A shake-up in the UK telematics market
is being predicted as a result of the credit crunch. The
fast-growing sector has been hit because of the use of third-party
lease finance agreements, under which telematics providers
undertake to provide the service to a fleet customer for a
contracted period of time, typically three, four or five years.
The lease agreement is typically between a
telematics company’s customer and the finance provider.
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In some cases, the telematics provider receives up
front the set-up costs and the monthly service charge for either
the entire contract period or a proportion of the contract from the
finance house.
In the event of a telematics provider becoming
insolvent, the fleet customer will continue to be the subject of
the lease finance agreement for the contracted period, even though
it will not benefit from the technology.
Telematics companies have spent millions of pounds
developing telemetry hardware and software and continue to plough
huge amounts of money into adding sophisticated new services to
systems to further enable fleets to improve operating
efficiencies.
Last month telematics provider Minorplanet Systems
published its results for the six months ending 28 February, 2009
in which it admitted that SME sector business was down 40
percent.
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By GlobalDataMinorplanet said that the harsh trading conditions
had restricted the availability of lease finance for customers,
resulting in a large number of unfulfilled orders for its vehicle
management information system.
Chief executive Terry Donovan said: “We are facing
an unprecedented downturn in the economy, which has been
exacerbated by limited access to lease finance for our
customers.”
The statement added: “The severely restricted
availability of lease finance in the market for Minorplanet’s
customers has been a major issue over recent months, with rejection
rates from the principal funders more than doubling. As our
customers’ results have deteriorated, the leasing companies’
underwriters have inevitably taken a more cautious line. We have
attempted to remedy this situation by introducing a number of new
funders and identifying alternative financing structures for our
customers. Nevertheless, there has been a large volume of orders
which we have been unable to fulfil through lack of finance.”
Nevertheless, the company said that it had secured
a number of new large fleet contracts, which underlined the value
of its product range. It highlighted several new public sector
telematics contracts with customers including Norfolk County
Council, Birmingham City Council and New Forest District Council.
Other key wins comprised Quattro Group, the UK’s second-largest
rail plant company, and Gentoo Group, a major property company
based in Sunderland.
The company’s head of marketing, Christian Payne,
told Motor Finance: “In today’s marketplace some companies
are struggling to obtain lease finance.”
As a result, Minorplanet is developing a range of
other products that will include giving fleet customers the ability
to rent systems on three-month rental agreements without resorting
to lease finance to fund longer-term contracts.
Minorplanet, like a number of other providers, is
not exclusively reliant on third-party finance agreements to fund
telematics systems, but Mr Payne said: “I am not aware of another
telematics provider that does not bring in external funding because
it spreads the risk. However, use of such agreements does depend on
the customer’s credit score and quantity of units required.”
Despite reporting half-year pre-tax losses of £2.5
million (2008: £300,000 profit) on turnover down to £8.8 million
(2008: £11.3 million), Minorplanet said its medium-term prospects
remained ‘healthy’ and it was looking to secure additional funding
as it battled through the recession.
Rival provider Quartix is reporting rapid demand
for its recently-launched pay-as-you-go telematics service and Andy
Walters, the company’s managing director, believes that is the
future for the entire telematics industry.
“We rent the unit directly to the customer who then
pays a monthly charge. Customers are not taking any risk at all and
can cancel after the first three months without any penalty,”
Walters said.
Quartix, which also offers lease and outright
purchase options to customers, says it launched pay-as-you-go in
response to a rival finding it difficult to obtain lease finance
for SME businesses.
“There will be at least one big casualty in the
sector in the next few months because of the leasing finance
difficulties. Without being able to obtain money up front via the
third-party lease agreement, there will not be the money available
to support existing customers and further develop technology,”
Walters predicted.
“If telematics companies had to show on their
balance sheet the obligations they have to support their customers
over the next three, four or five years, then it is possible some
would be insolvent.”
And, he warned: “Fleet managers are still signing
long term lease finance agreements without realising the risks they
are taking.”
Third-leading telematics provider, Cybit, admits
that lease finance has been harder to provide into the marketplace
for all service providers, although harder for some than others, as
funders analyse the creditworthiness of both the technology
suppliers and of the businesses looking to deploy the
technology.
But Cybit sales and marketing director John Wisdom
believes that lease finance continues to have a role to play, along
with other funding solutions, in helping fleets fund
telematics.
“We offer a leasing package of three, four or five
years’ duration. I think that is attractive to customers because
they can fix their operating costs and spread them evenly over the
life of the contract,” he said.
“But we try to be as agile and versatile as we can
to come up with payment methods that are most appropriate for the
customer.”
