John Maslen finds that lessors prepared to commit for the long
term can find public sector fleets a fruitful source of
business.
To an outsider, the public sector can seem like a bit of a
private club. Membership is only awarded to those who can conquer
its complex tender procedures, labyrinthine management structures
and unique demands for vehicles and service levels.
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But for those companies that have already opened the doors to
public sector business, the reality is less daunting.
There is no getting around the complex management structures or
compulsory tender process that shrouds every aspect of public
sector business, but beyond these, the fundamental fleet
requirements can be very similar to many private sector
businesses.
The right product at the right price with the right level of
service is the key to any successful relationship, whatever
business a customer is in.
A sizeable market
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By GlobalDataHaving the perseverance to serve the specialist needs of public
sector bodies can offer valuable rewards to leasing companies, with
access to contracts for hundreds of thousands of vehicles operated
by hundreds of public sector bodies.
Estimates vary, but according to figures released at last year’s
FN50 conference for fleet suppliers, there are about 100,000 heavy
duty vehicles, such as lorries and plant, and 200,000 light duty
vehicles, such as vans and cars. There are also about 90,000 new
vehicles bought each year.
The size of some of the potential contracts involved are as
varied and unique as the public sector itself, ranging from a
single fuel cards tender sent out last year that was valued at
£1.3bn and involved nearly 200,000 cards, to single vehicle
contracts for small local authorities.
With such a range of business on offer, investing the time and
effort in servicing the public sector is seen as worthwhile by many
leasing companies.
At ING Car Lease, public sector business accounts for about 24
per cent of the firm’s 45,000 vehicle fleet, and the lessor
predicts there will be strong growth for its range of vehicle
leasing services in the public sector.
Managing director Ian Tilbrook says: “The complexity of the
market can be a barrier to entry. However, since our acquisition of
Appleyard Vehicle Contracts in 2006, our managed fleet profile has
shifted to include a much higher proportion of public sector
bodies.
“This area of the market now accounts for around a quarter of
our total fleet and we see this proportion rising over the next few
years.”
For leasing companies, a key attraction of the public sector in
the current economic climate is financial stability, Tilbrook
says.
He adds: “While we are seeing some businesses in sectors such as
finance and property reducing fleet sizes, the economic downturn is
unlikely to have such an impact on the public sector, making it a
relatively stable and therefore attractive market.”
Steady volumes
The public sector could actually turn into a growth market for
some leasing companies, as concerns over risk management see
drivers covering fewer miles in their own vehicles.
More than half of public sector mileage is currently in private
vehicles, equivalent to an estimated 1.4bn miles a year, and
experts warn this carries substantial risk because vehicles are not
closely managed to ensure they are safe, taxed or properly
serviced.
As the government, local authorities and agencies look to reduce
their risk, they are therefore more likely to consider leasing new
vehicles for employees, contract hire firms believe.
However, there is a catch. Leasing companies are often wary of
public sector business because high volume has led to fears of
cripplingly low profit margins.
But Tilbrook disagrees, adding: “We have found the public sector
to be more quality-driven than many outsourced suppliers
perceive.
“Our experience of working with hospital trusts, councils and
education authorities has shown that while this sector is
price-competitive, there is also recognition of the need for
quality of service and solutions that support specific
needs.
“There is a perception that margins are very tight because
agreements are based on multi-supplier relationships, with
companies fighting for every order. But this is not the
case.
“It is competitive, but it is not any less profitable, providing
you run your business in an organised way.
“I know there are leasing companies pulling away because there
is no return, but our experience shows that if you understand your
customers and the business, you should not have to compromise
margins.”
Know your customer
One area where all leasing companies agree is the need for the
right level of understanding when dealing with public sector
fleets.
Tim Hudson, commercial director of LeasePlan, says it is
important to understand the challenges the sector creates and
ensure your business knows how to meet them, but also the dangers
of getting it wrong.
He says: “You need to understand how the vehicle is being used
and the consequences of it being off the road. In some
circumstances, downtime is not an option.” This means that
ancillary suppliers must be managed effectively to “get it right
first time”, he notes.
Failing doesn’t just mean unhappy clients: it can mean a ruined
reputation as, despite its fleet size, the public sector is a small
community.
Hudson warns that, just because a leasing company has managed to
win a tender to join a list of approved suppliers, that doesn’t
guarantee it business.
He says: “Suppliers need to know how to work in the environs of
framework agreements. Getting into the agreement is only the
beginning of the story and it is not a licence to ignore the finer
points of service delivery. There is a very big prize, so we should
be focused.”
Tilbrook agrees: “Being an approved supplier does not give
you market share. You still have to prove yourself in the
market.”
Patience pays dividends
This focus also requires patience when trying to introduce
changes that will benefit both customer and the leasing company.
Decision-making in public sector organisations can be slow and
there is little that leasing companies can do to speed up the
process.
According to Colin Thornton, channel sales director at Lloyds
TSB Autolease, patience is essential in servicing the sector. He
says: “They are slow adopters to new practice, so your ability to
streamline processes and adopt new ways of doing things is a slow
and painstaking process.
“That is changing with e-commerce, but it’s a fairly long-winded
and protracted authorisation process. Also, decisions tend to be
collective which can slow things down.”
Last year, the structure of many public sector organisations
came under fire for making it difficult for fleet managers to
introduce changes related to reducing emissions or improving
safety.
Public sector fleet managers voiced concerns that they don’t
have enough control over the factors they need to in order to make
changes to their fleets.
Gaining co-operation from other departments, such as HR, is a
typical challenge, they said, while achieving senior level buy-in
to any substantial changes also seems to be a major issue.
A spokesman for Automotive Leasing, a specialist leasing company
to the public sector which is part of LeasePlan, comments: “Many
organisations simply don’t have the right fleet strategy agreed at
the right level to implement any substantial change when it comes
to running these vehicles.
“Many fleet managers said that they constantly come up against
brick walls whenever they try to implement an initiative to make
their vehicles greener, more cost-efficient or even safer.”
However, this shared decision-making power is intended to ensure
taxpayers receive best value and mistakes are avoided, and this
same process means that transparency and record-keeping are an
essential element of working with this sector.
Thornton adds: “Because of the accountability of the public
sector, you have to be totally transparent so your documentation
must be clear.”
A dedicated team
For most leasing companies, the scale of the challenges involved
means separate public sector teams have to be created to focus on
their customers’ ongoing needs.
Having a dedicated team also helps to maintain accuracy to
benefit both supplier and customer. Getting the wrong specification
on a car can be a headache, but errors on bespoke equipment costing
hundreds of thousands of pounds are unacceptable. Thornton states:
“Both the risks and the rewards are quite large.”
This balance of risk and reward has led to predictions that some
leasing companies will pull out of public sector business over the
coming months.
In some cases, they may feel they are too reliant on one sector
and want to protect themselves against the lottery of contract
renewals, while others feel there is too much work for too little
profit.
But according to Thornton, profit only comes from a long-term
approach. He says: “You must be committed to the sector through
thick and thin. Some companies wander in and out when they need
short-term volume, but to really benefit, you need to be part of
the core of suppliers.”
Among the companies investigating new growth opportunities in
the sector is ALD Automotive, which is finding issues that will be
familiar to many companies already in the sector.
Mel Dawson, sales director, says: “It is a more democratic
decision-making process, very much by committee, so the key is
being able to find the right people.
“However, finding the decision-makers can be difficult. In the
private sector, the decision-makers make themselves known normally
and get involved in meeting suppliers and the tender process.
“It is not so straightforward in the public sector, but this
could be because we are in the early stages of taking on public
sector business.”
Although there are challenges, this can be offset by the rewards
awaiting companies that are preparing to commit to the sector for
the long term.
And with hundreds of thousands of vehicles and billions of
pounds’-worth of contracts available, it is a club where membership
certainly has its privileges.
