Global fleet managers who are responsible for the operation of fleets around the world will find significant differences between the running of fleets in the United States compared to those in the European Union. The vehicles may come from some of the same manufacturers, but very little else remains the same.
Size of market
The US is the biggest single car market in the world with a fleet parc of some 10 million vehicles. Besides corporate fleets, there are daily rental, taxi, public utility, police, and government fleets. Although they are relatively lower in the US than in many European markets, fleet sales are very important to the manufacturers and currently account for 15 per cent of annual new car and light truck registrations.
Within the 100-plus vehicle fleet sector, there are 3.1 million units, split approximately 30 per cent cars and 70 per cent light commercial vehicles. Of these, 1.5 million are leased and 1.6 million are owned by the end-user companies.
In the US, the five largest fleet leasing companies have a collective fleet of well over 1.5 million vehicles and order approximately 400,000 vehicles annually. In Europe, fleet sales account for roughly 50 per cent of all new vehicles sold, compared to the 15 per cent in the US.
This disparity exists because in the U.S, fleet vehicles typically are limited to those employees needing vehicles to perform their jobs, whereas in Europe, fleet vehicles have become a common part of the remuneration package due to high marginal tax rates on cash compensation.
As a result, managing fleet costs in Europe is especially critical and challenging. Additionally in the EU, there are multiple leasing and fleet management suppliers of varying sizes, from small local national companies to large pan European, multi country leasing companies.
Car Manufacturers
In the US fleets are generally standardised passenger cars and light/medium-duty trucks, allowing for volume leverage and contract pricing. Over 85 per cent of the vehicles are from the “Big Three” of General Motors, Ford and DaimlerChrysler.
While foreign marques make up 50 per cent of the retail market based on 2006 registrations and are also a big factor in some elements of the fleet market, in particular daily rental, they have low penetration in corporate fleets. Reasons include higher initial costs and smaller sizes for comparable basic sedans, less dependable supply, and unavailability of six cylinder engines in lower cost models.
On the positive side, residual values of many foreign makes are good, as is maintenance experience, but these factors, along with the absence of manufacturer incentives to fleets, have so far proved insufficient to sway most corporate fleet users. There are only a few models which enjoy huge volume. By far the most common is the mid-size sedan, which is really large by world standards. Almost all have six cylinder engines and automatic transmissions.
Fleet deals in the US tend to be constructed on an annual basis with one manufacturer. Most fleet vehicles in Europe are driver perks; driver choice dominates vehicle selection across the EU. Additionally, most countries in Europe have their favored domestic manufacturers, and drivers are often unwilling to standardize on a single pan-European brand. Consequently, the typical European fleet is a proliferation of some 30 manufacturers, with numerous models and equipment levels – diluting volume leverage significantly.
Fleet negotiations tend to be with dealers and importers-distributors by lessors on country popular car brands and models, rather than on one single make.
Leasing Products
Corporate leasing in the US is about providing services and technology first, since most large companies are well able to fund vehicles themselves. Nevertheless, they find leasing attractive, not so much for its capital release benefit, but because it offers a simple means of tying together a package of fleet management services.
The preferred leasing product is the TRAC (Terminal Rent Adjustment Clause) lease also called an open-end lease, where the risk on resale and operating expense accrues to the customer. The fleet management company controls and pays the expenses, then passes them on to the client as incurred, in addition to which there is a separate monthly service charge.
In the US, TRAC leases can be treated off balance sheet for accounting and taxation purposes, and they are popular with large fleets because of their flexibility and potential for low cost.
Across the EU, the growing product is the Operational Lease, also called closed-end leasing, where the lessor takes the residual value and maintenance cost risks.
As lessors take the residual value risk, the pricing tends to be volatile since there are wide variances from one lessor to another in projected resale assumptions.
There is also a much greater variety of funding products, including lease purchase, finance lease, captive lease, cross border lease, employee ownership schemes, hire purchase etc. The US model of committing to a single supplier for multiple years based on request for proposal (RFP) responses simply does not produce the lowest cost in Europe.
First, no one leasing company is able to offer the best service and lowest prices in every European country. Second, no one vendor will offer the lowest price on every vehicle in an individual country. Finally, closed-end lease prices quoted in response to a European RFP only apply to those specific vehicles, and only for 30 days.
Vehicles quoted after the RFP response will likely be priced very differently and will often be available at a lower price from other vendors. In reality, obtaining the lowest fleet costs in Europe requires sourcing each vehicle from a qualified list of vendors in an ongoing competitive environment. This method of acquisition delivers savings of 15 to 20 per cent over single supplier, pan-European sourcing.
Supply Strategy with lessors
In the US, the difference in pricing is very small among major competitors, while the simplicity and transparency of the North American market logically leads to a common practice to use a single leasing and fleet services supplier, with selection criteria heavily weighted to service quality and customization flexibility.
In the EU, the pricing differences between lessors for the same car and mileage/duration combinations are anything up to 15 to 20 per cent, due to wide residual value variations from leasing companies.This price volatility leads to a need to spread supply over multiple lessors. Lessors also have different levels of service/product offering by country. None is best in price and services in all countries simultaneously. Recommended supply strategy is a reduced regional multi-supply.
