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Under the Microscope: We talk to Lex Autolease managing director

Date: 26 April 2018   |   Author: Sean Keywood

Sean Keywood talks to Lex Autolease managing director Tim Porter about how the firm sees opportunities for growth in an uncertain market.

Lex Autolease may be the UK's biggest vehicle leasing and fleet management company, but that doesn't mean it's resting on its laurels. Coming off a successful few years in which growth targets were beaten, it sees opportunities to further strengthen its position, despite potential uncertainties facing the sector. In fact, managing director Tim Porter explains to us that he is bullish about the prospect of changing times. 

"There's no doubt the market is seeing significant change at the moment," he says.

"I do think this is a really interesting time and I'm very positive about changes in the market. It's very easy to focus on the challenges, but, of course, very stable markets very rarely create opportunities. 

"I'm firmly in the camp that a market that's rapidly changing creates as many opportunities as it does challenges for businesses like ours. We're excited by where the market is; we see the disruption creating opportunities, but our challenge is to do what's most relevant to our customers."

A balanced approach to growth

Porter explains the company, part of Lloyds Banking Group, has recently come to the end of a five-year plan, during which it aimed to add significantly to its fleet.

"We set out a plan to 'invest to grow'," he says. "We got substantial support from the group to invest in the business and committed to an ambitious business plan to grow our fleet organically by 100,000 vehicles. 

"It seemed pretty ambitious at that time, but I'm pleased to say we more than achieved it. We grew by more than 120,000 vehicles to the end of 2017, and had 100,000 about nine months early, around the end of March. 

"It would be fair to say that was on the back of what turned out to be a particularly strong vehicle market, but what's pleasing is our market share went up as well, so we're very pleased and proud about that."

Utm Tim Porter

The growth means Lex now has almost exactly 390,000 vehicles on its fleet, including around 107,000 commercial vehicles.

Porter says a key element of the growth has been a greater diversity in the firm's customer base, which, together with the previously dominant corporates, now also includes a strong share of SMEs and personal customers.

"Five years ago, we did business with all those sectors, but predominantly corporate, with a small amount of SME and personal, and they're now much more in balance, in terms of our total fleet," he says.

"That was deliberate and we have invested in our propositions in these segments."

Porter explains that key to Lex's growth is having five different channels through which it reaches customers - corporate relationships; public sector relationships; white labelling; brokers; and directly with SMEs, with most referals to the latter channel coming through Lloyds Bank. 

He says, "We have five routes to market, which gives us a broad reach towards three diverse customer types."

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Despite the success already achieved, Porter still sees potential for further growth, but says this will be carefully managed.

"If the past five years was investing to grow, we clearly still want to grow, and believe there is scope and capacity in the market to grow, but the watchword now is sustainable growth," he says.

"It's making sure we can grow at a rate that allows us to support customers in the way we want to, with the right risk profile.

"I could do things tomorrow that might create growth very rapidly, but that would mean us taking on the wrong types of customers to support future investment."

Porter says Lex's goal is to achieve growth while managing risk, staying compliant, and providing good value for customers
and shareholders. 

"It's more about balancing value and volume than it is about outright growth," he says.

"I think that serves our customers best, as well as giving them better and hopefully improving service quality. We want all our new customers to repeat order with us."

Grey fleet guidance

Turning to corporate fleet, Porter sees a potentially interesting trend developing with some drivers.

He says  there is still significant interest in corporate customers running company car fleets for essential-user drivers, who need their cars for work every day. However, the picture for employees who have what he describes as a 'status car' is changing.

"We have seen a trend, which is likely to continue, where status company car drivers are increasingly looking at whether they would take the company car option or cash," he says.

"It's creating an interesting area for us where, if they take the cash, do we lose them as a customer or provide some sort of personal-car leasing product?

"We are doing a lot of work in that area, and piloting work with corporate customers."

Porter says Lex is also able to help fleet managers deal with this transition. 

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"If more company car drivers end up using their own vehicle, it creates the prospect of more grey fleet drivers, and management of that and risk mitigation is quite a new phenomenon for a number of fleet managers," he says.

"What we are doing is working very closely with fleet managers interested in moving to the cash option and helping them manage the subsequent risks that might come out of taking that option."

Another area where Lex is aiming to help fleet managers is with data, as
Porter explains.

"A high proportion of fleets we fund are fully maintained," he says. "We have a very big database on which vehicles are good, bad or indifferent on service,  maintenance and repair issues.

"As a consequence of that, we have the type of use and the type of business that tend to have different profiles of SMR costs or damage."

Porter says that under Lex's Benchmarking system, this data, compiled with anonymity, can be supplied to customers so they can see how their companies might compare with other businesses.

He says, "It's proving very insightful and helpful for them to use when designing their vehicle policy. 

"It's an example of using data in a more insightful way with customers. It's one thing to have it, another thing to convert it into insight."

The right fuel for the job

With the industry currently dominated by talk of electrification, Lex has staked out a strong initial position on the subject, with more than 17,000 vehicles on its fleet already powered by alternative fuels - the most of any fleet in the country.

However, that doesn't mean Porter is ready to write off fossil fuels - far from it, in fact. 

"We have a lot of insight about running and maintaining alternatively fuelled vehicles," he says.

"We work closely with customers to identify the best fuel type for the job, and in this whole area that's probably the key statement, because we often get asked what do we think about petrol or diesel or hybrids. It depends what they use the vehicle for."

Porter says that while there is a clear growth in interest in alternative fuels, for many drivers doing significant mileage, Euro 6 diesels are still the most commercially viable choice. He adds that he is aware manufacturers are developing further improvements in diesel
emissions technology.

He says, "We have more corporate customers, in particular, reviewing company car policies for the first quarter of 2018 than we've seen in a number of quarters in previous years, to make sure they have got the right options available for the right drivers in their fleet."

Porter says one factor fleets are unsure about is government air quality plans and potential emissions crackdowns in cities.

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On that subject, he says the issues surrounding the adoption of electric vehicles (EVs) need to be addressed, rather than simply taking punitive action against fossil-fuelled vehicles.

"My sense is a lot of the dialogue in cities is about limiting total vehicle use through some sort of charging mechanism,"
he says.

"I get that reducing vehicle use is probably the first step, but in the long term, there needs to be much more around electrification, whether through public transport or personal vehicles.

"For that to happen, the technology needs to be improved. We need improvement in vehicle prices and the choice of vehicles, and we need more charge points."

Porter says that in the feedback Lex gets from its customers, range anxiety remains the biggest concern with EVs, even among those driving short distances.

However, he believes the market will become electrified well before the government's planned ban on new solely petrol or diesel-powered cars in 2040.

"If vehicles turn over every three to four years, that's still around six fleet
cycles away. 

"My view is it's a bit of a backstop, because we'll be there well before 2040. It will probably take two or three fleet cycles rather than five or six."