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White paper backs multi-bid funding for turbulent times

Date: 14 September 2020   |   Author: Sean Keywood

Adopting a multi-bid approach to procurement could be the best way for fleets to navigate an uncertain marketplace in the wake of the coronavirus pandemic.

That's according to fleet consultant Keith Allen, who has written a white paper on the subject for fleet management firm CBVC.

In the paper, Allen, formerly managing director of ARI Fleet and ALD Automotive, contrasts a multi-bid approach, where quotes for new vehicles are gained from a single fleet management company or broker with a panel of leasing companies, with a sole-supply approach, and also with a multi-supply approach, where a fleet deals with several different leasing companies directly.  

Compared with a sole-supply approach, the multi-bid method is said to help by avoiding issues such as 'rate creep' and exposure to the supplier's risk profile, while compared with a multi-supply method the paper cites major advantages in terms of admin, with fleets only having to deal with a single point of contact, rather than managing relationships with several different leasing companies.

The paper states that the main benefit of adopting a multi-bid approach is price transparency, where leasing companies are consistently having to bid on a vehicle-by-vehicle basis for business so that competition remains in place throughout a contract period.

The paper also argues that, while there are many advantages of multi-bid systems whatever the market situation, having more than one line of credit in fleet funding will be especially important in the current economic climate, with significant volatility likely due to the coronavirus situation.

Allen told Business Car: "If [businesses] want to save money, in an environment where everyone is looking at cutting costs, but also the pandemic is changing a lot of the world and there is uncertainty, then a multi-bid approach to business contract hire is probably the most efficient.

"Not only because it obviously reduces whole life costs, because rental and leasing companies' rentals vary significantly, but also because when there is uncertainty, and credit becomes harder to get . then a corporate really needs to take more of a portfolio approach to the risk."

According to Allen, having vehicles from multiple companies allows fleets to benefit from the inevitable variations in the way they all operate.

"Every leasing company will have a different view on a residual value, which is the biggest impact on a rental, at a different point in time, and for different reasons. Not least that they are doing residual value reviews at different times of the year."

Aside from the current coronavirus crisis, Allen also said a multi-bid approach would be helpful for the future when procuring electric vehicles, as the variation in leasing company quotes for these is more significant than with conventional cars.

"People have different views in terms of where the technology is going and how quickly it will change.

"If you go back in time 25 years, diesel engines were absolutely rubbish, but the technology advance was very quick, and even at that time people's views on RVs on diesels changed at different rates. 

"So what you will have is everyone's view on electric and hybrid will change, and their appetite will change at different rates. Leasing companies are taking the residual value risk, so they have to understand the appetite from the second-hand market for these vehicles that they are leasing."

Allen added that increased diversity in car manufacturer model line-ups was also a factor.

"When I was entering this industry, Audi had an A4, and A6 and an A8, that was it. Now, you go online to spec a car and the manufacturers have almost personalised vehicles, there is so much choice.

"And equally, that means there is more variation in views on residual values and rentals, because the choice of vehicles now is immense compared to where it was 20 years ago."