definitely in the
market to make further acquisitions – if the price is right.
“There are targets out there, and we are
looking at several possibilities, but there has to be that
strategic fit – we don’t want to buy a company just because it’s
cheap,” he says.
Again, the financial backing of its parent company
will allow the lessor to advance its growth plans, Oliphant adds:
“With TDIC, there was no problem in getting funding once the
acquisition was agreed in principle – despite the prevalent market
conditions. That’s very good for us, since there is still a major
disconnect between base rate and the funding rates available to
leasing companies.”
Organic growth is also on the menu, Oliphant says:
“We’ve gained large and medium accounts, and have grown alongside
our customers – although it goes without saying that many of them
have felt the pain of the recession. We have worked to retain
customers, and our stable funding base is a key selling point:
given the volatility that exists in the fleet market, and the high
risks associated with changing supplier, some fleet customers do
not know who they will end up dealing with, thanks to the rapid
pace of consolidation, so having a strong and stable fleet partner
is vital.”
In common with other fleet providers, HCVS is
working actively with clients to help them find ways to cut fleet
costs, Oliphant says.
“In the current climate there’s a lot of pressure
on, but we need to maintain service levels. It’s about working with
clients and supporting them however possible through tough times,”
he adds.
He sees HCVS’s role as being to “add value” to
clients – to remove the burden of day-to-day admin from fleet
managers, freeing them up to manage the strategic direction of the
company fleet. In order to make that task even simpler, HCVS is
investing extensively in its e-commerce offerings, “to remain at
the forefront of the market.”
As for the future, Oliphant is guardedly
optimistic.
“It’s a bit early to say that the market is
recovering, but the used market has picked up a lot, although
whether this is sustainable or not is another question,” he
observes. “We’ll see more fluctuations this year, as the effects of
the recession are still washing through.”
Still, with rigorous controls in place in the area
of RVs and with strong backing from its multinational parent, HCVS
will face the challenges of coming months with quiet confidence,
Oliphant believes, although – as he notes – “We’re not home and dry
just yet.”
