Asset Finance Pricing Review pricing review · different approaches to business improvement. In...

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Asset financepricing review

Pricing action plan for improved profits

Best practices for setting residual values

Kwik Fit’s fast fit,service excellence and

savings

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Car WarsBryan Marcus reconciles divergentpricing perspectives between salesdirector and CFO

Volume, market share or profit. What’s your primary pricing priority?

Mexico's fleet leasing market powers ahead

Request for tender – getting the best fit

solution

Colin Tourick dives into ‘blue ocean’ thinking

Asset FinancePricing Review

Experteye update on residual values

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The pricing action plan for profitChanging your pricing policy may well be your most powerful lever forprofit. Make your action plan now!

So you want to improve your pre-taxprofits?

Well, you might decide to introduce a new ITsystem that would allow you to do morethings, introduce more products and be moreeffective than before - at a cost, of course. Oryou might introduce a new quality-management system or increase yoursalesforce or cut overheads or other costs.

These are the ‘levers of profit’, the aspects ofyour business that you can change togenerate more profit.

Generally speaking, if you pull one of theselevers it will have a modest effect on yourbottom line. You can often generate a muchbigger impact, with much less disruption tothe business, by changing your pricing policy.If you can implement a successful pricingchange you will improve your volumes andmargins simultaneously, with little disruptionand at little or no cost. Do it successfully andyou will enjoy the benefits immediately,without generating a negative response fromstaff or clients. Pricing is the most powerfullever of profit.

In previous Pricing Reviews we have looked

at the steps that asset finance companieshave taken to develop their businesses and inparticular how they have improved (or mightimprove) their pricing. In this article we willmove beyond that and set out an action planfor asset finance companies that want toimprove their pricing. The steps to follow are:diagnosis; decision; preparation; get buy-in;trial; implement and monitor.

1. Diagnosis

First, have a look at the way business ispriced at the moment. How are pricescalculated? Is it done centrally or byindividual salespeople? What insights aregained from the market to help guide pricing?Have a look at the range of prices quoted forthe same type of business to the same typeof customer; are they similar? If there is awide variation you have prima facie evidencethat something is going wrong.

Which customers get the lowest prices andwhy? What costs are incurred as a result ofdiscounting or other giveaways, e.g. givingaway costly contractual points during thenegotiation? Do the most valuable clients getthe biggest discounts? When pressed by a

IntroductionWelcome to the latest edition of our Asset Finance Pricing Review, published in association with Asset Finance International

The times in which we live are simultaneously exciting and uncertain. While economies around the world continue to strengthen and emerging markets carry on emerging, there’s an underlying unpredictability as to what will happen next. This makes for interesting planning. Every leasing and finance business must plan but how can you plan around uncertainty? Well, we must, but the problem is that changeability goes against the grain in so many ways. This makes us nervous because it demands something outside of the strategies we know and trust. It forces us to “think differently” and often take a leap of faith. It’s all too easy to get “stuck in your ways” in business but that in itself is a risky strategy in these precarious times. One of the purposes of publishing the Pricing Reviews is to get people thinking outside of the box (if you’ll forgive the very tired cliché). In this issue (starting on page 3), Professor Colin Tourick, who is Professor of Automotive Management at the University of Buckingham and a 38-year industry veteran, questions our approach to business improvement. He explores possible alternatives to becoming profitable that don’t focus on the standard practice of building market share.Starting on page 6, I delve into the thorny issue of RFIs and pose the question: is this resource and time-hungry process still appropriate for modern times? As you can appreciate, I’m involved in many tenders and it can be a painful and soul-destroying process if approached in the wrong way. At Bynx, we put our heads together recently and came up with what we feel is a positive and constructive proposition that will attract the right IT suppliers and solutions to your business (read the article and let us know if you agree). Our star article (starting on page 10) this time is our focus on Mexico’s leasing market. Written by country specialist Nigel Carn, the feature explores how Mexico’s automotive leasing market is riding high on new investment. The article covers a lot of detail: vehicle production and sales; fleet management success; lessor challenges; emissions and trends in mobility. After the earthquake earlier this year, Mexico has pledged to continue the push to develop its economy, and the auto industry has a key part to play in that.Starting on page 18, we have a rundown of the latest industry news including: rechargeable road development for EVs; driverless cars and the new ‘passenger economy’; the UK’s diesel ban; Latin America’s used car market, tougher cyber security regulations and more. As ever, we end with Experteye’s report on residual forecasts and market summaries. Do enjoy, and your comments and opinions are always welcome.

Gary JefferiesSales and Marketing Director, Bynx

Introduction

Welcome to the sixth edition of Asset Finance Pricing Review, published incollaboration with Asset Finance International and Professor Colin Tourick.

As in all previous issues, we again put forward a host of articles from industryinsiders that serve to illuminate the more challenging aspects of asset financepricing. The purpose is to bring you valuable insights, knowledge and examples.

In any company, there are different stakeholders involved in pricing policy andexpecting sales and finance to see eye-to-eye on every issue is the stuff of fantasy.This is especially true for businesses that operate internationally and have to takeinto account the cultural, political, financial and regulatory differences within thosemarkets. In Car Wars – reconciling divergent views on manufacturer auto financepricing (pages 3-5), Bryan Marcus, regional director of VWFS Latin America,Canada and Northern Europe, offers an interesting perspective on resolving pricingdisputes – and one that doesn’t involve leather gloves and a boxing ring!

There are many ‘levers to profit’ in every asset finance business but the one thatwill have the greatest impact on the bottom line is changing your pricing policy.This is the advice of Professor Colin Tourick, management consultant and editor ofAsset Finance Pricing Review, in The pricing action plan for profit (pages 6 and 7).

There’s only one topic (other than pricing policy) that can claim joint ownership ofthe most-difficult-aspect-to-get-right-in-asset-finance title and that is settingResidual Values (RVs). But it’s not just a matter for vehicle leasing and daily rentalcompanies, states Dean Bowkett, technical director and chief editor atEurotaxGlass’s. In his article Setting Residual Values (pages 8-10), he examines thepitfalls and best practices and offers a unique perspective on how it matters forOEMs too.

Page 11 presents the results of our last Pricing Survey, which posed questionsaround how to pitch pricing at a level that delivers the most new business andhighest margins. As ever, the results surprised us. They may surprise you too orperhaps confirm your prior thinking. Either way, get in touch and give us yourperspective.

Take part in our next survey

We’re very grateful to everyone who takes part in our surveys (you can do soanonymously if you like) because they always provide us with valuableunderstanding and ideas. This time we’re asking: What is the primary considerationwhen your asset finance business sets its prices/issues a quote? You can take parthere: http://bit.ly/bynxpr5.

It’s always interesting to read how suppliers work successfully with leasingcompanies and Kwik Fit GB is no exception. In an article, Kwik Fit GB fast fitsdeliver service excellence and financial savings (pages 12 and 13) Peter Lambert,fleet director, talks us through how the fast fits concept is delivering tangible resultsfor leasing companies.

We end this Pricing Review with the latest figures on changes in residual valueforecasts, SMR costs and lease rental rates across Europe (to January 2014) frombenchmarking and research specialist Experteye.

And don’t forget to share your feedback with us and tell us what you’d like to seein future Pricing Reviews.


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1. Diagnosis



Business strategy with a human touch Technology innovations, political uncertainties and global financial worries are piling the pressure on companies that are striving to retain their customers and gain market share. Colin Tourick, Professor of Automotive Management at the University of Buckingham and a 38-year industry veteran, takes a look at some different approaches to business improvement.

In their seminal book ‘Manage for profit, not for market share’ [Harvard Business School Press 2006] Simon, Bilstein and Luby argued that traditional ways of building profit and shareholder value such as product refinements, cost-cutting and trying to build market share all have severe limitations. You can cut costs but at the end of the day you need to have a core capability or your service standards will fall and you won’t be able to deliver what you have promised. You can refine your product but how much of a difference will that really make to your bottom line? They cite plenty of examples of companies that have slugged it out trying to win clients from their competitors, only to find that they then lost other clients to those same competitors.They say the solution is to focus on getting your pricing right: not so high that you will lose volume and gross profit or so low that you will be gaining volume unprofitably. There is a sweet spot, they say, for each product and each client, and intelligent pricing is the best way to maximize turnover for minimal additional cost. That extra turnover flows all the way through to your bottom line.

Catching the wave At the IAFN conference in London in May, Tim Porter, MD of Lex Autolease, the UK’s largest fleet leasing company, also recommended not competing head on with your competitors. He drew inspiration from another Harvard book, ‘Blue Ocean Strategy’ by Chan Kim and Renée Mauborgnen, two INSEAD professors who had reviewed the fortunes of 150 companies, trying to find the golden key to profit maximization. They advised against battling with your competitors for market share, but their proposed solution was different. They said that the real gains are to be made by finding new markets where your competitors don’t operate.They drew an analogy with the oceans. Most businesses operate in congested areas of the market where there are many competitors. The size of the market ebbs and flows with overall customer demand and the state of the economy, but otherwise it’s a zero-sum game: what you win is what your competitors lose. The authors describe this market as the red ocean – red because it’s the place where a lot of blood is spilled. They describe uncontested markets as blue oceans, places you will find it easier to succeed. They recommend consolidating your position in those markets by collaborating rather than competing with your competitors. This allows you to ramp up your activities more quickly, and if your competitors can gain profits from this collaboration they are less likely to want to compete.

Professor Colin Tourick

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1. Diagnosis



High tideSo, what might that look like in our market? A few success stories spring to mind. In the UK we had the advent of the Whitechapel Scheme, the first ever employee car ownership (ECO) scheme. The clever people at Whitechapel could have set up a leasing company, but instead they set up a consultancy that worked with large corporates and leasing companies to introduce these tax-saving structures. They sold out to what is now Lex Autolease, having enjoyed much more success than if they had they simply become another leasing company. Another UK example would be Epyx, which provides the IT trading backbone for the fleet industry. They were not the first to see that the old way of trading between leasing companies and dealers was laborious and flawed, relying on paper invoices and cumbersome manual processes. Their forerunners had tried to crack this problem using smart cards and EDI (electronic data interchange, the technology used to digitize trade between supermarkets and their suppliers). Epyx saw that the internet was the way forward, built an internet-enabled solution before anyone else and have a very strong market position as a result. Outside the UK there are many other blue ocean examples we could cite. For example, in many smaller countries the first company to offer operating leases has often found they have clear blue water in which to operate, whilst in some third world countries those manufacturers that have started offering vendor finance have reaped the benefits.

Future horizonsSo where are the next blue oceans likely to be found in our sector? Pay-per-use models in asset finance seem to have a lot of potential, as people and businesses realise that they don’t need to own or lease assets that stand idle for much of the time. This same concept applies in the auto/fleet financing. Why buy or lease a car that is unused for much of the day? There is a hunger out there for a hassle-free solution that will help companies and individuals ensure that every journey they take optimizes cost, time and emissions. Many of us use apps to help us decide how best to travel from A to B. There is a blue ocean out there awaiting the first company that will then physically take us there.Optimized pricing and blue ocean strategies can only take you so far; you then need a good management team if you are to succeed. You can recruit and promote the best people but how do you then ensure they operate as a cohesive unit? Many senior managers work in their own silos, protect their own teams and see colleagues as adversaries as they try to make their own way up the greasy pole of corporate life. Point scoring rules the day. Whilst plenty of successful businesses are run by politics-riven management teams, a lot of time and energy is lost that would be better expended on delivering the business plan. For most managements, the expression “team building” can mean an afternoon on a golf course or a day getting muddy together on an adventure training course. These may have some value but do they then help the team work better together?

The human leagueI have recently become aware of some interesting work being done in this area. It starts from the premise that when at work we wear our “business faces”; we are corporate and professional but don’t reveal much about our true selves.

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1. Diagnosis



I’m sure this is true. Think, for example, about the people you are connected to on LinkedIn and Facebook. They are different lists of people, aren’t they? You would post something to be seen by your family and friends that you would never want your business colleagues to see. Imagine going to work and finding a group of people with whom you have a real and deep camaraderie, who want you to succeed, and where the only competitors are outside the company. An office environment which is like a nurturing family, in pursuit of a shared goal, where mutual support is genuine, woven into the fabric of the organisation. The thinking behind the new approach is that if management team members got to know each other better they would have a greater understanding of and empathy for each other and be more likely to be supportive rather than being critics or adversaries. So you take a management team off site for a couple of days, get them to turn off their mobile phones and forget about work. Pair them up and get them to do some task together. Then send them off in different pairs to have a meal with each other. Then give each one of them 40 minutes to tell their life story to the rest of the group. It is in this last area that interesting things begin to happen. People talk through their CVs and tell you the key things that happened in their lives that helped form them and make them who they are. Usually they will start with the good things but as they get more comfortable talking about themselves they will talk about the not-so-good things too. These sessions help people really get to know each other. People reveal insights about themselves that help their colleagues understand what makes them tick and why they say the things they say. Advocates say that the results can be powerful. Such sessions must be run with professional help and be facilitated by a psychologist with lots of experience of working with teams, who can create a safe, mutually-respectful environment conducive to everyone being open and honest. And of course everyone must pledge to maintain confidentiality. Management strategy takes you only so far. It’s the human side of management that delivers results.

Professor Colin TourickUniversity of Buckingham

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Gary Jefferies

Crossing off the shopping list Gary Jefferies, Bynx sales and marketing director, argues that it’s time to refresh the process by which IT systems are procured, and takes a look at how to make a standard request for information valuable for all participants in the deal

The process by which fleet management and vehicle leasing companies procure new IT systems has centred on a request for information (RFI) for years. The need for a standardized process is self-evident but has this time-honoured tradition become stale and tired?

Is it time for an RFI rethink?The RFI is a common method by which customer organizations solicit written information from suppliers about their products, services and capabilities. As it is standardized and summons the same information from everyone, it aims to provide a level playing field in which customers can assess suppliers and take the best course of action to meet their requirements. The problem is, the procedure can be long and laborious for both parties and in the fast-paced world in which we now operate, it can result in an ineffective use of time and resources. Undoubtedly, there needs to be a process and RFI is a good one but it’s been around so long that perhaps it has become a little out of date. Time for a refresh! There is a way to keep it simple, cost-effective and (importantly) aligned with supporting the best business decision. But (and it’s a big BUT), it needs to be brought in line with modern business practice. We’re going to be publishing a white paper later this month covering the topic in detail, but in the meantime this article offers a few hints and tips to get the RFI process right.

The purpose of an RFIInvesting in a new IT system is an important decision for any business and cannot be taken lightly. Moving to a new platform or application can be disruptive in the short-term but it can also have a critical bearing on how the company operates in the long-term. The decision must be informed and correct. However, we all have jobs to do and too much time spent considering options could get in the way. So, a streamlined approach is required and a well-executed RFI can offer that. The purpose of the RFI is to gather written information about the capabilities of different suppliers. It should provide enough insight to compare their offerings and approach. To that end, it must follow a standardized format that can be used for comparative purposes and to whittle down a long list of suppliers into a short one.

Use the process to look internallyBut the deeper aim of the exercise often gets overlooked and that is to use the process to look internally and think about how the business operates, what it wants to achieve - not just now but in the future - and at how it wants to work with a technology provider.

Introduction

Welcome to the sixth edition of Asset Finance Pricing Review, published incollaboration with Asset Finance International and Professor Colin Tourick.

As in all previous issues, we again put forward a host of articles from industryinsiders that serve to illuminate the more challenging aspects of asset financepricing. The purpose is to bring you valuable insights, knowledge and examples.

In any company, there are different stakeholders involved in pricing policy andexpecting sales and finance to see eye-to-eye on every issue is the stuff of fantasy.This is especially true for businesses that operate internationally and have to takeinto account the cultural, political, financial and regulatory differences within thosemarkets. In Car Wars – reconciling divergent views on manufacturer auto financepricing (pages 3-5), Bryan Marcus, regional director of VWFS Latin America,Canada and Northern Europe, offers an interesting perspective on resolving pricingdisputes – and one that doesn’t involve leather gloves and a boxing ring!

There are many ‘levers to profit’ in every asset finance business but the one thatwill have the greatest impact on the bottom line is changing your pricing policy.This is the advice of Professor Colin Tourick, management consultant and editor ofAsset Finance Pricing Review, in The pricing action plan for profit (pages 6 and 7).

There’s only one topic (other than pricing policy) that can claim joint ownership ofthe most-difficult-aspect-to-get-right-in-asset-finance title and that is settingResidual Values (RVs). But it’s not just a matter for vehicle leasing and daily rentalcompanies, states Dean Bowkett, technical director and chief editor atEurotaxGlass’s. In his article Setting Residual Values (pages 8-10), he examines thepitfalls and best practices and offers a unique perspective on how it matters forOEMs too.

Page 11 presents the results of our last Pricing Survey, which posed questionsaround how to pitch pricing at a level that delivers the most new business andhighest margins. As ever, the results surprised us. They may surprise you too orperhaps confirm your prior thinking. Either way, get in touch and give us yourperspective.

Take part in our next survey

We’re very grateful to everyone who takes part in our surveys (you can do soanonymously if you like) because they always provide us with valuableunderstanding and ideas. This time we’re asking: What is the primary considerationwhen your asset finance business sets its prices/issues a quote? You can take parthere: http://bit.ly/bynxpr5.

It’s always interesting to read how suppliers work successfully with leasingcompanies and Kwik Fit GB is no exception. In an article, Kwik Fit GB fast fitsdeliver service excellence and financial savings (pages 12 and 13) Peter Lambert,fleet director, talks us through how the fast fits concept is delivering tangible resultsfor leasing companies.

We end this Pricing Review with the latest figures on changes in residual valueforecasts, SMR costs and lease rental rates across Europe (to January 2014) frombenchmarking and research specialist Experteye.

And don’t forget to share your feedback with us and tell us what you’d like to seein future Pricing Reviews.


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1. Diagnosis



Another key point is to look externally, to assess the full range of solutions and options available in the market place and gather just enough information to ensure both business and supplier are aligned around the same goals and aims. The RFI is the first stage in a potential relationship in which you want to encourage as many responses as possible. This will give you as many options to choose from as possible. If the document is too long, detailed and complex, asking for non-specific information that is already in the public domain, it is unlikely to elicit a succinct and meaningful response.

RFI OutlineEvery RFI will be different as every business and every requirement is different. They should, however, follow a common format. The document needs to be clear, unambiguous and identify the critical elements for the selection process.

Statement of Purpose

üü A brief outline as to why the RFI is being issued giving the main drivers behind the decision to look for a new IT system.

üü It should detail the sort of help you need and the high-level changes you want to see from the new system.

Note: include a confidentiality statement and if you need to reveal sensitive information, invite suppliers to sign an NDA (non-disclosure agreement) before sending them the RFI.

Response Guidelines

üü Set out the name of your organization and the person/s responsible for handling the RFI process. Include contact details to which suppliers must send responses.

üü incorporate relevant timeline details and the format in which you require responses to be.

üü It would be helpful to include an indication as to how the response will be reviewed and any factors that are particularly important i.e., if suppliers are to demonstrate evidence of a specific skill.

üü State how long you expect to take to review responses once received and what the next steps will be so that suppliers understand not to chase.

üü If shortlisted suppliers will be invited to run workshops with your staff, give a timeframe in which this will be planned alongside detailing the number of suppliers you expect to include in this process.

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Business requirements

üü In this section, set out where you are now and where you want to go.

üü Establish the functional requirements: number of users, speed of response, support for mobile technology and other specific capabilities.

üü List your technical set up and whether you want to retain legacy systems or move to a new platform.

üü List the resources, in terms of expertise and personnel you will bring to the project and what

additional resources you are looking to the supplier to provide.

üü Define your products and business processes.

üü Explain how you currently operate in key areas, processes that are currently handled well and those you wish to improve.

üü Explain the changes you want to bring about and map out how you expect these to impact in different areas and processes within the business.

Non-functional requirements

üü This is where you list all of the ‘desirables’, things you would ideally like from a supplier and key points around which you will base your decision, such as: size of vendor, number of locations, range of services, business history, case studies, deliver methods or ability to meet specific regulatory requirements.

üü It may also be helpful to list the kind of methodology you expect a supplier to employ, their approach to data migration, support, user training and post implementation troubleshooting.

Questionnaire

Include a set of questions that will elicit the information you need in such a way as to make it easy for you to assess each supplier’s answers. Such questions could cover: financial information

for preceding three years, number of staff, installations in an industry relevant to, or the same as yours, technical aspects, product functionality and so on.

Company presentation

üü Here, you should provide the background to your company: when established, number of staff, locations, operation and key markets.

üü Explain your current IT infrastructure and what it is you’re seeking to improve or introduce in terms of features and functionality.

üü Indicate requirements specific to your company culture, such as CSR (Corporate Social Responsibility), high security and so on.

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Issuing an RFI is common practice and is often regarded as a straightforward “box ticking” exercise. However, developing a request which ensures you see the full range of suppliers who might make suitable partners and supporting them to showcase their solutions is a challenge.Many companies are tempted to make their initial RFI documents lengthy checklists of the supplier’s capabilities and background. But this is not necessarily informative. Indeed, some suppliers are likely to be reluctant to engage with a business demanding lengthy answers and large volumes of supporting documentation – it simply may not be worth their while.What companies need is to create a simple, succinct RFI template which allows them to identify quickly those suppliers that are worth investigating further on a shortlist. We hope we have provided tips and guidance on how to carve a path through the trees to see the overall technology terrain. However, following the guidelines above should make it easier, more straight-forward and speedier for all concerned.

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Mexico’s leasing market riding high on new investment Nigel Carn, author of Asset Finance International’s country reports, takes a look at the finance and pricing challenges facing the vehicle leasing and fleet markets in Mexico

Mexico is a significant economic power, ranked 15th globally by GDP in nominal terms and 11th based on purchasing power parity. It is a member of the G20 and has often been listed as an emerging market with strong investment potential.Mexico is also a significant player in the vehicle industry, being the seventh-largest automobile manufacturer in the world. And much of Mexico’s economic progress depends on its big neighbour to the north – the US – which is by far Mexico’s most important trading partner. Some 80% of Mexico’s exports are to the US, and about 47% of its imports are from the US.No one is more aware of this dependence than the Mexican government, hence its enthusiasm for free trade agreements. Mexico currently has 11 such agreements, which involve 46 countries, including the long-standing North American Free Trade Agreement (NAFTA) with the US and Canada.The interconnectedness of trade is well illustrated by the auto sector. In 2016 Mexico’s top three export categories were passenger motor vehicles, motor vehicle parts and motor vehicles for the transport of goods, while its top import was also motor vehicle parts, and a great deal of this cross-border trade is with the US. The NAFTA has strengthened this value chain in the automobile industry: according to the US-based Center for Automotive Research (CAR), some vehicle parts can cross NAFTA borders as much as eight times before actually being installed in a car. The growth in protectionist views in the US, most evidently emanating from President Trump, are a cause for concern for Mexico’s auto industry. However, the proposed renegotiation of the NAFTA may not in the end be too damaging, and although there is currently undeniable pressure on US automotive companies to locate new sites domestically, there is little sign that foreign manufacturers won’t continue to expand in Mexico. In fact, since 2009 there have been eight new assembly plant investments in Mexico from firms such as BMW, Honda, Hyundai-Kia, Mazda, Nissan, Toyota and VW/Audi. And of course the companies that operate in Mexico do not export exclusively to the US.The auto sector works on timeframes longer than presidential terms, and the figures below indicate an industry that is thriving.

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Growing vehicle production and salesThe sector is represented by various trade bodies, including the associations for the automotive industry (Asociación Mexicana de la Industria Automotriz – AMIA) and auto distributors (Asociación Mexicana de Distribuidores de Automotores – AMDA). A group of leading vehicle lessors have formed AMAV (Asociación Méxicana de Arrendadoras de Vehículos) to represent their interests.Figures for light vehicle production for the first half of 2017 show an overall increase of 12.6% compared with the same period the year before. Passenger car production in the six months exceeded one million units.

Vehicle production, H1 2017 vs H1 2016

Passenger cars LCVs Total

Jan - Jun 2016 972,633 701,337 1,673,970

Jan - Jun 2017 1,051,725 832,590 1,884,315

Change 8.13% 18.71% 12.57%

Source: AMIA

Automotive production has risen steadily from a low point of 1.7% of national GDP during the financial crisis in 2009 to 3.4% in 2015, at which point it represented 18.3% of Mexico’s manufacturing production, second only to food production. Although car ownership is growing in Mexico, much of domestic production is destined for export – in 2015, exports represented two-thirds of the total value of auto production (including parts). In fact, 25% of Mexico’s manufacturing exports at that time were from this sector, totalling US$88 billion and providing a trade surplus of over $50 billion. (Source: AMIA, Instituto Nacional de Estadística y Geografía – INEGI.)Sales of light vehicles also grew over the first six months, with the overall total for passenger cars and light commercial vehicles increasing by close to 3%.However, year-on-year sales figures show an increase of 18.6% in 2016 compared with 2015, and a still impressive growth of 11% in the more recent 12-month period from July 2016 to June 2017 compared to the same period a year earlier.AMDA predicts this slowing in the rate of growth will continue in 2017, estimating that sales of cars and light commercial vehicles will increase by 7% to around 1.7 million units.

Vehicle sales, H1 2017 vs H1 2016

Passenger cars LCVs Total

Jan - Jun 2016 474,217 247,638 721,856

Jan - Jun 2017 484,402 258,649 743,051

Change 2.15% 4.45% 2.94%

Source: AMIA

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Total light vehicle sales, 2016 and rolling annual volume

Total Increase y-o-y

Jan - Dec 2016 1,603,672 18.6%

Jul 2016 - Jun 2017 1,624,867 11.0%

Source: AMDA

Looking at vehicle sales by manufacturer, eight of the top 10, which accounted for well over 70% of registrations in H1 2017, are not US-based firms. Moreover, several of these are in the list given earlier of recent investors in new plant, showing the US administration may not have so great an influence on future Mexican production levels and the generation of jobs in the automotive industry in Mexico.

Vehicle sales by manufacturer, H1 2017

Source: AMIA* VW group includes Audi, Porsche, Seat & Volkswagen

Captive finance dominatesRecent data from AMDA and auto research firm JATO Dynamics show that in the period January-May 2017 over 422,000 vehicles were sold using finance, up 9.4% on the same period in 2016. Some 69% of total vehicle sales were financed in this period (this figure is indicative as it does not include data from all lending institutions). The share of finance provided by banks slipped from 25% to 24%, while that of captive finance companies rose by a percentage point to 71%.As of May 2017, the 10 financial institutions with the largest share of auto loans accounted for 88.9% of the total. For the same period in 2016 the indicator was 86.5%. (The table includes information from most, but not all, lending institutions, and so is a trend indicator.)

Nissan Renault

General Motors

Volkswagon Group*

Toyota

FCA Mexico

Honda

Kia

Ford

Mazda

Hyundai

Others

24.7%

16.6%

15.6%

6.9%

6.7%

6.5%

5.9%

2.8%3.4%

5.4%

5.5%

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Leading vehicle finance providers

Jan-May 2016 Jan-May 2017 Relative

y-o-y change

(%)Institution Units % of total Units % of total

NR Finance Mexico 84,696 21.9 85,366 20.2 0.8

GM Financial 56,089 14.5 71,978 17.0 28.3

Volkswagen FS 46,514 12.0 53,845 12.7 15.8

BBVA Bancomer 40,975 10.6 45,542 10.8 11.1

FC Financial 21,160 5.5 27,660 6.5 30.7

Banorte 19,242 5.0 22,788 5.4 18.4

Toyota FS 21,058 5.5 22,518 5.3 6.9

Scotiabank Inverlat 19,143 5.0 18,410 4.4 -3.8

Ford Credit 15,894 4.1 15,803 3.7 -0.6

Kia Finance 9,459 2.4 11,744 2.8 24.2

Others 52,047 13.5 46,875 11.1 -9.9

Total 386,277 100.0 422,529 100.0 9.4

Source: AMDA, JATO Dynamics ©JATO Dynamics Limited 2017

Fleet management successComprehensive data on the vehicle leasing market in Mexico is hard to come by. The lessors’ association AMAV has not been operating for long and although many of the larger companies in the sector are now members, not all are involved, and the gathering of data is further constrained by confidentiality policies of some affiliates.However, figures supplied to Asset Finance International by AMAV show a healthy rate of growth in the sector between 2015 and 2016. In volume terms, the leased vehicle fleet grew by nearly 20% to 125,000 units, and in value terms the increase was even greater – up over 30% to more than 11bn pesos (equivalent to US$5.9bn at an average annual exchange rate, although the peso was weakening swiftly in the latter stages of 2016 due to the election of President Trump).

Leased vehicle fleet, 2016 vs 2015

2015 2016 Increase y-o-y

Unit volume 104,400 124,913 19.64%

Sales value (MXN million) 8,470 11,079 30.80%

Source: AMAV

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Harald SchüllCEO, BMW Financial Services Mexico

AMAV fleet leasing partners

Associate company Web address

Element Fleet Management Corporation Mexico www.elementfleet.com.mx

Ariza de México www.ariza.com.mx

TIP Auto www.tipmexico.com

ALD Automotive www.aldautomotive.com.mx

Casanova Vallejo www.casanovarent.com.mx

Corporativo Gaviotas www.nationalcar.com.mx

Global Motors Mexico www.globalmotorsmexico.com

Auto Arrendadora y Promotora www.sixt.es

Garpa Arrenda www.thrifty.com.mx

For lessors, the company car market is important, as private leasing volumes are very low. David Madrigal, president of Element Fleet Management Mexico and current AMAV president told Asset Finance International: “The company car market is significant. Based on AMIA and Central Bank of Mexico lease reports, and our own estimates, approximately 20% of the vehicles sold in Mexico are for company fleets, excluding government.” Harald Schüll, CEO of BMW Financial Services Mexico, states: “Leasing is an important tool for companies because of tax deduction and financial benefits. Private customers in Mexico do not consider leasing, as most of them want to own

their vehicles.” He adds: “For the premium segment, leasing is a business line with great potential for corporate customers that will increase in relevance over time.”The company car is seen as one of the biggest perks at upper management level. Unlike in the US and Canada, employees have no need to report personal use for tax purposes, and companies in Mexico do not track personal versus business usage. A common additional benefit is an option to buy at the end of the lease.Thierry Merienne, General Manager of ALD Automotive, comments: “In some sectors a company car is a key

differentiator to hire and retain talents, especially among sales teams. Acquisition schemes by companies frequently include a final sale directly to the driver of the car, often at a discount (20 to 30%) versus market value.”

www.elementfleet.com.mx

www.ariza.com.mx

www.tipmexico.com

www.aldautomotive.com.mx

www.casanovarent.com.mx

www.nationalcar.com.mx

www.globalmotorsmexico.com

www.sixt.es

www.thrifty.com.mx

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Challenges facing Mexican lessorsSo what are the industry’s views on the short to medium term challenges facing the market? Could there be a negative ‘Trump effect’ from a renegotiated NAFTA and a possible import tax on vehicles built in Mexico?One issue is the straightforward need to increase overall car ownership, which Luis Cuenca, CEO of Fleet Renting, says means sales should be double what they are now. “Mexico’s market has a 2 to 1 shortage per capita regarding car ownership, what it means that yearly sales should be close 3.4 million cars.” Therefore, he believes, “whatever outcome of the NAFTA negotiation will have no effect on the mobility shortage in the country.”

For Thierry Merienne, the primary challenge is increasing leasing penetration. “This would imply a change in mentalities, still very focused on ‘ownership’ of assets instead of use,” he says. He too sees no direct impact from the NAFTA renegotiation, “apart from the impact on the economic growth of the country, as leasing is related to domestic car sales.” In fact, he notes, “Leasing could be at an advantage at first (when demand for new cars remains steady, yet a level of uncertainty leads companies to use their own resources for core investment instead of buying cars).”

David Madrigal points out:, “In 2017, 42% of the vehicles sold in Mexico were produced in Mexico, which keeps the supply stable. Recently, while the cost of financing has risen significantly, the stabilization of the exchange rate combined with rising demand for vehicles has kept leasing vehicles more attractive than purchasing in Mexico. “Looking ahead, if import/export taxes were to increase, that will have an impact on vehicle costs on both sides of the border. Since companies and consumers are going to continue to need vehicles, leasing will continue to be more attractive than buying.”A further, political, challenge is suggested by Roberto Varallo, CEO, LeasePlan México. “I believe that one main challenge in the medium term is the presidential election here in Mexico, which will take place in 2018. The political uncertainty about who will win, and what will be the plan for the next six years is a risk factor to the leasing/long-term rental car market,” he says. On a possible ‘Trump effect’, Varallo agrees there could be a downside for Mexico’s car manufacturers, in line with any overall effects on the economy, so in his view, “The Mexican authorities should avoid or at least minimize this impact, fostering other trade agreements, like the ASEAN-Pacific Alliance.”

Thierry MerienneGeneral Manager, ALD Automotive

Roberto VaralloCEO, LeasePlan México

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Incentives to reduce emissionsThe uptake of alternatively fuelled vehicles is currently very low in Mexico – for example, electric vehicle (EV) sales stand at around 0.5% of the domestic total, according to AMDA.

However, there are at least incentives for both electric and hybrid vehicles in some states, most importantly Mexico City, which accounts for 70-80% of fleets and is highly polluted. In this region, hybrids and EVs are exempt from state property taxes, new vehicle taxes and emissions testing. “These vehicles are allowed an enhanced federal tax deduction of the rental, which if you’re leasing increases the benefit by 42%,” says David Madrigal.There are, as yet, no coordinated incentives regarding CO2 emissions, but in August 2016 the Ministry of Environment and Natural Resources (SEMARNAT), the Mexican stock exchange (Grupo BMV), and MÉXICO2 (the voluntary carbon platform at the BMV) signed a

cooperation agreement to implement a voluntary pilot emissions trading scheme (ETS) for 60 major entities in the power generation, manufacturing and transport sector. “The simulation aims to make stakeholders familiar with the concept of emissions trading and to improve corporate readiness,” explains Roberto Varallo. “Together with the development of a registry for national emissions, the pilot ETS is consistent with Mexico’s objective to implement a national carbon market by 2018. This for sure will have an impact on fleet strategies and car policies that will be developed by corporate companies.”Regarding CO2-efficient cars, Varallo comments: “We see some companies (mainly the European ones that are under greater pressure from their HQs to comply with their global policies on environmental topics) starting to evaluate this option. Hybrid cars seem to be the logical choice for these companies, but the volume is still too small to draw a conclusion. EVs are also on the radar, once the cities’ infrastructure gets better to deal with this type of car.”

Trends in mobility solutions“The Mexican market is behind on the implementation of mobility models; here we have a great opportunity to innovate and create new products,” says Luis Cuenca. He stresses “the importance for companies like Fleet Renting which are dedicated to mobility management is that we go beyond the financing side of the commercial offer.”ALD Automotive’s Thierry Merienne agrees that there is “diversification from ‘car financing’ to ‘provider of mobility solutions’, especially in big cities in Mexico.” With further anti-pollution regulation expected, he predicts “increasing conversion of company car fleets to hybrid (or even EV

in some cases), as is the development of multi-channel (car sharing, etc) mobility solutions, obviously based on digital platforms.”

David MadrigalPresident, Element Fleet Management Mexico

Luis CuencaCEO, Fleet Renting

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Such multi-channel innovations as car sharing and carpooling “or tools oriented to use the vehicle instead of buying it” are trends picked out by Harald Schüll of BMW Financial Services, who notes that “the digital age is obliging companies to have a solid and efficient IT structure.”The rise of the connected car is a commonly cited trend, with telematics data from connected vehicles, in conjunction with fleet performance analytics from fleet management companies, providing insight on vehicle condition and driver behaviour. “Increasing fuel prices, higher traffic in urban areas and a growing culture of driver safety are factors are driving companies to look at how they can control costs and monitor driver behaviour,” observes David Madrigal of Element.Everyone expects the majority of future innovation to be software or internet based and linked to this, in common with all developed and emerging economies, consumer behaviour in Mexico has changed, with individuals and fleet buyers conducting more research online.“Customers need to get information fast, to surf through the web between brands, products and services. For this purpose the best tools are the car configurator and financial simulator, which give the customer independence to browse, compare and choose,” says Harald Schüll.Much rests on cost efficiency. For LeasePlan’s Roberto Varallo, the main element underpinning Mexico’s fleet market so far has been the economic factor. “Companies are more interested in their fleet because they started to understand that this is one of the top three cost factors in their balance sheet. Then, the application of concepts like TCO (total cost of ownership) analysis and tax benefits, supported by leasing or rental companies that are prepared to provide this level of consultancy to clients, has led to the growth that we see in the Mexican market.”

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What’s driving fleet car pricing?A round up of some of the key auto finance industry stories in recent weeks

Developers plan rechargeable roads for EVsIsraeli startup ElectRoad is looking to address current worries about the size, weight and costs of the batteries used to power electric vehicles (EVs) by developing technology that retrofits existing roads with buried coils to inductively charge buses and cars, and is carrying out a trial with a public bus route in Tel-Aviv.The company says that while government policies globally are supportive of greener transport technologies, the widespread use of EVs presents a number of practical problems. One of the most critical is the need for expensive, bulky batteries that have to be recharged frequently, placing limitations on vehicle design and journey range. The company is using wireless technology to carry out inductive charging. EVs are charged and propelled by power from the interaction of two electromagnetic fields. Inverters installed along the side of the road provide power to plates of copper embedded in the road. Similar copper plates are installed on the bus’s underside. As the vehicle passes over the charged roadway, the two fields interact and generate power.Using this approach, buses or cars need only carry a light, inexpensive battery in place of the usual bulky, heavy one, and once a roadway has been fitted with the technology, it can continuously power any vehicle with this equipment.The onboard battery is required to provide acceleration for EVs, because the jolt of energy required to propel a stationary bus is far more than the energy it needs to coast down the street. It also provides power on short stretches of road that are not fitted with the technology. ElectRoad’s buses can travel off the charging road for about three miles.“You only need to pave for the infrastructure one time, and that’s it. You can use it for all kinds of vehicles, so that’s a big advantage,” says Oren Ezer, ElectRoad’s chief executive and co-founder.

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Up till now, ElectRoad has only been able to demonstrate the technology, which it calls dynamic wireless power transfer (DWPT), on an 80-foot test route at the company’s headquarters. But a $120,000 grant from Israel’s Ministry of Transport and Road Safety means the company is now working to fit out a portion of a Tel Aviv bus route with the technology, which is set to open in 2018. If this operates successfully, there are plans to deploy the technology more widely, starting with an 11-mile shuttle between the city of Eilat and the Ramon International Airport. ElectRoad says it can install the technology in an existing road with minimal disruption, using two tractors that can fully equip one kilometre of roadway in a single night. Battery prices for EV vehicles are starting to fall, but Ezer remains confident that the road refitting concept will remain attractive, since it creates a permanent infrastructure. In addition, the small, light onboard battery is only used about 6% of the time the vehicle is running, and thus can last as long as 25 years. This compares with conventional batteries in electric buses, which have a typical lifetime of around six years.Ezer says: “We plan to start with buses, of course, but we believe in revolutionizing the entirety of transportation.”The European Union is also exploring wireless charging for EV, with a €9 million project involving several countries set to provide an update on the technology by the end of 2017. Called FABRIC (FeAsiBility analysis and development of on-Road chargIng solutions for future electric vehiCles), the work is assessing two main types of solution. One would involve charging cars that are actually on the move, on specially equipped motorway lanes, in a similar approach to the Israeli pilot. The other is intended for situations where the vehicle will have to make a brief stop anyway. Chargers embedded near traffic lights or toll booths, for example, might enable drivers to power up in passing.

Driverless cars create $7 trillion “passenger economy” Technology company Intel is predicting the development of a new “passenger economy” worth up to $7 trillion, once autonomous vehicles hit the road and today’s drivers become what it calls “idle passengers”.The study, prepared by analyst firm Strategy Analytics, predicts an explosive economic trajectory growing from $800 billion in 2035 to $7 trillion by 2050. Much of the opportunities come from business-to-business initiatives aimed at drivers who will now have time on their hands. “Companies should start thinking about their autonomous strategy now,” said Intel CEO Brian Krzanich. “Less than a decade ago, no one was talking about the potential of a soon-to-emerge app or sharing economy because no one saw it coming. This is why we started the conversation around the passenger economy early, to wake people up to the opportunity streams that will emerge when cars become the most powerful mobile data generating devices we use and people swap driving for riding.”Autonomous driving and smart city technologies will enable the new passenger economy, gradually reconfiguring entire industries and inventing new ones thanks to the time and cognitive surplus it will unlock, Intel argues.

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Harvey Cohen, president, Strategy Analytics, said: “The emergence of pilotless vehicle options will first appear in developed markets and will reinvent the package delivery and long-haul transportation sectors. This will relieve driver shortages around the world and account for two-thirds of initial projected revenues.The research firm further points out that autonomously operated vehicle commercialization will gain steam by 2040 – generating an increasingly large share of the projected value and heralding the emergence of instantaneously personalized services.According to the report, business use of mobility-as-a-Service (MaaS) is expected to generate $3 trillion in revenues, or 43% of the total passenger economy. Consumer use of MaaS offerings is expected to account for $3.7 trillion in revenue, or nearly 55% of the total passenger economy.Some $200 billion of revenue is predicted to be generated from rising consumer use of new innovative applications and services that will emerge as pilotless vehicle services expand and evolve.Self-driving vehicles are expected to free up more than 250 million hours of consumers’ commuting time per year in the most congested cities in the world. Intel says this will promote the development of new “car-venience” services such as onboard beauty salons or touch-screen tables for remote collaboration.

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Autonomous vehciles will be used for new applications such as fast-casual dining, remote vending, mobile health care clinics and treatment pods, and even platooning pod hotels, vehicles will become transportation experience pods. Media and content producers will develop custom content formats to match short and long travel times for car passengers who are no longer at the wheel, while location-based advertising will become more targeted. The study predicts that mobility will become an important perk. Employers, office buildings, apartment complexes, university campuses and housing estates will offer MaaS to add value to and distinguish their offer from competitors or as part of their compensation package.In addition, the study suggests the economy will benefit from a large reduction in road accidents and public safety costs, plus greater consumer spending as individuals and businesses pay less for driving. Intel has recently bought autonomous technology specialist Mobileye and announced plans to build a fleet of 100 self-driving vehicles for road tests in the US, Israel and Europe. The tech giant wants to showcase its processors and software in Level 4 automated vehicles – which refers to cars and trucks that can accelerate, brake and steer by themselves for long journeys.Mobileye co-founder Amnon Shashua explained: “The test fleet will provide immediate feedback and accelerate delivery of technologies and solutions for highly and fully autonomous vehicles.”

Volkswagen launches in-car connectivityVolkswagen has announced it plans to install in-car connectivity services from 2019, so that vehicles can communicate with each other and exchange information on traffic risks and the local environment, in order to increase road safety. The car maker will include pWLAN technology which is based on a standard allowing the automatic transfer of information between cars made by different manufacturers and the transport infrastructure. This will enable information about the current traffic situation, accidents and other information about conditions within a radius of around 500 metres to be shared much faster than has been possible in the past.The technology used by Volkswagen is based on the IEEE 802.11p standard, which the automotive industry has standardised and tested for direct, non-proprietary inter-vehicle communication as well as between vehicles and transport infrastructure and in international markets.The system uses a special frequency band intended for road safety and traffic efficiency. No data is stored centrally, meaning that there are no ongoing communications costs and it does not rely on mobile phone network coverage.Volkswagen’s strategy will be to include pWLAN technology in the basic specifications of its models as standard, in addition to mobile phone connectivity."We want to increase road safety with the aid of networked vehicles, and the most efficient way of achieving this is through the rapid roll-out of a common technology", explains Johannes Neft, Head of Vehicle Body Development for the

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Volkswagen brand: "What matters most is that the technology is used consistently, and by as many manufacturers and partners as possible."When it is launched in 2019, the system will focus on identifying potential traffic hazards which appear at short notice, such as a car making an emergency stop or the on-board sensors detecting black ice. Within a few milliseconds, this information can be shared with the local environment, allowing other road users to react to this risky situation appropriately.Once police forces and emergency services are also equipped with pWLAN technology, it will be possible for drivers to receive advance information on how far away approaching emergency vehicles are and the direction they are travelling in – often long before the vehicle can be heard or seen.In addition to this, transport infrastructure operators in Germany, the Netherlands and Austria have announced plans to equip the trailers used to block off roadworks with pWLAN technology, in order to reduce the risks of rear-end collisions near roadworks on motorways.In its push towards automated and cooperative driving, Volkswagen is working on enabling other transport infrastructure components (e.g. traffic lights) and other road users to be integrated in future, and is also spearheading a drive to get other manufacturers and national transport infrastructure suppliers involved.

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NEWSUK bans diesel and petrol cars from 2040The UK government has announced plans to ban the sale of new diesel and petrol cars as from 2040, including hybrids, with the aim of removing combustion-engine cars from British roads altogether by 2050, in order to improve air quality.The proposals follow the publication of the UK plan for tackling roadside nitrogen dioxide concentrations, which includes ploughing some £800 million into new driverless and zero-emission vehicle technology in a bid to boost the economy post-Brexit.The government’s plan requires local authorities to develop local plans to tackle the causes of air pollution. It says they should consider a wide range of innovative options, such as changing road layouts at congestion and air pollution pinch points; encouraging public and private uptake of ultra low emission vehicles; using innovative retrofitting technologies and new fuels; and, encouraging the use of public transport.The Department of Transport says if these measures are not sufficient, local plans could include access restrictions on vehicles, such as charging zones or measures to prevent certain vehicles using particular roads at particular times. However, the department says local authorities should bear in mind such access restrictions would only be necessary for a limited period and should be lifted once legal compliance is achieved and there is no risk of legal limits being breached again.

Latin American used car market on the upKavak, a Mexican company which provides a platform for selling second-hand vehicles, is singled out as an example of how the used car market is changing across Latin America, in a new study by Frost and Sullivan.The consultancy says economic disruptions that curb new car sales, new channel distribution, and technology innovations are combining to transform the used car market in the region. However, financing, leasing, and certified pre-owned (CPO) programs are still under-developed in the region, and the penetration of online and mobile apps for complete end-to-end sales of used cars is low, the report suggests."The LATAM used car market is primed for online disruptors that can offer financing, easy and friendly processes, and limited warranties and maintenance plans to differentiate and add value for customers," said Frost & Sullivan mobility industry analyst Hernan Cavarra. "The focus of these startups will be to remain competitive on pricing by keeping operational costs low. Taking advantage of the learning curve from similar business models in the US market, online businesses can expect success in the medium to long terms."The total used car market in Latin America will reach 22.4 million units in 2022, exhibiting a compound annual growth rate of 3.4% during 2016-2022. Key trends include OEM collaboration with franchised dealerships, and the deployment of new apps, mostly in Mexico, Brazil and Argentina, which create opportunities for independent dealerships and individuals selling their cars.

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Frost and Sullivan reports that several innovative players are helping accelerate market growth in peripheral used car markets like Peru and Mexico that are informal, unprofessional, and poorly regulated, and in large markets like Brazil, where oversupply of new cars due to an economic crisis and influx of low-cost Chinese cars restrain used car salesAs well as Kavak, which offers end-to-end buying and selling of second-hand vehicles in Mexico along with the commitment of selling the car offered by individuals within 30 days, the report cites InstaCarro.com, an online service based in Brazil that promises to sell any used vehicle in an hour and a half or less to any of more than 1,500 dealers that buy it through an online auction. In its first year of operation, the company reported more than $32 million in revenue.In addition, Nissan Mexico offers almost-new and used car eCommerce through its listing-driven website, and has a 154-checkpoint CPO program, financing, warranty, on-demand maintenance and services features, and original spare parts."Government regulations, OEM CPO programs, active participation in the market through franchise dealerships, and startup apps for 100% used car sales processes will build trust among buyers and boost confidence in used cars," concluded Cavarra.

Ford opens dedicated European mobility office Ford is opening a dedicated Ford Smart Mobility Innovation Office in London focussing on future mobility solutions for Europe, with a team of Ford specialists based in a new office on the former Olympic Park in east London working with academic institutions and existing partners.“Basing our rapidly growing team here in the heart of mobility innovation in London is critical to accelerating our learning and development of new technologies. The location at Here East will allow us greater collaboration and the out-of-the-box thinking needed to tackle the urban transport challenges of tomorrow,” said Steven Armstrong, group vice president and president of Europe, Middle East and Africa, Ford Motor Company.

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“We will also be ideally placed to build on existing partner projects and have access to London’s world-class digital talent. Both will be key as we build towards our ambition of being a global leader in mobility solutions.”The new office located on the Here East Campus, Queen Elizabeth Olympic Park, will have an initial capacity for around 40 specialists and is set to open later this year. The London location allows Ford close proximity to its existing cutting edge trials in London including the plug-in hybrid Transit fleet project launching later this year. The Olympic Park’s unique private road network may also be utilised for testing in the future.The campus is already home to Loughborough University, one of Ford’s longest standing and most significant UK university research partners, as well as the Advanced Propulsion Centre (APC), which Ford has worked with on powertrain research and this year the plug-in hybrid Transit development. Other tenants include the brand new Plexal Innovation Centre and UCL Robotics.The new London office joins Ford Smart Mobility’s existing offices in Dearborn and Palo Alto and also complements Ford’s global network of research and innovation centres, including RIC Aachen in Germany.

Commuter mobility Back in the US, Ford Motor Company launched its crowd-sourced shuttle service Chariot in New York City in August, aiming to provide new mobility solutions to consumers.Chariot offers commuters, some of whom live in transit deserts – areas that are not within walking distance of public transportation – a new way of getting from point A to point B. During typical commuting times, Chariot shuttles will travel to busy areas where people work, then bring them back at the end of the day. Each Chariot comfortably accommodates more than a dozen people and guarantees seats for every rider.“Our mission at Chariot is to provide reliable, safe and affordable transportation for as many people as possible,” said Chariot CEO Ali Vahabzadeh. “We want to connect people more easily to where they want to go – whether they need help making it to a transit hub or live in an area underserved by public transportation.”New York is the latest market to get Chariot’s service, which is launching with two pre-planned service areas in Manhattan and Brooklyn, at a flat rate of $4 per ride. People can create additional service areas through crowd-sourcing. By this fall, Chariot plans to have 60 vehicles operating in New York City.As part of the New York launch, commuters will be able to use a streamlined crowd-sourcing process to make the experience more user-friendly. The Chariot map will display service areas being crowd-sourced – giving commuters the chance to choose and contribute to these potential service areas.Users can even create a custom route for areas they feel would benefit from Chariot, then share their proposal with friends, family and neighbors who may be taking similar commutes. Once enough riders sign up to support and fund a proposed route, as many Chariots as needed will be dispatched to service the area.

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Ford’s Global Data, Insights and Analytics team is supplementing Chariot’s planning. The group helps Chariot identify potential routes using advanced optimization algorithms based on commuter demand and behavior, as well as traffic data and existing infrastructure. In San Francisco, where Chariot already operates 12 commuter service areas, about 20% of riders use it to connect to transit hubs, or to ferry terminals. The service can also be used to supplement public transit at peak commuting times, keeping large groups of people moving without the need for single-occupancy vehicles. According to a study conducted by KPMG, every Chariot in operation can remove about 10 cars from roads.In addition to commuter service, Chariot is launching enterprise and charter services in New York City. Enterprise is available for companies that would like to provide shared commutes for their employees, while charters allow users to directly book a private 14-passenger Chariot for day trips or events.

Tougher cyber security regulations for autonomous developmentThe UK government has issued guidance designed to ensure engineers developing smart vehicles will have to toughen up cyber protections and help design out hacking. The Department for Transport says smart vehicles are increasingly becoming the norm on British roads – allowing drivers to access maps, travel information and new digital radio services from the driving seat.But while smart cars and vans offer new services for drivers, it is feared would-be hackers could target them to access personal data, steal cars that use keyless entry, or even take control of technology for malicious reasons.Measures to be put before Parliament mean that insuring modern vehicles will provide protection for consumers if technologies fail. This comes alongside new guidance that means manufacturers will need to design out cyber security threats as part of their development work.Transport Minister Lord Callanan said: “Whether we’re turning vehicles into wifi connected hotspots or equipping them with millions of lines of code to become fully automated, it is important that they are protected against cyber-attacks.That’s why it’s essential all parties involved in the manufacturing and supply chain are provided with a consistent set of guidelines that support this global industry. Our key principles give advice on what organisations should do, from the board level down, as well as technical design and development considerations.”The quick start guide to vehicle cyber security lists the 8 principles:1. Organizational security is owned, governed and promoted at board level2. Security risks are assessed and managed appropriately and proportionately,

including those specific to the supply chain3. Organizations need product aftercare and incident response to ensure systems

are secure over their lifetime

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4. All organizations, including sub-contractors, suppliers and potential 3rd parties, work together to enhance the security of the system

5. Systems are designed using a defence-in-depth approach6. The security of all software is managed throughout its lifetime7. The storage and transmission of data is secure and can be controlled8. The system is designed to be resilient to attacks and respond appropriately

when its defences or sensors failMike Hawes, Society of Motor Manufacturers and Traders Chief Executive, said: “We’re pleased that government is taking action now to ensure a seamless transition to fully connected and autonomous cars in the future and, given this shift will take place globally, that it is championing cyber security and shared best practice at an international level. A consistent set of guidelines is an important step towards ensuring the UK can be among the first – and safest – of international markets to grasp the benefits of this exciting new technology.”

Drones and vans delivery comboMatternet, a US developer of autonomous drone logistics systems, has agreed a strategic partnership with Mercedes-Benz Vans to create an integrated delivery solution that will transform how people receive lightweight goods on demand. The Mercedes-Benz “Vision Van” has a fully automated cargo management system and space on the roof configured to provide precision landing and automatic payload and battery exchange for the drone. The Vito is the first ever production vehicle to be designed as a mobile receiving station and landing site for drones.

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The idea is to speed up delivery in circumstances where normal fleet vehicles may be experiencing delays. For example on a construction site, if a particular tool part develops a fault, and the site is already expecting an order from a supplier, a worker can add in details of the additional part via an app. The part is swiftly flown in by air and a drone carrying the order flies to the built-in landing site on the van's roof and delivers its cargo, allowing work on the construction site to resume quickly. The van is transformed in this way into a mobile mailbox. Another example would be an accident on the highway that has led to a long tailback. The medic needs supplies of a particular blood group to treat one of the injured. The breakdown service needs a specific part to tow the car away. The road is blocked, but the route in by air is clear.Such autonomous drone systems hold the promise of more efficient, faster and cheaper delivery. Andreas Raptopoulos, co-founder and CEO of Matternet. “We are driven by a common vision to automate last-mile logistics, which today is the least efficient and most expensive part of logistics. Through this partnership, we are building solutions that will dramatically reduce the time and cost of on-demand delivery.” Safe, autonomous landing of the drone is confirmed using an app. This involves using an application to link up an independent system, in which drones are deployed as a means of transport, with the van. The drone locates the van via GPS. The van scans the airspace and transmits a light signal to ensure safe delivery. Only then does the drone land on the van's roof fully autonomously with the help of an infrared landing guidance beam. “With our Vision Van, we are going beyond the vehicle,” said Volker Mornhinweg, head of Mercedes-Benz Vans. “We have been working closely with Matternet to create the world’s first fully connected and automated cargo van with integrated delivery drones.”

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Car ownership levels stallingThe big five European markets currently make up 73% of all new car sales and yet, despite the growth in sales this decade, only one of them, the UK, registered more cars last year than they did before the crisis. Overall, passenger car sales growth has yet to increase cars per capita above record levels. Both Italy and Spain are well below their highest ever years, being 30% and 27% lower than their all-time pre-crisis records respectively, whilst Germany and France are 19% and 13% behind their highest years. Even with 9 countries in the EU28 and EFTA3 recording all-time records in 2016 the area is still some 6% down on its 2007 best year. However, between 2007 and 2016 the population of these 31 countries has increased by 2.2% according to the World Bank’s population data. Whilst this means there remains additional sales volume capacity the challenge for OEMs is how to get more people to buy cars at a time where personal mobility is set to take over from car ownership.Millennials are starting to shy away from car driving and ownership. A 2016 report by ThisIsMoney.co.uk stated that the number of 17-20 year olds sitting their driving test has fallen by 21% in just nine years. Particularly for younger buyers, 17-24 year olds, the car is just another commodity vying for their monthly income. The report also cites a Compare the Market study which showed that the average first year of car ownership costs a young car owner £4,750, that is £13 per day irrespective of whether the car is used. Even for the 25+ age group the average cost is £10.91 per day. We also have autonomous cars set to be launched in 2021 by the likes of Volvo, BMW, Ford and Toyota which then raises the question about why own and drive a car? Utilising a car club or someone like Uber means you could just pay on use instead.New car sales per thousand of population

Forecast Car ResidualsRise as Optimism Returns

Changes in residual value (RV) forecasts, SMR costs and lease rental rates to January 2014Forecast residual values Forecast service, Current rental rates

maintenance and repair costs

3 month 12 month 3 month 12 month 3 month 12 month

change change change change change change

France +0.2% +1.7% +0.7% +2.1% +2.0% +1.9%

Germany +0.9% +0.4% +0.8% -2.7% -0.8% -2.5%

Italy +1.1% -0.9% -0.1% -8.2% +1.9% +0.6%

Portugal +0.7% -2.6% +0.2% -2.7% -1.2% -4.9%

Spain -0.1% +1.0% -1.4% -4.1% -0.9% -1.3%

UK +2.8% +7.3% -0.1% +0.4% -0.2% +4.0%

It appears that fleet lessors across Europe arebecoming increasingly optimistic about futureresidual values. To end, January we sawlessors increase their forecast RVs by 2.8% inthe UK, 1.1% in Italy, 0.9% in Germany, 0.7%in Portugal and 0.2% in France. Spain reportedthe only reduction and this was by just 0.1%).

These figures are collated by Experteye’sEuropean Leasing index survey which tracksforecasted residual values (RV), servicing,maintenance and repair (SMR) costs and rentalrates in six European countries using datasupplied by major leasing companies.

Looking over the past 12 months we can seethat at one extreme forecast RVs rose by 7.3%in the UK, and at the other extreme they fell by2.6% in Portugal.

Forecast SMR costs have also stabilisedsomewhat over the last three months, havingsuffered significant falls in Spain, Portugal, Italyand Germany in the previous nine months.

Rentals seem to have stabilised somewhat tooin the last three months, having been quitevolatile in the UK, Portugal and Germany inparticular in the previous nine months.

Professor Colin Tourick is a management consultant, former MD of Citibank's fleet leasingbusiness and a 34 year leasing industry veteran

Editor: Professor Colin Tourick Editor in Chief: Brian Rogerson© Asset Finance International, 2013. All rights reserved. The contents of this publication may be downloaded from Asset Finance International and are intended only for the individual use of thenamed individual who has registered to receive it. Contents are for informational purposes only. No liability will be accepted for any omissions or inaccuracies. No copying, whether whole or in part, transmission by any forms or means, electronic or otherwise is permitted.

• The comparisons are for vehicles with a contractduration of 36 months / 90,000 KM• Twelve month comparisons show change sinceFebruary 2013• Three month comparisons show change sinceNovember 2013. • Rental rate changes compare the rates in effect atthe time of the survey with those in effect three ortwelve months ago.

• RV and SMR changes show the change inparticipating leasing companies' forecasts of residualvalues and maintenance costs over the period.The Experteye European Leasing Index reports ontrends in leasing company forecasts, plus currentrental rate movements, covering representativeversions of up to 250 vehicles in the six markets.

Total EU28+EFTA* France Germany

Italy Portugal

Spain United Kingdom

Source: ACEA.BE, World Bank: Population Total, Bowkett Auto Consulting Ltd

19921990

60.0

50.0

40.0

30.0

20.0

10.0

0.0

2020f2014

20162018f

2022f2012

20062008

20102004

19982000

20021994

1996

60.0

50.0

40.0

30.0

20.0

10.0

0.0

306








1. Diagnosis



Changes in RV trends2016 was a relatively positive year with residual values (RVs) generally rising and Q1 2017 saw that trend generally continue although this was in part driven by normal seasonality. However, Q2 is seeing a very different trend with RV setters appearing to show concern for the likely state of the used car market in 3 years’ time with the ExpertEye RV index dropping this year in the UK, Germany, Spain and Portugal.Used vehicle values are currently fairing reasonably well in a number of European markets, although the gap continues to widen between petrol and diesel as demand for diesel falls. Autoscout24, which is one of Europe’s leading online vehicle sale portals, reports used values holding or generally increasing in many markets and this just shows how much of a disconnect there can be between the used market today and expert views on where the used market is likely to be in three years’ time.

Volumes fallingBut, the volume of pre-regs/day-regs are pushing down current used values, particularly in the UK, Germany and France, with Autoscout24 reporting a 32% increase in the volume of cars being advertised aged under one year in France. We are seeing increased activity across a number of high discount sales channels with some OEMs in the UK reportedly doing 30% or more of their sales with daily rental businesses.Whilst Brexit is being cited by many as the cause for concern about the state of the used car market in the next 2-3 years’ time in particular the potential impact of Brexit on things like exchange rates and trade which has the ability to destabilise used values. Government spin and press hype regarding the “War on Diesel” and the “ICE time bomb” are also both putting negative pressure on used values across a number of European markets. RV Index 36 months / 90 kms

2010

04

2010

01

2015

04

2015

07

2015

10

2016

10

2017

01

135

130

125

120

115

110

105

100

95

90

Average Spain

France Portugal

Germany United Kingdom

Italy

2016

01

2016

04

2016

07

2013

10

2013

01

2013

04

2013

07

2014

10

2014

01

2014

04

2014

07

2012

10

2012

01

2012

04

2012

07

2015

01

2011

10

2011

01

2011

04

2011

07

2010

07

2010

10

Inde

x 10

0 =

Jan

2010

2017

04

Source: ExpertEye European Automotive Report - 2017 Quarter 2

316








1. Diagnosis



The UK and Portugal remain quite isolated in terms of their used car markets. The former due to it driving on the left and the later due to used car import taxes. The impact of that can be clearly seen by the way the way the used values diversify so far from the rest of Europe.RV setter’s concerns around the war on diesel can be seen in segments where mileages are relatively low and torque not an issue, such as C1, where the values across most markets are starting to ease downwards. But, the strength of diesel in larger segments, like the E1 executive vehicles underlines part of the challenge governments have with eliminating diesel. The poorer fuel consumption of petrol engines, combined with the lower torque and most importantly the fact that they are far less durable makes a switch to petrol or petrol hybrid a very unappealing alternative.Whilst the niche MPV segment continues to match our forecasts with minimal movement in most markets the downturn seen in the UK is mainly as a result of the overall downward trend we are seeing in the market combined with the fact that like C1 the M1 segment is less in need of the fuel savings for diesel that some larger vehicle segments still demand which is why the decline has been happening over a longer period.Even amongst the popular SUV segments the UK is bucking the growth trend seen across most of Europe. The exception to most of Europe is Spain although this is more a market correction of a surge in SUV RVs, particularly in the Compact SUV segment, where the RVs had become overly optimistic. After a long and sustained period of depressed values the Italian market is now seeing values back in line with the rest of Europe as RV setters’ confidence recovers as some of the banking issues get resolved.

LCV values hold steadyLCV RVs are continuing to see an overall upward trend in RVs as the econmic recovery across Europe continues. The fact that in many countries the recovery is fueled by private spending is also helping as we see demand for good quality commercial vehicles from across the industrial spectrum including home delivery companies, the self employed as well as the traditional construction and industrial sectors. Whilst the UK is showing a slight downward tick with Portugal moving in exactly the opposite direction, the overall situation remains in line with our expecations of a general calm set of RVs across most van types. With some of the Italian banks receivng a bailout from the Italian government we can see the same strong upward recovery in LCVs that we saw in cars and we now expect values to stabilise over the second half of the year.For a full copy of the Q2 2017 ExpertEye European Automotive Industry report and more details of the research, go to http://experteye.com/Data and analysis for the ExpertEye report is compiled by Dean Bowkett, managing director, Bowkett Auto Consulting

http://experteye.com/

326








1. Diagnosis



Editor: Pat Sweet Editor in Chief: Brian Rogerson

© Asset Finance International, 2017. All rights reserved. The contents of this publication may be downloaded from Asset Finance International and are intended only for the individual use of the named individual who has registered to receive it. Contents are for informational purposes only. No liability will be accepted for any omissions or inaccuracies. No copying or transmission, whether whole or in part, in any form or by any means, electronic or otherwise, is permitted.

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