Interviews
9 Nov 17

Abela opens our eyes to leasing in South Africa

Global Fleet recently caught up with Keri Kirsten and Howard Shimwell from leasing provider Abela (Pty) Ltd in South Africa. In a country noted for being tight-lipped about the fleet leasing industry, we got them to open up about the perils, pitfalls and triumphs of running such a business in the Southern African Republic.

 

Shimwell, Kirsten and Ross Richards began working together over 20 years ago for Investec Fleet Management, which was sold to Leaseplan in 2000. The company pulled out of South Africa in 2004 selling its interests to Absa Bank, whereupon it became one of the largest bank-owned fleet management companies in the country.

 

Shimwell, Kirsten and Richards continued working together until 2009 when Shimwell & Richards set up Abela to offer fleet related services, including driver behavior management, workforce performance and general fleet management consultancy.

 

In 2013, Kirsten, whose background was also with Leaseplan/Absa, joined the company, bringing with him a senior software developer. They began putting their expertise in fleet management IT systems design to use, developing a dedicated vehicle leasing solution for Abela’s customers.

 

Why build your own software solution, wouldn’t it be better to buy one off-the-shelf?

 

Kirsten explains: “There were no suitable off-the-shelf packages available that had the flexibility, functionality and integrated data that we’ve designed into ours. It would have been too expensive to invest in the single-system, whole-life package, so we designed our own.”

 

Since 2015, Abela has acquired its own book of vehicles and is a leasing entity in its own right. Alongside 550 vehicles, it employs a staff of nine and is growing.

 

What is Abela’s business model?

 

Abela focuses on the SME market, offering affordable long-term leasing options to business owners via three different plans: full maintenance leasing, operating lease and dynamic lease.

 

According to a 2016 report from BER (Bureau for Economic Research), commissioned by SEDA (Small Enterprise Development Agency), SMEs in South Africa face tough challenges, which include: limited access to finance, poor infrastructure, onerous labour laws, an inadequately educated workforce, inefficient government bureaucracy, high levels of crime and a lack of access to markets. Given this, it seems a risky sector to focus on.

 

Abela sees it differently, Shimwell explains: “To compete with the larger fleet companies and banks, you have to be really price competitive. However, our funding lines are not as cheap as theirs but unlike them, we’re happy to manage the uncertainty in a risky environment. It’s all about whole-life costs.”

 

Providing the tools of the trade

 

The majority (80%) of Abela’s business comes from providing customers with “tools of the trade” vehicles, such as pickups, mini busses, small trucks and vans.

 

Says Kirsten: We’ve found our way into a school network through a company that provides mini busses. It’s a market the banks don’t want to play in. Schools don’t have assets or a balance sheet you can lend against. Because of our partnership, we can, if necessary, recover a vehicle and redeploy it. This type of vehicle holds its value and copes well in the operating conditions we have here.”

 

The full maintenance lease or operating lease is the bulk of Abela’s business. Typically, Abela buys the vehicle, is the title holder throughout the lease, which is for an average duration of 48 months or 150,000 kilometres.

 

How can Abela offer deals in such a risky market?

 

“We don’t see these deals as lending risks, like the banks do,” Shimwell asserts, “to us they’re an operational or asset risk. We typically take a 20-30% deposit upfront, which is deducted from the funded value and makes the monthly payments more affordable for the customer. It means we can cover our losses should it become necessary.”

 

Abela also provides insurance, corporate branding if required, plus tracking and recovery devices, which are hot in ZA because car crime is high. At the last count, there were approximately 200 tracking or telemetry-based companies in South Africa and in the last 12 months the technology has become more defined and affordable. Abela’s only involvement is to install the technology, after that it’s up to the customer to use the vendors own software.

 

Compared to Europe, the fleet and leasing market in ZA is immature. There are relatively few well established leasing companies and they are noted for keeping their cards close to their chests in terms of sharing information.

 

Leasing association, limited influence

 

“Here in South Africa, the SAVRALA, which is similar to the BVRLA (British Vehicle Rental and Leasing Association) is rendered less effective because of the lack of willingness of the members to actively participate and share data due to concerns around potential perceptions of collusion.” Kirsten shared.

 

The cost of running a vehicle in South Africa is more expensive than in Europe. Fuel costs alone can be equivalent to depreciation, maintenance and tyres combined. The country is vast and there are huge distances between towns, cities and urban areas. It’s not untypical for Abela to take back a vehicle at end of contract with over 200,000 kilometres on the clock.

 

Shimwell observes: “We help customers acquire the right vehicles based on reliability and suitability for the fleet and conditions. These decisions are rarely based on price. The challenge for us is to get the price right for the customer and us. Five years is a long time, things can change, inflation can rise and we must factor this in. We have to hedge between maintenance and residual values because it’s hard to know how the Rand is going to perform over a four-year period.”

 

Abela has been successful where others haven’t through focusing on making transport accessible and affordable for customers in a specific market, and they’ve done it by striking up close partnerships with suppliers relevant for local requirements. They are now looking at expanding their mid-term (12 months) leasing market.

Authored by: Alison Pittaway