Price is likely to be
the sticking point in sale by government-owned RBS. Liz Bury


Lombard has opened the door
to buyers for its contract hire business, Lombard Vehicle
Management, which it designated as non-core last June.

The sale is thought to
reflect the strategy of Lombard’s parent bank RBS to shrink its
balance sheet and to reduce the need to obtain funding.

Photograph of Professor Colin Tourick, director of Margin SquaredLombard’s
choice of timing means it will probably realise a better price for
the disposal than it would have done at the height of the recession
in 2008, since residual car values have now stabilised and business
growth has returned, albeit patchily.

LVM returned to profitability
with after-tax profit of £15.6 million in 2009, compared to an
after-tax loss of £17 million in 2008.

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By GlobalData

Julian Humphreys, former MD
of Private Label Leasing, who recently joined consultancy Invigors
to help in developing its fleet expertise, said: “When the global
crisis hit two-to-three years ago, new and used car residual values
took a hit.

“Now they have bounced back,
so they might be able to sell LVM for a sensible price which was
not possible back then.”

To make a purchase
attractive, potential buyers would need to identify an element of
strategic value to the deal beyond simply acquiring more car

“It could be a mid-size
player not having the economies of scale they desire, or an
acquisition could offer the buyer an IT platform,” Humphreys

“Alternatively it could be a
springboard for a new company to enter the market.”

Potential buyers include
global contract hire giants Arval, GE Capital, ING Lease, and
Lease-plan, and financial institutions with a good cash position.
Middle Eastern investors could also come forward if they are
looking for a profitable investment over the long term.

LVM increased its number of
small fleets on contract hire by 23 percent in the year to the end
of September. It currently manages 100,000 cars and vans, with
clients including the AA, which it has serviced for 15 years, and
British Gas, BSkyB and IKEA.

Professor Colin Tourick,
director of Margin Squared, said: “There will be buyers, there is
no question about that. Over the long term, LVM is a profitable,
nice, big, juicy player.

“The idea of picking up the
third-largest contract hire company in the UK would be appealing to
a lot of the existing operators in the market.

“There is still a view that
bigger is better in car leasing: the bigger the company the more
economies of scale,” Tourick added.

Buyers could also come from
outside the world of finance altogether.

“LVM would be attractive to
an organisation that recognises its own market conditions are tough
and wants to diversify into a business with a lot of upside
potential,” Tourick said.

“Historically, over the long
term, car leasing makes a good profit.”

Price could be a sticking
point if RBS is under pressure to raise as much cash as possible.
The bank, which is 84.4 percent owned by the taxpayer, is likely to
seek to realise shareholder value, divesting itself of activities
that are cash-intensive but relatively low margin.

The competitive nature of car
leasing means that margin tends to be driven south.

“The question is whether
there will be buyers at a price acceptable to RBS,” Tourick

Lombard’s motor finance
business grew during the 1980s to reach a market-leading position
in the UK.

In the noughties, it launched
online car dealer, which is now closed.

LVM is the UK’s third-largest vehicle contract hire
company in terms of fleet size, behind Lex Autolease at number one
and Leaseplan in second place.