Sebastian Pfeifle, Deloitte: Moving from an asset to a service market

Sebastian Pfeifle is Global Automotive Finance Lead at Deloitte. With his team Mr Pfeifle examines the dynamics in the global captive finance business and the future of fleet management. A business with lots of potential but impacted by consolidation and disruption leading to new business models.

Where do you see growth occurring, and what are the risks?
"Starting with the USA, there is not much room left for any leasing growth. However, there is growth potential for fleet management. In Europe, there is substantial growth potential for car leasing, and also for fleet management.
In Asia, leasing penetration is comparatively low, so there is a lot more growth potential. Fleet management here is still rather uncommon."
"Where the changes in the automotive sector are concerned – autonomous cars and so on, we do not see this as a threat – quite the contrary. We see fleet management as one of the key enablers for shared and autonomous mobility concepts. Car-sharing, ride-hailing, autonomous taxi fleets, someone has to finance/own and operate these fleets, which is why we think there is much more potential for professional fleet management services, probably more than ever before. People and companies don’t want to own vehicles any more, but rent or hire flexible mobility."

How do automotive and leasing companies need to change, what are the new challenges?
"We see many challenges for leasing companies which are still asset-based, i.e. car-centric not customer-centric. They will have to change their business model substantially. This is because the car is increasingly becoming a commodity, and people will care less about the brand, and more about the service. For OEM’s as well, when cars drive themselves, having them at a person’s own disposal 100% of the time makes even less sense, so sharing will become increasingly attractive."
"The next change is in powertrains – the move to electric – these changes typically occur in fleets first, private market second. So the supply side will have to learn how to deal with electric vehicles on a much larger scale. This also has an impact on residual value management. So customer needs and technological advances will both impact the business of leasing and fleet management companies."

So how will these business models evolve, and will suppliers who continue in the old ways be able to survive?
"The fleet management suppliers will need to be able to act more globally. The business will become more complex, more customer-oriented, and the use of technology will increase – blockchain, telematics…
Some old-style companies will survive, but as producers of commodity products with lower margins. And of course there will always be a proportion of the market which still wants to own cars, especially outside of urban areas. OEM’s will need to integrate services such as leasing, fleet management and innovative mobility solutions, to create additional value during the lifecycle of the asset (i.e. the car). This will set them apart from new entrants such as Google, which don’t have the asset-expertise or experience."

Do you see further consolidation in the leasing and fleet management markets?
"In Europe, 50% of the market is already owned by the top 5 players – in North America even more.  But the remaining 50% of the market will be in difficulty, so there will indeed be more consolidation. And more OEM’s will enter this market. We believe that the global markets will be dominated by 5 to 10 big players. Banks will stay in the market, and OEM’s will come in. Google, Apple and the others may come in as well, as it could make strategic sense for them. They have something to bring to the table, they understand customer-centricity, data monetarisation, the service business and they have the necessary technology. But they may come in as partners of OEM’s. The question will revolve around who manages the customer interface."

How can mobility services be monetised?
"Personalised individual mobility is not cheap to offer, so it can’t be provided free of charge in the long run. Many car-sharing services today are already not profitable. We advise our clients to invest into fleet management services as a basis for developing profitable mobility services. Europe will play a leading role in innovative mobility concepts, with less coming out of the USA. It’s key that automotive and fleet management specialists in Europe keep heading the new mobility space, as this will generate interesting competitive advantages, knowing that China will also be active in this domain."

Deloitte published a study on the Fleet Management and Leasing Outlook in Europe. You can read the study here.