19 Apr 17

R. Ebel, Alphabet International: China may surprise us as fleet and mobility management market

Leasing and mobility specialist Alphabet International began operations at the beginning of the year in China, with the Alphabet brand integrated under the Herald International Leasing umbrella (which is a BMW Group subsidiary in China for financial and operational leasing services).Ruediger Ebel, Head of New Markets at Alphabet International, outlines the ambitions of the company in this market, and its specific challenges.

How many vehicles do you manage today in China?
“Taking all vehicle types of vehicles together for Alphabet International across all markets, the figure is around 650,000 under management – that’s where we are right now. As we only started business in China earlier this year, it is still too early to talk about volume. What is important is that we do have customers who want us to serve them in China. And what really counts is to ensure that we serve our clients also in China with the quality of service they expect from Alphabet everywhere else.”
Why is it so important for Alphabet and BMW Group to have a car leasing activity in China?
“It is such an incredibly large market, with enormous opportunities in terms of car sales, vehicle financing and mobility service expertise. But operational leasing is nowhere near as developed, or as present, as it is in Europe. So, what attracts us is that we are convinced that at some point in the future, there will be a tipping point and the operational leasing market in China will really take off. We want to prepare for this and, secondly, we need and want to serve our customers who are already there.
The third element is that it is probable that the Chinese market will develop in a different way from what we have experienced in Europe. Business development can go much faster, supported by technology and connectivity. And mobility management and fleet electrification can be of added value in many Chinese mega-cities where already today environmental regulation is in place. We want to participate in this evolution. And who knows learn things we can use in other markets.”
One way Alphabet and BMW Group can overcome the licence plate issue that exists in Chinese mega-cities like Beijing and Shanghai, is through encouraging take-up of electric vehicles which don’t fall under the licence plate regime. Is this part of the plan?
"Well, Alphabet offers in China (as in Europe) services to integrate electric vehicles in fleets. That means, among others, support of our customers with the managing of electric cars (charging stations, etc.). This will be an increasingly important service, which also goes hand in hand with the accelerated sale of efficient and environmentally friendly products of the BMW Group in China such as the BMW i3, BMW i8 and plug-in hybrids vehicles.
Tell us a little more about how Alphabet is set up in China.
“The way we have structured our business means that we can serve our retail customers with the BMW brand, and our corporate customers through Alphabet. We have the background, the experience and the network for corporate excellence, we have shared services with BMW Group, so the structure and organisation is fitted to the needs of both the market and the customers.
Our leasing subsidiary Herald International Leasing is originally only involved in financial leasing, not full operational leasing. We will be looking to develop operational leasing, and we will need more licensees to do this. At the moment, we can serve our customers with this product in Beijing, Shanghai and a handful of other major cities.”
International fleet customers may wish you to be present in other APAC countries. What do you say to them?
“We certainly plan to expand more in APAC countries, and we are already operational with a business line in Australia. Our natural flow of new market entries is tending to follow the locations of our financial services company. So, first of all we will concentrate on serving our customers in China, but when it comes to other markets, more Asian countries are likely to follow. We have to take into consideration the legislation in certain countries. But the market structures of BMW Financial Services are in place, and we can easily and rapidly take advantage of this.”
Based on volume, you can’t yet say that China is an important operational leasing market. It is difficult to convince people that leasing is a viable option. How long do you think it will take to change this mindset?
“I don’t think anybody can say when the tipping point I mentioned will actually happen, but we are convinced that we have enough business coming from our international fleets, to settle our business in China. If the market does develop differently from Europe, as I said, it could be that due to the size of the huge cities, it will develop more towards a mobility model. This will mean that the provision of tools, IT and a business model will have to develop more quickly than in Europe, and this is also why we want to be there. If we can leverage innovations from China into other markets…"
Do you see China as a testing ground for new mobility services, car-sharing and so on?
“This is part of our evaluation, and the Chinese market has a lot of additional challenges which we are not used to in Europe. And as the need is far higher in China, we may develop solutions for this market, and it may show us other solutions which, as I said, we can use elsewhere. We will of course try out programs such as AlphaCity which are in operation in Europe, and Herald International Leasing has some mobility programs of its own.”
If you develop operational leasing, this means you will assume the residual value risk. It is widely known that used car value expertise and transparency in China do not compare to markets like Europe, North America and so on…
"We believe that the opportunities presented by the Chinese market far outweigh the residual value risk. The professional management of the residual value risk is inherent to our business. In addition to our international know how we have acquired in-depth local expertise via the acquisition of the Herald International Leasing And over recent times the remarketing business has been maturing in the country. There are companies carrying out on-line used car sales very professionally now. Once again, we therefore think that while timing can’t be predicted, the Chinese market will develop far more quickly than we are used to, and there also will be a flourishing and healthy used car market.”
What would you advise to an international fleet manager who is given responsibility for China, a market he or she knows nothing about…?
“I would advise them to realise that it is a completely different market, and that they should expect it to take a while to understand the mechanics and dynamics of this market. Find a good partner who is already serving you elsewhere, and who understands China. You may have an international fleet policy framework, but it will most certainly have to be adapted for China.”

Authored by: Steven Schoefs