Jonathan Minter caught up with Evolution’s director Lee Streets to discuss the business and explore the rationale behind the company’s newly rebranded fourth pillar, EvoGo

Could you talk me through EvoGo, and where is fits within the Evolution brand?

Lee Streets: We are a predominately a motor finance brokerage; that’s what the businesses was formed in 2002 to do. We’ve grown the brokerage rapidly over the last few years, but that is just one part of what we do.

We also have our own lender, which is a separate company at this point in time, and offers dealers traditional point of sale HP.

Evolution Loans has a strategy of lending to customers whom the traditional core prime lenders have turned down for various reasons where, with a little bit of analysis, we can offer the customer an acceptance with a better outcome than the alternatives available in our fincance panel – often customers who might fall into a non-prime lending space through a computerised scoring process.

It’s quite small numbers in relation to our overall brokerage volume; we do about 100 cases a month out of about 3,000 we write as a business.

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We also have a brand called Mike Brewer Motors, which is effectively a motor retailing and repair business that sells used vehicles from two sites. We have also opened a body shop for that business, under the Mike Brewer Motors brand.

And finally we have the EvoGo product. EvoGo is a flexible lease product: it’s an 89-day contract which is renewed at our discretion. The customer may keep the car with us in theory for six, nine, or 12 months depending on the change cycle that we want on that make and model of vehicle, and then they get that car replaced with a new one.

The EvoGo contract is incredibly flexible and enables customers to return a vehicle with just one week’s notice, so if they are a business that is hiring or flexing on work force, then they can just hand the vehicle back to us at any point with a week’s notice.

We’ve been doing vehicle rental or flexi-leasing for at least five years, but the real growth in this product has really happened since 2014.

We’re trying to build an Evolution Group business model that’s almost a holistic mobility model within the business. You’ve got the brokerage and the lending, which supports the traditional mainstay of how customers want to finance and own their vehicles currently, and then you have got the EvoGo brand, that looks to meet that growing demand for customers who don’t want to own a car, but also don’t want to be stuck into a three-year, four-year lease agreement that’s quite inflexible to them.

EvoGo operates a business-to-customer model. We are directly communicating with the customers in that space, the majority of whom have come through referral, predominantly word-of-mouth from customers who have had a vehicle from us telling other people. The fleet at the end of 2014 was 432 vehicles; at the end of 2015 it increased to over 1,250, and at the end of this year it will be between 2,200 and 2,500, and we’ve not spent a penny on advertising the EvoGo product.

You’ve just rebranded it from Evolution Vehicles Rental to EvoGo. Are you planning on increasing marketing spend?

Streets: No, we’re going to continue as we are. We believe the new branding, with a new website to follow, will facilitate and improve how we communicate using social media and customer referral.

Add to this the development of a better internal customer relationship management system and an improved digital customer journey, and we believe all the above will drive the growth we need probably well into 2017, and maybe even beyond that.

Could you talk me through the customer journey?

Streets: Customers make the enquiry to us, we will discuss with them the sort of budget they’re looking at. Once we know the budget we will present them with options across different makes and manufacturers which fit their budget based on their miles per annum.

The customer will then make a choice of which brand and model they want to go for. We typically have a forward-order book of vehicles which they can pick from that we currently have on our working stock list that are due to come into stock, or we actually physically hold in stock, or the dealer has in stock. Typically if a customer wants a new BMW X5 they will choose from one of maybe 10 or 15 we have on the forward-order bank.

Some customers will specifically choose a certain colour or model that we don’t have on our order bank, but in the main most customers are choosing from one which we have already ordered. So the speed of how it happens is determined a little by the make and model that you want and how quickly the manufacturer can get it built, or the dealer can get it to us.

The rebrand coincided with the acquisition of a large 6,000m2 site in Sheffield. Is that going to be used as an office, or is it going to be where you’re going to increase the amount of stock you can hold?

Streets: All the actual people who work within the EvoGo brand have moved from the Chesterfield site to the Sheffield site.

But the actual space was driven by the need to store cars, to distribute cars to EvoGo customers, and then prep those returning off hire ready for either distributing to retail partnerships we have in place to sell those cars, or to actually distribute to our own sites to sell as well. It’s about trying to keep everything on one site and get efficiencies in the off hire process.

The EvoGo product is highly relevant to the brokerage and has real benefits to our brokerage’s dealer partnerships. One of the core questions the brokerage should always ask itself is how can we help our dealer partners sell more cars through finance; that’s fundamental to what we do.

As a really good broker, you are looking to go into a dealer and say to them: “I can help you sell more cars by using my different products: my PCPs, my non-prime products, or by doing different things, basically.”

Here we have taken it a stage further now, and can actually go to our dealer partners and say: “You know what, we can help you sell more cars by buying them from you.”

So it works nicely as a value-add for the broker Evolution brand?

Streets: Yes, and not only by buying cars from dealer partners, we are also starting to work in partnership with some of the dealers to supply them with stock. The stock which we are taking off of the EvoGo product is also typically stock that a lot of dealers can’t get; it’s six-to-12-months-old, low-mileage premium products.

Is there a chance that this could be viewed as a bit of a threat to some of the traditional lenders?

Streets: It’s not a threat to our traditional finance partners because, in truth, EvoGo cars tend to be new cars. It’s a predominantly new car product, and most of the traditional finance companies we deal with are not writing large volumes of new car finance anymore.

This is Evolution’s way of actually reacting to the captive finance companies taking and dominating the new market space. New car finance penetrations are massively high, but that’s so often on the basis of subvented finance.

The independents and the brokers are getting very little of that traditional new car financing, so the EvoGo product allows us to engage with customers on new vehicles in a different way.

It’s also taking business from the traditional leasing companies. That’s the area where we are looking to write business, by giving customers cars and vehicles of a similar spec to what they were getting on a long-term lease, but giving them the flexibility of the 89-day renewable product. It’s quite a disruptive product to traditional leasing.

You said that this business has been going for a while, but it’s really 2014 when things started to pick up. Why do think it was then?

Streets: It coincides with us having the financial resourcing to actually invest in that part of the business. We ran quite a small rental fleet prior to that, and that enabled us to learn how we could operate it, how to dispose of the vehicles, and what we needed to do to scale it.

Part of that was making sure we could understand what we were doing in the market space; the other part of it was making sure we had the necessary investments or we generated the necessary profits in the core business to fund this rental business.

Ownership of all these cars is quite an expensive thing really. The average car on this sort of fleet would probably be £25,000, so when you’ve got the best part of probably 1,700 of those it’s quite a level of capital you need to fund it.

That’s £40-50m worth of vehicles, so we had to make sure we were making the right level of profitability in the business, and that the balance sheet could support it.

Do you see this as something which will potentially snowball and become much bigger, and grow at quite a rapid rate in the future?

Streets: By the end of 2016 we will we have between 2,250 and 2,500 rental vehicles. We think we’ll see that doubling in the next couple of years. So we think we can get this to 5,000 vehicles and beyond by the end of 2018.

Can you envision a future where EvoGo is the largest part of your business?

Streets: I can certainly see in the next three to four years that the EvoGo product will be a significant part of our business, and be a strong contributor to the profitability of the company.

Whether it ever becomes the dominate part would take probably a seismic shift in consumer behaviour, but it’s going to be become a very important part of what we do, that’s for sure.

And the synergies we get off of it actually, if we can get to a point where we’re buying five, six, seven, or even eight thousand cars from UK PLC dealer groups, which we are linking to support us as a finance broker, then the two feed off each other. So the more the EvoGo product becomes successful, the more I see that help feed and grow the actual brokerage. I think the two should grow in alignment.

Is there any sort of cross-fertilisation?
While there are lots of synergistic benefits, we are quite respectful of the introductory channel of where our customer comes from.

There will never be a process within our business where we would take a customer who was being introduced to us in a dealer route, and if we’ve been unable to gain them finance, offer them an EvoGo product – not unless it was done in close partnership with the originating dealer group.

What we might do is the other way round, as again we are all about trying to help our dealer partners sell more cars on finance.

So what we might do, if we get to a point where there’s a customer and their profile doesn’t fit the EvoGo product, is put them into the dealer space, obtain the finance by the brokerage and introduce them to the dealer to buy the vehicle.

We don’t do lots of it, but it’s definitely something we could do.

It’s interesting that we’re starting to see a lot of the bigger brokers start to look beyond just traditional broking.

Streets: Yes, and I think we will see the range of services grow further as finance moves into the online space and customers start to want to engage online. A lot of the traditional lenders are not that well served
or that well placed to actually assist dealers on that.

As a lender, trying to offer a dealer a one-stop-shop for finance or predict finance outcomes is very difficult when your approach is only to take a segment of the market space.  It needs companies or brokers that have a whole of market approach.

We’re working with dealer partners on this now. We’re just launching several web products, which again are all about helping dealers sell more cars, which the dealers can plug into their existing websites and that will generate web finance leads for them.

There are a few software companies out there that are doing similar things now, but as a broker and lender we think we are well placed within that space because we can overlay the customer’s characteristics against 350,000-plus past customer transactions we’ve made in a whole-of-market approach across 25 lenders, not just against one lender’s current risk appetite or a credit reference agency’s risk score.

With the move forward in terms of customers engaging on the web for finance, we actually see that this a really positive opportunity for brokers, particularly brokers which invest in their own technology and deliver the right solutions to dealer partners large and small.