The Next Big Market for Leasing Services: SMESTue, 09/15/2015 - 15:30
Q: What is TIP’s current situation within the leasing market in Mexico?
A: TIP’s fleet has over 12,000 units and we have around 45% of the leasing market for trailers. Three years ago we discussed how to increase our growth rate and, since the trailer segment did not show significant progress, we decided to venture into the automotive industry to lease light cars, heavy trucks, or anything with wheels and an engine. TIP works directly with the dealers to penetrate the market. Alongside leasing, we provide fleet management services, a segment with extensive opportunities for growth in Mexico.
Q: Since TIP México first began operating, what strategies have been applied to the Mexican market?
A: Our strategic objective is to be closer to our customers. For that, we offer both short- and long-term rentals. If a trucking company needs a trailer for just one day, we are the only ones who can offer that. We take a large risk in holding inventory in our yard. However, when a trailer is urgently required, which is quite a common occurrence, the inventory is invaluable. The other strategy is to enter the automotive industry in order to lease cars. In a few months, we will be one of the top five leasing companies for automobiles in Mexico. We estimate that the leasing market is made up of around 50,000 cars a year, 2,000 of which are leased through TIP México. While we are quite small in this segment, we are actively expanding our footprint and moving into different cities to cover as much territory as we can. In the next two years we ought to be in the top three.
Most leasing companies invest the capital to provide the lease, but TIP offers a full leasing service from beginning to end. Within this service, we are able to suggest what type of vehicle a company can lease based on the client’s budget and usage requirements, which helps to reduce their total cost of ownership. We then follow up on the maintenance, assisting the client to find the best dealer for repairs and tune-ups. Legal advice is also something we provide, particularly when a customer has an accident on the road. Finally, we use a tracking device that records the distance that a vehicle has travelled, allowing us to tell the customer when it needs a service. These value-added services have enabled us to acquire more business, mainly because companies do not want to spend time on all these things.
Q: TIP’s customer base is comprised of carriers, private fleet owners, and SMEs, how do your solutions vary for each segment and what is the business ratio for each?
A: Carriers represent 30% of our business and usually want long-term leases because they are looking for competitive rates. They also want to own the equipment at the end of the lease, which is a cultural distinction exclusive to Mexico. Private fleet owners do not usually want to own the trailers, especially if they are international companies. Representing 50% of TIP’s business, these corporations prefer to lease, so we offer them short-term and long- term leasing products with support for maintenance and tracking systems. The SMEs that we are focusing on are directed toward cars and looking for a better and faster service. Large companies demand better prices while sometimes sacrificing service. SMEs want to learn how to benefit from leasing products, so one of our objectives is to show them that it is better to lease than to buy. The penetration of leasing in the SME market is small but growing fast, representing a significant strategic segment.
Q: Out of the 12,000 trailers in your fleet, how are most of them dispersed within your customer base?
A: Our main segment is retail, which experienced a difficult year in 2014. Nowadays this segment is doing better, so we have been able to increase our penetration. For the last three years, the automotive industry has changed its requirements for inventory transportation, so we have been able to lease a lot more to customers in this sector. OEMs are increasing their capacity, such as Nissan, Chrysler, and Honda, while others like Audi, Mazda and KIA are coming into the market. Therefore, we believe this segment will continue to grow.
TIP primarily serves trucking companies. These companies are hired by OEMs to deliver parts, so they have increased the volume of freight. When this is the case, they require the necessary resources to grow. If an OEM was to demand a large amount of trailers in 24 hours, it is not easy for the trucking companies to get hold of those in time. Furthermore, if the project is not 100% guaranteed, we can offer a leasing product that lasts for one year or more.
Q: What types of trailers do you supply and how many do you generally hold in inventory?
A: Our trailers are a mix of different sizes. The inventory is made up of dry vans, refrigerated units, chassis, and flatbeds, among others. We usually start the year with an inventory around 5% of our total fleet. On average, around the year, we have roughly 3.5% of our fleet of trailers available. At the end of the year, during Christmas season, there is much more activity, so our availability of trailers decreases at that time. It is difficult to have trailers to support the Christmas season because customers will usually ask for a three-month rental. When the trailers come back in January, we have to put them back on lease because the costs will rise.
Q: Financing and leasing levels in Mexico are lagging way behind those found in the US or Europe, so how could the Mexican government improve this situation?
A: Within this industry, the government’s incentive to lease is very low. When you lease a car, you can deduct only MX$6,000 (US$390) in taxes. In order to push the industry toward leasing, the government should look to increase the fiscal benefit. The second improvement could come from limiting the bureaucracy for vehicle licensing. We would also like the government to work on expediting and digitalizing the current license plate processes. It would be great if the authorities provided a leasing plate, which might really help leasing companies to be more productive. The last thing is how leasing companies can educate their customers about the financial benefits of this scheme when compared to buying. The financial knowledge of SMEs is very limited, so occasions they do not fully understand this. On the insurance side, all of our assets are covered under a good policy which can translate into cost benefits for the customer.
Q: What are TIP’s major plans for 2015 and 2016?
A: The leasing culture in Mexico is still emerging, so we want to continue working with customers to grow that market. Right now, we are collaborating with Honda and Lincoln as their leasing arm at their dealerships. We will increase our footprint in Mexico by opening new branches in four or five more regions over the next two years. We are also starting to lease forklift trucks to be in line with the logistics industry. Our customers are actively requesting this service, so we have to be proactive with these kinds of assets. There will be significant growth in this area over the next few years.