State’s clear demand opens new avenues of opportunity
The outsourcing model not only allows the government to focus on core activities but also brings to bear specialist expertise
THE industry is experiencing a significant increase in demand for vehicle leasing across all sectors of the government, as well as some of the parastatals.
“There has been a lot of growth in this segment of the market and this is likely to continue in the future,” says Murray Price, MD of Eqstra Fleet Management.
He says this trend has opened up a new area of business for the industry as the government had traditionally purchased its vehicles. However, in recent years the government has taken a similar stance to the private sector by increasing its focus on core activities and by outsourcing non-core functions.
While the government continues to operate its in-house maintenance and repair facilities, this is changing and the outsourcing model is moving beyond leasing.
“Deals are changing and new services are being added to contracts,” says Price.
“For example, we run the South African Revenue Services (SARS) fleet. SARS has opted to outsource every element of its fleet management, except ownership. We buy the vehicles, do the licensing, management and remarketing when it is time to dispose of vehicles.”
He says this approach is not confined to a growing number of government clients and the company has a number of corporations on its books that have opted to outsource their fleet management function.
Price says government fleet management outsourcing grew significantly in the late 1990s and early 2000s, but there were challenges to establishing the best model and some pulled out. However, as views and methodologies have evolved, so fleet outsourcing has gained in popularity in the government.
“Public-private partnerships have established the right way forward and outsourced fleet management solutions need to be done from a partnership stance. Both sides have had to learn the right way to approach these partnerships and may have slowed the adoption of outsourcing,” says Price.
He says the outsourcing model not only allows the government to focus on core activities but also brings to bear specialist expertise, investment and economies of scale.
For example, Eqstra is in the process of developing a new ERP system, a R100m investment that organisations would be reluctant to make in their own fleet management departments but one that Eqstra can justify as the technical resources and cost is spread across a number of clients.
“Such an investment would be difficult to justify for a single fleet,” says Price.
The outsourcing model — unlike in-house operations — highlights costs accurately.
Price says in-house models often have services and functions that are shared with other units within the business and determining the true cost of an organisation’s fleet can be difficult. Outsourcing results in organisations knowing their monthly fleet management costs to the last cent and they can budget accordingly.
“One argument that is used to counter outsourcing is that costs are increased by the outsource provider’s margin. However, our margin is made while we are delivering savings to customers. The efficiencies that we bring to the party more than compensate for any margin we make as a outsource service provider,” says Price
“We are able to leverage scale and expertise to deliver value and this approach works effectively in this industry.”
Byron Corcoran, head of finance and leasing at Bidvest Bank, says public sector fleets are proving an area of good growth for car finance houses.
“The corporate market has been active for many years and it has reached a state of maturity and stability. Therefore, apart from players seeking to gain market share from each other, there is little growth in this market segment.
“State-owned fleets are another story and the industry is seeing strong demand from this sector, including national, provincial and municipal government. Most of the municipalities in SA operate on the full maintenance lease basis and to a large extent they outsource the management of their fleets so they can enjoy the benefits of fleet management expertise while focusing their resources on their core activities,” says Corcoran.