27 jan 20

ALD Automotive sells off Chinese operations

On December 20th of last year, ALD Automotive announced the sales of its 50% equity stake in ALD Fortune Auto Leasing & Renting. As per the press announcement, ALD has decided to withdraw from China because the full-service leasing business hasn’t developed as anticipated.

The Chinese market has proven to be a difficult one, not only for ALD Automotive, but for all full-service leasing providers. First, the volumes are too low. Exact figures are not published, but the annual operational lease volumes are said to be around about 0.1% of total car sales (estimate by KPMG experts in its “Excelling in China’s auto leasing industry”) or roughly between 20,000 and 25,000 units (based on 2019 sales volumes as published by Marklines). This comes down to a couple of thousand contracts sold per year for each vendor.

Complexity and challenges are plentiful: leasing suppliers struggle to obtain plates in China’s main cities, where either lotteries or auctions govern the access to license plates. In recent auctions, plates were sold for amounts up to 22,000 USD. But there’s more: ALD Fortune operated in 36 provinces, many of them applying different tax rates and regulations. Add to this a certain capriciousness of local and central Governments – legislations tend to change often and without much explanation – and it becomes extremely difficult for a leasing provider to offer a stable product.

A challenging market indeed; let’s talk to Tim Albertsen, Group Deputy CEO and find out more about ALD Automotive’s decision to leave China. As someone who has had the opportunity to work with the excellent ALD Fortune team in China, I asked Tim the following question:

GlobalFleet: China is one of the most complex markets, but nevertheless, ALD Fortune did a great job and managed to build up a good portfolio of clients. Why decide now to leave the country?

Tim: “We gave it our best indeed! What we’re leaving behind is a successful and profitable business. Nevertheless, the business didn’t match our growth ambitions and, based on what we’re seeing right now in China, we have serious doubts whether the full-service leasing business has any true, high-volume potential. But, as always, there’s more.”

“When we entered the market in 2006, we couldn’t get plates for our clients in Beijing and Shanghai, which is why we partnered up with Hwabao Investment, which is part of the Baowu Group. The joint venture allowed us to operate more efficiently until, a few years ago, they were told by the Government not to invest in non-strategic alliances. So, we went out and tried to find a new partner willing to participate at equal equity with ALD Automotive and this turned out to be a challenging project.”

Tim continues: “The combination of this unique situation and our analysis of the market have led to the conclusion that the smartest thing to do, is to sell our share of the company and make a decent profit out of it.”

GlobalFleet: So, it’s a decision based on local circumstances?

Tim: “Correct. It does not reflect any strategy, other than being present only where it makes business sense. ALD will continue to grow and look at opportunities outside of our traditional markets.”

GlobalFleet: This leaves India as the only remaining country in Asia where ALD has local presence. How are things going there?

“We run a pretty good business in India with many Fortune 500 customers. Volumes are not comparable to EU or US volumes, but full-service leasing is very young on the Indian market and has realistic growth potential. The Indian challenge is different from the Chinese one. Regulations and accessibility to plates, for instance, are not an issue, even if it’s also a complex country. It’s much more about the maturity of the company car market and we trust we’re in a good place to expand the business locally.”

GlobalFleet: Would ALD ever consider venturing into products that are locally more popular, such as salary sacrifice schemes for the Indian market?

“It needs to make sense, be profitable and stay close to our core business, which is to offer a high-quality leasing product to corporate clients in India. It’s better to do what you’re good at!”

GlobalFleet: Will we see ALD in other Asian markets soon? South-East Asia?

Tim: “We keep our eyes open. The South-East Asian market is an interesting one, but the stars need to be aligned. This means that we’re looking for an opportunity that combines market potential, a customer base and a strong local partner. Don’t forget, Asia is not like Latin-America where you find some kind of a cultural common ground. The level of complexity is high across the region and every country has its own set of challenges.”

Authored by: Yves Helven