The evolving trends of global fleet management have presented new opportunities for fleet managers and fleet management companies. But what is global fleet management? What are the major differences in fleet operations outside the U.S.? To gain a perspective, Automotive Fleet recently visited with Henry Dumortier, director of multi-national sales at GE Capital Fleet Services.

AF: What are the potential advantages for a U.S. company to adopt a global management structure for its fleet operations?

Dumortier: With the integration of the European Community, the implementation of the Free Trade Agreement, and the acute competitiveness in all industries, it is becoming evident that the U.S. economy will be more driven in the next few years by growing globalization. U.S. multi-national companies are looking at the advantages of a more international approach to fleet services in such areas as cost control, company car policies integration, and economies of scale through volume purchasing. Many international companies are not aware of the number of fleet services suppliers they use around the world. Local contact names are sometimes hard to identify. Language barriers limit the access to good information.

As a consequence, fleet mixes and financing structures are not efficiently controlled and company car policies remain fully decentralized. Significant productivity opportunities are available if one considers that the size of those fleets combined can be as large as their U.S. fleet.

AF: What are the major similarities and differences of the European fleet market compared to the U.S. fleet market in terms of size, types of vehicles, and remarketing methods?

Dumortier: The European total car market is significantly larger than any other car market in the world with annual registrations close to 13.5 million vehicles. Almost one-third of all European car sales are to business users, and this high share is expected to reach more than 35 percent by the year 2000. The total business car market at the end of 1992 was estimated around 15 million vehicles, which is almost twice the size of the U.S. fleet market. This dominant share of the business car segment in the industry can be partly explained by the significant tax benefits of the company car within the compensation package.

All vehicles in Europe are different from what is available in the U.S. And although Ford and GM are among the most common "European" manufactures in terms of demand by fleet administrator, their models (Cavalier, Scorpio, Mondeo, Omega, etc.) have very little in common with Lumina or Taurus. Typically, European vehicles, particularly Renault and Fiat, tend to be smaller and designed for shorter distances. Reliability tends to be more important than comfort.

European company fleets turn over every two to three years, similar to the U.S. Remarketing techniques vary considerably from one country to another. Wholesalers typically are the largest distribution channel for used vehicles. Auctions are almost nonexistent on the Continent, whereas they are dominant in the U.K. Cars from smaller fleets will generally go back to their original source of disposal, i.e. the dealer. Employee sales are also popular in some countries.

AF: What are the major types of leases used in Europe compared to the U.S.? Are there other major differences in the lease funding transaction?

Dumortier: Contract hire - closed-end full-maintenance leasing - is by far the most prevalent form of leasing in most European countries. Finance leases are deemed to be an acceptance of the risks and rewards on the part of the lessee - open-end risk. As a consequence, those vehicles under a finance lease must in most situations appear on the lessee's balance sheet. There is no FASB 13 accounting treatment in most of the European countries allowing the off-balance sheet treatment of a finance lease. Essentially, corporations have three funding choices available with company cars: outright purchase or finance lease with in-house management (maintenance, fuel, accident); outright purchase or finance lease with outside management; and contract hire (operating lease) with fleet services company management. In addition to these three methods, an alternative to contract hire has recently emerged in the U.K. - contract purchase. Here the customer countries to have the advantages to fixed costs associated with contract hire, but can also claim depreciation allowance.

More than half of the company car market is still in outright purchase without any type of value-added service. However, this trend is declining and the growth of contract hire is seen as the most important in the past few years - around 25 percent marketshare in 1992.

AF: How does the network of manufacturers in Europe differ from the U.S. and what impact does that have on fleet operations?

Dumortier: The European car market is unlike that of the U.S. in that it lacks a small group of dominant manufacturers. No other car market in the world is as fragmented, complex, and competitive as the European market. Each of the five leading European manufacturers (Ford, Opel, Fiat, Renault, and VW) holds a similar share of the market, but no one obtains more than 15 percent marketshare. Only VW, Opel, and Ford have been able to achieve a balanced marketshare across Europe, whereas French and Italian manufacturers tend to be dominant in their own local markets, but are weaker outside their borders.

In Europe, manufacturers have established in each country a single national distribution organization with subsidiary dealer networks franchised to the national organization.

The impact of this situation is important for fleet operators: the actual research into prices conducted by the European Commission reveals price variances ranging from 12 to 15 percent for net-of-tax benchmark vehicles between the U.K. (the most expensive market) and Denmark (the least expensive market). Currency fluctuations can explain part of this difference even if most of the European currencies are maintained together within a strict band - the European Monetary System (which has been relaxed since this interview). Variances in the gross dealer margin explain another part of the variance, reflecting enormous differences between countries. But most of the variance can be found in the pricing structure of the manufacturers. If some manufacturers appear to "lose" money by offering exceptional discounts, it is because they are compensated elsewhere or because there is enough margin in their national market to do so.

AF: Are there fleet pricing discounts from the European manufacturers similar to the U.S.?

Dumortier: Yes, fleet pricing discounts are available from almost all manufacturers and within all European countries. The difference is that it is still highly complicated to obtain uniform discounts in each country from the manufacturers. This is linked to the current decentralized marketing structure. Usually the discounts are negotiated locally with the manufacturer and are determined case by case on a yearly basis. Minimum volumes required vary from country to country. In some cases, the discount can vary by up to 10 percent of the manufacturer's price for a same model in two different countries.

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AF: Are there similar service programs in Europe, such as national accounts, maintenance, and fueling programs?

Dumortier: Contract hire agreements often include full maintenance, tire replacement, insurance and accident management, fuel management, and replacement vehicle in case of breakdown or accident.

Because of the popularity of the full-lease products in Europe, national account programs make a lot of sense. Avis Fleet Services is developing privileged relationships with most European fuel suppliers and is building state-of-the-art fuel management programs. Our Auto-Carte - a services card recognized in 14 countries - allows our customers to have the maintenance performed in more than 50,000 service centers across Europe. Agreements are also signed with hotel chains and restaurants. The idea is to develop an integrated network of service suppliers who are able to take care of any transportation-related issue anywhere in Europe. Only pan-European fleet services companies are in a position to develop this type of program.

AF: What are the major tax and accounting differences in fleet operations in Europe?

Dumortier: The importance, maturity, and evolution of the company car market in each European country is largely driven by related tax and accounting legislation patterns. For that reason, it is not yet possible to look at Europe as a uniform market. For example, countries imposing high personal taxation tend to have higher ratios of company cars to private cars. Companies are forced to find alternative ways of compensating their people and company cars are perceived as an adequate, tax-advantageous way to retain best people.

Another issue is the impact of the value-added tax (VAT). The value-added tax is a European tax applied in all European Community countries on most transactions related to transfer of goods or provision of a service. In fact, the VAT is a tax that is designed to affect the final user only. The intermediaries will usually get the right to recover part or all of the VAT charged on their account. Here again the situation is not homogeneous: the situation is not homogeneous: the rules on recoverability of this tax by fleet users from the fiscal authority vary from country to country. The rates are still different even if the European Community Commission decided to fix the norm between 15 and 19 percent, each country having to adapt it to its own situation. The consequence is that a same service provided in two European countries could have a cost differential of up to 38 percent, justified both by different rules of recoverability for an identical user and by different tax rates.

Finally, there are different accounting rules in each country. Most of the European countries allow a total deduction of vehicle-related expenses against corporate income taxes. Some countries however, limit the depreciation of the vehicles up to a certain amount. France and United Kingdom still limit respectively the depreciation of the assets up to 65,000 francs and 12,000 pounds.

AF: If each European country fleet market is so different, how can globalization efforts be useful for multi-national companies? And what can a U.S. fleet manager do no to play a more strategic role in their company's international activities?

Dumortier: Becoming involved in a global approach for fleet services can play a key role in cost control and productivity. The most crucial element of the global fleet management process is to understand all the relevant constraints in each country and to identify all potential decision-makers at all levels. The second aspect is to try to group fleet service offerings in countries by regions or common interest. Finally, don't try to manage global fleet operations from the U.S. only. Globalization involves teamwork with the U.S. or foreign headquartered parent company and its local subsidiaries in relationship with the expertise of a strong global fleet services partner who understand the business nuances in each country and knows how to achieve productivity across all European borders.

We have helped many of our customers coordinate local legal and accounting constraints with the requirements of the parent company. In other cases, we have noticed that some customers still acquire company vehicles from up to 20 different manufacturers. And we have helped them improve their buying power both at the local level and by negotiating at the European level. Other customers try to centralize the type of vehicles they want to allocate to specific categories of employees. Here we use our local expertise to be sure that parameters of the parent company do not conflict with local practices.

Globalization provides today's fleet manager with the opportunity to extend their ongoing professional development. A fleet manager today can take the lead in their companies by becoming better informed on international fleet business practices and be a driving force for championing productivity on a much higher playing field for their companies.

AF: What long-term impact will the EC and Maastricht Treaty have on fleet operations in Europe?

Dumortier: The Maastricht Treaty is a long-term project with the objective to abolish all currency constraints in the EC by having one single currency for any transaction. The day this will become a reality, the EC will be closer to the "United States of Europe" concept. The project is to have the new currency and Central Bank active by 1999. But there is no certainty yet that this project will become a reality. If and when it does, it certainly would make the financing aspects of the lease transaction less complicated.

AF: Besides Europe, what other countries of the world have an active business car market?

Dumortier: Mexico has been indentified as a future important market, but the maturity in terms of added-value services is still very low. Southeast Asia is also usually considered as a future growth area even if there is no organized market yet. South America is not ready yet, and the African market is non-existent.        

                            

 

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