Mergers and acquisitions in the global asset finance industry have been few and far between during the economic downturn.

Factors such as the banks’ decisions to shorten their balance sheets, and return to core business; falling marketplace demand for leasing; the shortage of liquidity coupled with secondary investors “battening down the hatches”, has been the cause of much inertia.

However this may be due to change in the near future. And there is evidence that manufacturers’ captives and banks’ finance subsidiaries may be main targets in the process.

For some time Scania and MAN have been investigating different projects, mainly related to commercial vehicles, which would make it possible for the two companies to profit from synergies in research and development, manufacturing and sourcing.

Such a move would give Volkswagen (parent of Scania) control of what would effectively be Europe’s largest truckmaker, overtaking both Daimler and Volvo Trucks in terms of market share. In terms of year-to-date sales, Scania and MAN, if combined, would have virtually a 29% share of Europe’s heavy truck and bus market, followed by Daimler at 21.4% and Volvo 22.6%.

Erik Ljungberg, senior vice president corporate relations at Scania, carefully explained, “This process has shown that a full realisation of potential synergies requires a closer co-operation by combining the two companies, while maintaining the unique brand values of the respective company.”

He stressed, however, “At this stage no decision has been taken as there are a number of outstanding issues of commercial and legal nature. A decision can be made only when these issues have been resolved.”

Hit by the recession

Both Scania and MAN suffered badly in the recession. Scania’s net sales fell by 30% in 2009 to SEK62bn (2008: SEK89bn) with operating income falling a huge 80% to SEK2.4bn (2008: SEK12.5bn).

Scania Financial Services similarly fared badly, and by Q3 2010 the size of Scania’s customer finance portfolio amounted to SEK35.2bn, which represented a decrease of SEK5.2bn since year end 2009. Operating income in financial services improved to SEK52m (2008: SEK-69m) during Q3 2010, however, as bad debt expenses decreased.

MAN’s sales fell by 43% during 2009 to €5.2bn (2008: €9.1bn) while operating profit fell to €-49m from €1bn the previous year.

Regarding progress of a possible combining of the two companies Asset Finance International was told: “The discussion is still ongoing. Further announcements will be made as appropriate.”

Fleets on the move

At the same time rumours are rife in the fleet-leasing sector that at least two contract hire companies are in advanced stages of discussion regarding consolidation. GE Capital (with a UK fleet of around 46,000 vehicles) which is known to be planning a major international growth programme, is believed to be interested in acquiring Masterlease (34,000 vehicles) the subsidiary of Ally Financial Inc. (re-branded from GMAC in May 2010). A combination of the two fleet lessors would make the new company the fourth largest UK lessor in fleet size.

GE’s ambitions in the fleet sector were demonstrated recently when it vowed to convert at least half of its 30,000 global fleet and to partner with fleet customers in an aim to deploy a total of 25,000 electric vehicles by 2015.

GE announced that it will initially purchase some 12,000 General Motors vehicles, beginning with the Chevrolet Volt in 2011, and will add other vehicles as manufacturers expand their electric vehicle portfolios.

“Electric vehicle technology is real and ready for deployment and we are embracing the transformation with partners like General Motors and our fleet customers,” said GE chairman and CEO Jeff Immelt. “By electrifying our own fleet, we will accelerate the adoption curve, drive scale, and move electric vehicles from anticipation to action.”

Lombard Vehicle Management (LVM) is also rumoured to be on the market. A subsidiary of the part-nationalised Royal Bank of Scotland, LVM runs a massive 82,000 leased vehicle fleet in the UK and is third in size only to Lex Autolease (307,000 vehicles) and LeasePlan (124,000 vehicles).

It is around 12 months since LVM decided that it would no longer accept new business from brokers or intermediaries. The aim was to concentrate on developing existing customers’ portfolios and seek new contract hire partners on a direct sales basis.

Contributed by Brian Rogerson - Editor, Asset Finance International

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