In an age where big leasing companies are sold off by their parents with what seems like alarming regularity, you could be forgiven for thinking that the game was up as far as the financiers were concerned.

Look at Lombard Vehicle Management and ING – the two big exits from the leasing market in the past couple of years, both decisions taken by equally sizeable banks – and listen to the spokespeople from each one, the expression ‘non-core asset’ being a popular line, and the assumption is that, one by one, the banks have steadily been turning up their noses at vehicle leasing.

It is a welcome surprise, then, to see the biggest leasing outfit of the lot embraced by its banking giant of an owner. According to new chief executive Tim Porter, it’s a different story at Lex Autolease.

“Lex has been referred to as ‘the jewel in the crown’ – it’s one of a small number of businesses that are owned by the [Lloyds Banking] group that are regarded to a sufficient extent that they are now in or part of an invest-to-grow strategy.”

A long-serving management face at Lloyds, Porter took the reigns from former Lex boss Rick Francis in July this year. His previous role was commercial director of Lloyds’ SME banking teams, which he held for around 13 years, and he believes there is a degree of crossover between that and the leasing industry.

 

“Latterly, in the last five years, I was responsible for the combined business that was HBOS and Lloyds TSB in commercial banking. I did many of the same sort of broad activities that Rick Francis was driving with Lex Autolease – integrating two businesses; I was doing the same with banking teams,” Porter explains. “The relevance sort of read across into this role – our customer bases were clearly quite common in terms of the contracts. They were SMEs, mid-markets and corporates, so I’m very familiar with working with this customer base.”

As he suggests, Lex itself has been no stranger to its own bout of consolidation, and there was a thorough rework of its business when Lex, which was part of HBOS, and Autolease, owned by Lloyds TSB, merged in 2008/2009, after which it shed some of its less profitable business.

“We’re well through that now,” Porter continues. “We’re about 18 months out of it. During that period you could paraphrase the strategy as ‘manage for value’, so there were contracts that both Lex and Autolease had that weren’t that profitable, weren’t long-term relationships, that were quite transactional in their nature – and actually we’re a relationship business and we want customers for the long term.

“The business made a deliberate choice of downsizing its operations, so if you look back and look at the size of our fleet pre-integration and look at it again post-integration, it’s smaller, but it was a deliberate choice.”

The upshot of that is that Lex has muscled itself into the kind of position it wants, and is now touting for more business. In fact, look at the figures of BusinessCar’s latest BC50 rundown of the top 50 leasing companies in the UK on pages 17-19, and you’ll see that the firm has taken on around 5000 more vehicles in the last 12 months. Between 2011 and 2012, it shed roughly 12,000 vehicles, so the figures are testament to the fact that it’s in better shape on the whole.

Porter adds: “It brought us to a place 18 months ago where that part of the combined businesses strategy had delivered. We’d integrated the colleagues, we’d integrated the customers and the business was performing well.

“A manage-for-value strategy typically gets you to a place where your cost structure is right and you can consider going back out and winning the sort of customers that you want – long-term relationship customers.”

 

Acclaim

That strategy is also what won Lex acclaim within the Lloyds group, and found it firm favour with the parent company.

“Rick had introduced a strategy with his team that moved it from manage-for-value to invest-to-grow.” Porter continues: “About 12 months ago, the main group board of Lloyds Banking Group made a very specific commitment that the business was effectively deemed a core operation of the group. In fact, one of the aspects about being regarding as a core activity is not just about financial performance, it’s been about ‘does what the business represents help Britain prosper?’ It sounds a rather grand ambition, but nevertheless, that is absolutely where the group has been for the last 12 to 18 months.

“And as we’ve been rebuilding trust in the bank, it’s not just about profit-generating business units, of which Lex Autolease happens to have been one, but it’s about ‘does it help contribute and make businesses in particular prosper?'”

Now that the firm has its affairs in order, it has made some decisions about the type of business it wants. Bearing in mind its size and status, large corporate contracts are obviously on the agenda, so the company has beefed up its IT systems accordingly to cope.

“The [large company] full-outsource option can be quite a challenging one to take on board because you’re taking on a lot of vehicles, but it is actually a good opportunity for us. Rather than just running the fleets in a more conventional sense, it would be to take on the whole thing lock, stock and barrel, so to speak,” says Porter.

“A lot of these companies effectively want us to white label the fleet management for them, so we need to make sure we have the right IT structures in place and the flexibility in our approach and our systems to support that, and not have to reinvest in our IT systems every time we win a big customer.”

 

The blue-chip crowd isn’t the be-all and end-all though, and, bearing in mind Porter’s background, if you’re an SME, Lex wants to get involved.

“That is one of the reasons why this job was particularly interesting to me, because I’d just come from managing the SME banking franchise,” says Porter. “I think the opportunity there is actually expanding the market for leasing. So this isn’t necessarily about us winning business from a competitor; the opportunity, I think, is about us understanding customers’ business needs better than we do – and I think we can – and helping them understand what the pros, and cons, but mostly pros, of leasing might be for their business.”

He continues: “I think leasing is quite misunderstood by a lot of smaller business customers. Not because they don’t understand leasing per se, but perhaps because we and the industry have not done a good enough job of describing what leasing could mean for their business.

“[Consider] how having more money available to it because it doesn’t consume cash in business vehicles might help a business like that. And this does play out at an SME level – if you’re buying two or three vehicles and you’ve got a relatively modest business with a modest turnover that can consume cash, that could be very, very helpful in terms of restocking the business. And this plays right up across – ironically at the moment – leasing business vehicles and fleets being potentially a very helpful solution to the British economy as it comes out of recession. It’s not the only one, and it’s not going to make or break a business plan, but it is a contributing factor.”

 

Developments at Lex: LCVs and salary sacrifice

As part of its efforts to reel in more customers from new areas of the marketplace, Lex has a series of new initiatives on the way, specifically in the light commercial vehicle and salary sacrifice arenas.

Chief executive Tim Porter describes the latter as less of a new product and more of a communications task: “I think the salary sacrifice opportunity is relatively well-known, relatively well-trailed. I do wonder whether the industry and those in it have actually properly explained that to potential users.

“Those firms that we are working with in our customer base now have seen a massive uptick in the engagement of colleagues in the business, who think the firm has done them a real positive turn by using its leverage to get access to vehicles that are quite well-priced and so on, and making them available to members of staff who previously wouldn’t have access to that. Financially, it works particularly well for low-emissions vehicles.

“One of the unforeseen spin-offs [of salary sacrifice schemes] is that the firm could be contributing quite positively to efficient vehicles being on the UK roads – almost by accident. This is all about communication – this is not news – and I think the leasing industry could do more business as a consequence of this.”

As for its LCV offering, Porter reveals a much more product-focussed plan from Lex: “A typical SME is not desperately interested in fleet management, [so we will be] pre-fitting vehicles that do what an electrician needs to have done. We’re doing some work in that area at the moment – can we almost have off-the-shelf, in the way you might order a car off-the-shelf, pre-fitted out with the sort of racking and shelving and fixtures and fittings that a typical electrician, plumber, construction business might want?

“They don’t want to come in and build a bespoke vehicle and, frankly, we can’t service one vehicle, but could we have a number of vehicles that are already pre-prepared to meet that market requirement.

“We’ve not done this in glorious isolation – we’ve done this in partnership with electricians and people that work in these sectors giving us views and feedback on what they think the vehicle should have in it.”