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LEX INTERVIEW: What next for Lex after leasing's big integration?

Date: 21 April 2011

With the biggest coming together in British fleet market history nearly complete, new Lex Autolease boss Rick Francis talks BusinessCar through what happens next

For the past two years, the integration of two firms with 335,000 vehicles on their books has occupied the minds of those people tasked with running the country's dominant leasing company.

In September 2008 Lloyds TSB, parent company of the Autolease operation, bought Lex owner HBOS in a Blynn takeover that threw together what was then the two biggest players in the vehicle leasing market, and a merger of the two was confirmed in February 2009. That gentle process is now just a couple of months from completion, and managing director Rick Francis, who stepped up from operations director at the turn of the year to succeed the retiring Nigel Stead, is now looking to the future, as well as reflecting on a successful integration.

"We're two months away from full integration," Francis tells BusinessCar. "It will be a huge relief because the business has been internally focused on getting fit and healthy, and integrations are diversional - it's a horrible thing to do."

The new company has elected to use the Lloyds TSB Autolease systems rather than lez, mainly because the latter had been through a series of integrations over the past few years, whereas Autolease had been clear to concentrate on developments. "With lez Oracle system we couldn't do the upgrades and integration in time and the cost was horrendous," says Francis. "Autolease Connect was in a good state - it was more stable because it hadn't had any integrations for years."

Francis described the integration of the two systems as "fairly successful", and 200,000 of the Lex units have now moved over onto the new upgraded Lloyds TSB Autolease system, with the last batch on the verge of being transferred. For comparison, Francis claimed the previous largest integration in the industry was when Lex itself integrated the 47,000-unit HSBC leasing business into its operation.

"The reason it's taken so long is that we did it slowly and carefully by each sales channel. It wasn't something to do quickly because our experience is that if you do, you cock it up."

None the less, Francis himself is going to undertake a research mission, talking to around 50 customers personally to understand how they have been affected.

Over the past two years, the combined fleet has dropped from nearly 400,000 to its current level, as some of the less profitable business is sacrificed. "Included in the Lex numbers were some quite big run-out fleets, a decision that was made a good bit before [the integration plan] about running out old Bank of Scotland Vehicle Finance fleets, based on the fleets not making much money," says Francis. The run-out of 35,000 vehicles will be complete in June.

Francis says the "broker business wasn't strong in terms of pricing and ability to be retained and grow, so we took the decision not to continue".

He continues:?"That's one of the biggest reasons the fleet has dropped - we weren't ever going to grow at the rate the BoS vehicles dropped off our books." Also included as part of the 2007 integration was the more attractive Godfrey Davis contract hire book, which has been taken on board.

Lex Autolease has evolved its broker operation and is looking to increase the volume of vehicles it has out with the brokers it now works with.

"We are in the broker channel. We work with 100 brokers - they are really good," he says. "The profit we make from each channel is good and we have a quite big interest in growing our broker business - not with more brokers but doing more business with the ones we have. It's very much a good sales channel for us. I don't see a future where we do no business with brokers."

Francis says an increase in the number of maintenance contracts being written has helped improve the view of brokers, as they are offering more value to the customer. "I need to be clear: In the bad old days - going back four or five years - brokers had a bad name for poor credit risk, taking money out of the deal, and sharks with residuals. Today that's not the case and the ones that have done well add value as advisors; and advice-based services have a future.

"At the very small business level a local presence matters, a local advice presence is like an independent financial advisor."

Francis is in no hurry to grow Lex Autolease through acquisition, following the drawn-out merging process. "It's a big distraction. The volume creation in this business is service provision," he declares. "We are the absolute best at service in this industry and the focus for the next year is getting better. We are really, really good at it."

As well as the volume expansion through brokers, Francis sees Lex Autolease's big growth opportunity in its provision of 'white label' large-scale fleet operations.

"I believe we will grow our fleet through this [service-led] approach, but we would be interested in pursuing larger opportunities," he says. "If we do any large fleet bolt-ons they will be white label - we'll run the fleet. We are in a world of outsourcing, and companies like Capita and Serco are my benchmark. They offer a service that is not core to what the company does or they can do it better - it comes back to service levels."

Lex Autolease has recently won deals with firms such as Rentokil, who have "very high standards, and rightly so. We have service-level agreements and if we don't meet them we get fined or lose the contract. That's the sort of market opportunity that could develop and we'll go out and look around, see who's interested".

Not all about volume Francis, however, was keen to point out he isn't driven by volume. "The big issue in this business is that Lex Autolease makes money by being the best at customer service - we've never been the cheapest, we shouldn't be the most expensive, but people come to us because we provide the best service."

Part of that has been a resistance to centralisation, and the combined Lex Autolease has kept all its sites bar the Chester facility that is closing as part of the BoSVF leases coming to an end. "We've got a tremendously strong knowledge base that understands the industry and the local area, and we've retained the front end sales-face relationship as much as possible," Francis says. "There will be a reason if the customer hasn't noticed [the integration] - because the person they are dealing with hasn't changed."

But the key will, according to Francis, always be about profit before tax. "Having optimised, and the run-out fleet is the end of that, we now move onto growing the bottom line," he explains. "If we can grow the PST, that's important. Growing fleet at all costs isn't, growth in PST is the goal."