The list of names is like a roll call, telling us all we need to know about the story so far: Alliance and Leicester, HBOS, Lehman Brothers, AIG, Merrill Lynch, Fortis, Bradford and Bingley. Things are not going well, and it is quite clear that this shake-out has some way to go. Things won’t be helped by the US House of Representatives’’ rejection of the President’s US700Bn bailout plan.
The crisis has already had a marked effect on the UK contract hire companies. Liquidity and profitability are under attack. It is about to affect the shape of the market too: The takeover of HBOS by Lloyds TSB will bring together the two largest UK contract hire companies, Lex Vehicle Leasing and Lloyds TSB Autolease. In other times such a move would have led to monopolies commission referral but this won’t happen as the government has already announced that the overall bank merger is in the national interest.
So we are about to see the creation of the UK’s largest contract hire business, with a fleet of around 380,000 vehicles. This is more than three times the size of nearest rivals LeasePlan and Lombard. Only 15 years ago a fleet of 50,000 was considered huge. I have heard much speculation about the future of the new business, but it’s not worthwhile repeating here as it’s likely that no-one has yet worked out the plans; in fact, Jon Walden of Lex and Nigel Stead of LTSBA have already said as much.
There are about 1.5m vehicles on contract hire in the UK. The new business will have about 25% of the market. Which raises the question; would this be a bad thing?
A quick comparison with the US fleet leasing market might be useful here. Their market has undergone massive consolidation and there are very few players left. The top 10 fleet lessors fund the vast majority of the nation’s 1.8m fleet vehicles. With 512,000 funded vehicles, GE has 40% of the US market. PHH has 375,000, 18% of the market.
The top 5 players have 85% of the US market. In the UK the top 5 have 47% of the market, which will rise to 52% after the Lex/LTSBA merger.
I suppose that at heart I’m one of those people who loves the countryside but would never live there and loves the idea of small local shops but does his weekly shopping in Tesco’s because of the choice, prices and convenience. So, much as I may like the fact that UK fleet managers have 50 capable contract hire companies to choose from, the fact is that these are tough times for the UK contract hire industry and change is inevitable. Also, some recent developments (new services and systems, better quality management) have only come about because of the scale of some of our contract hire companies. Having one huge player is going to be a new experience for this market. It is going to be fascinating to see what happens next.
Professor Colin Tourick
Fleet Management Consultant