Familiar name, new game

Asset Alliance Group has recently expanded its remit to encompass coach and bus rental as part of its plans for growth. Jonathan Welch finds out more

Asset Alliance Group will be a name familiar to most industry professionals, not least as we’ve spoken to the company before in the pages of CBW about its expansion within the coach and bus funding sector. The finance specialist has recently expanded its remit with the launch of a new coach and bus rental offering, which it says aims to support the specific needs of UK operators. The company believes the move will significantly expand its market share in the sector.

The company also recently took on two new Business Development Managers, Paul Fairbanks and Michael Gillen, to underpin its ambitions to grow its coach and bus division. To support the new venture, the company has invested in a fleet of new vehicles which are available for rental at a fixed monthly cost via various different contract options, starting from one year, though Asset Alliance says that shorter terms could be agreed depending on availability.

Chief Executive Willie Paterson said the move represented a huge investment for the business, and a major innovation for its rapidly-growing Bus & Coach division, expressing his confidence that the new offering would be widely welcomed by operators of all sizes. He called the move a step in the right direction towards achieving Asset Alliance Group’s goal to become the number one bus and coach finance and leasing partner in the UK.

Ambition

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To find out more, CBW spoke to Commercial Director for Bus & Coach Martyn Bellis, who described the new venture as an exciting time for the company, to hear more about why Asset Alliance Group has chosen to broaden its portfolio in this way, and how the business has fared since we last spoke.

“It’s around a year ago now since Asset Alliance Group hit the £500m milestone in coach and bus finance,” Martyn began, “and there had been some changes in the business; it’s around seven years since acquisition of Forrest Asset Finance, and three since the Group was acquired by Arbuthnott Latham bank. We’d hit that milestone and there’s an ambition to reach that again, this time in two to three years, to reach the £1bn mark.

“Since we were acquired by Arbuthnott Latham, we’ve been doing a lot more own-book funding rather than acting as a broker, so we have a healthy mix of both now. We’re looking at how we grow the business over the next few years to hit that next £500m milestone in a shorter time frame, which is why I’ve been brought into the business.”

Martyn has brought over 30 years of coach and bus industry experience to the role, in the rental and asset finance sectors, having worked for Dawsongroup from 1994 at a time when vehicle rental was still in its infancy in the coach and bus arena. “The bus and coach market had always been traditionally hire-purchase, with a feeling of having to own the asset. Leasing wasn’t very big back then,” he recalled. “People wanted to sweat their asset over a longer period of time. There’s still an element of that, and I can see that for certain asset types that works. New front-line coaches which drop down through the fleet to end up doing school contracts, for example.

“That mindset is changing now though, and people are starting to think that they don’t need to own that asset over the longer term. A lot of vehicles now are being bought for specific requirements, such as high-end tour work, before being disposed of to someone else rather than cascaded into the fleet, whereas in the bus sector, SME’s tend to do a lot of contract-led work, so they don’t need to own the vehicle.”

Changing dynamic

“We’ve gone through periods in the last 20 to 30 years where the dynamic in the market changes, whether it’s contracts, vehicle technology, or manufacturing. There’s always some background event that pushes people towards a certain route, like the transition from Euro V to Euro VI,” Martyn continued. “There was a big technology change, people were worried about the technology and how it would impact their maintenance and operation. Looking back, there was more leasing of Euro VI vehicles, and I think we’ll see a similar thing for electric vehicles.

“The larger groups are obviously comfortable with electric, and have large numbers of electric vehicles coming into their fleets. A lot of those vehicles are subsidised by ScotZEB or ZEBRA funding to take away some of the element of risk, but I think although the electric vehicle market itself will tick a box for local authorities wanting to reduce emissions; operators realise those vehicles are a lot more expensive than diesel and use batteries that have a limited operational life. At some point the batteries will need replacing. Over the period of ownership, you still need to be able to make a return on the investment, and ultimately this additional cost has to be accounted for.

“Subsidies are available, but not everyone has been able to benefit from these. That’s why I believe innovative financial solutions could be a key to unlocking the acceleration and adoption of zero emission technology.”

London experience

“I’d like to increase the number of electric vehicles we finance, and the sector adopting electric buses the quickest is Transport for London. Leasing is an established funding method, but the operators do take on a lot of the operational risk on EV. It’s still a competitive market, but buses can operate in London for up to 14 years, and there is the security of the TfL contracts to support their investment.

“We’ve been an active funder in the London bus sector, where we’ve taken the residual value risk on electric vehicles. We haven’t looked so much at electric buses outside London yet, as it’s only now that that segment is starting to pick up pace. If operators are receiving a good subsidy to support the price difference, and you know you can run the vehicle for 10 to 15 years, then leasing is maybe not the route you’d choose.

“Once those subsidies start to run out, though, I think operators will start looking at other ways of financing vehicles. I think manufacturers will try and push the total cost of ownership more, as the savings over a 10 or 15 year life nets off against the higher purchase cost of an electric bus. But until we actually get to that point, operators will find it hard to believe those claims without seeing it. There’s an element of trust in saying that’s how it will work.

“When subsidies run out, people will have to take a good look at how they find those assets and whether they take a longer-term view or look at a leasing option.”

Transition

It’s not just a period of transition for operators, though, and I wondered how Asset Alliance Group is planning for and managing that switch-over period. “We’re in a transitional period where you can finance a diesel bus or you can finance an electric bus, but at some point that diesel bus will be obsolete and not be able to be used. So many lenders now when they look at leasing and consider the future risk on a diesel vehicle may not be as bullish on their residual value as they may have been five or six years ago.

“For an electric vehicle, everyone wants to get to zero emissions, so the view on residual values will increase as people become more comfortable with the technology. That will lead to a narrowing a gap in the costs, as diesel vehicles become more expensive to lease and electric ones become cheaper to lease. Likewise, the pricing of diesel vehicles is likely to go up as demand falls, and the price of electric ones will go down as demand increases. That will start to narrow the gap of finance and total cost of ownership.

“In the shorter term, zero-emission vehicles will be more focused in urban areas, and there will still be a market for diesels outside that for more rural operation, so there will still be a demand, but for fewer vehicles. When you’re leasing buses, you need to make sure you have a potential market for them at the end of the term, and you have to be confident that if an operator leases a bus for five or seven years, you need to be able to place that vehicle with an operator in five or seven years’ time.

“There will still be a demand for some time for diesel vehicles, even after any cut-off date for their manufacture or for the sale of new ones. Even if the cut-off date were 2030, there would still be demand for 10 or more years beyond that.”

Martyn also pointed to the issue around technological unknowns, such as the debate over AC or DC charging when electric vehicles started to become more common, and the ‘Betamax versus VHS’ problems that any new technology can bring. “I think everyone agrees now that DC charging is probably the preferred option,” he said, “and some manufacturers offer dual-charge vehicles.”

Looking further into the future, Martyn pointed out that electric vehicles which might be leased for five or ten years today will still have plenty of remaining value and a second life, as they will be in demand by the time their initial lease is over, giving the potential for good value second-hand purchases for smaller operators.

“While ever there’s demand for diesel, we’ll still fund them,” Martyn added.

Rental demand

So it was against that background that Asset Alliance Group decided to explore the rental market as part of its plans for growth. “We’ve got a very established asset finance business,” he explained, “but we recognise the requirement for vehicles at short notice sometimes, more on the bus side than coaches. Operators generally don’t have a particular make or model in mind, so long as it does the job for them and they can get it at short notice. The key is to have the vehicles available at short notice.

“We’ve bought vehicles for the rental fleet, and Michael and Paul have been out working with the industry to push that side of the business. It’s not something that’s entirely alien to us, as it’s very common in the other sector of our business, commercial vehicles. Lots of operators in that sector tend to contract hire or lease over varying periods, from six months to five years.

“My previous experience working for rental companies has shown me that some of the demand is operator-led, but there are also businesses which have a demand for a bus that’s outside their core business, such as airport car parks, the MoD or NHS, who need to move people but who aren’t a bus operator.

“We’ve currently got vehicles going out to our existing customer base that have short-term requirements, and we’d never have looked at that previously. I think leasing will help people bridge the gap during a time when there are lots of unknowns around the corner, such as whether a local authority might start asking for zero-emission buses when a contract is renewed. Operators won’t want to take on a new diesel bus for the long term if that could happen, and might prefer to lease one instead.”

Stable growth

Although there has been lots of focus on the new rental division, Martyn stressed that the more traditional side of the company has also not been forgotten. “I foresee that the rental segment will be a quickly-growing part of our business over the next two or three years, but we’re still going to keep focusing on the TfL market,” he said, “and support the transition to electrics there, as well as looking more to the regions and securing more business in that sector.

“Maybe we’ll start looking at some infrastructure projects as well to support the transition to electric vehicles. I have experience in that area from when I worked at Siemens, but we’re an asset finance business, and that could mean financing things like earthworks,” Martyn explained, “or civil works, rather than a tangible asset. It’s something we could do through our general asset finance team outside of the bus and coach division, and we can work with them to facilitate finance if that’s what’s needed.

“There’s a lot of new businesses coming into that sector, such as Zenobē and EO Charging, which have the expertise to provide that service. We can provide the money, but we need to work with people who have the expertise in that sector. It’s maybe something for us to look at in the future. Some projects require a high capital investment, and as a bank-backed business we have the capital to be able to fund those projects.”

The bigger picture

Talking about the industry at large, Martyn suggested that the market was looking very positive just now. “I’ve always seen the bus and coach industry as a very resilient business, no matter what the political, economic or technical changes. It always seems to thrive. Covid was the worst thing to ever happen to it, of course.

“I think the way that the industry has reacted and come out of it. After the first six to 12 months where there were difficulties with things like manpower and supply chains, it all seems to be a lot more positive. Bus operators are saying passenger numbers are back up to almost pre-Covid levels. Coach operators are charging better rates. The big challenge is still getting the drivers.”

One big concern in the wake of the pandemic and fire-sales of assets was falling values. “I have to look at end of lease vehicles. I think there’s still a hangover from Covid where there was a pause in investment and when manufacturers slowed down production. Now there’s that demand coming back for new vehicles, and because there’s not as many coming to the marketplace, people are holding on to vehicles for longer. That means there are not as many vehicles available to buy, which is pushing prices back up a bit, which supports residual values. It also helps our rental business.”

Picking back up the discussion of smaller operators and the transition to zero-emission vehicles, Martyn suggested that whilst there’s a lot of interest in the electric vehicle market, there’s little real need for smaller operators to make the transition, which is generally led by local authorities and regions. “But it must be in the back of their minds, coach operators as well as bus operators, that it will come eventually.”

Exciting times

The rental division has launched initially with an offering of Alexander Dennis products, namely the Enviro200 and Enviro400, and the company has its eyes on new Volvo products, the Evora and EvoSeti double-decker. “The EvoSeti is a very versatile and high-capacity vehicle, and one that I’m really excited about. It has loads of applications,” Martyn enthused. “I look forward to seeing those coming through later this year.

“We want to be able to offer a broad range of vehicles, including 8.9m to 10.8m Enviro200s, double-decks, and 10.8m Evoras and the EvoSeti double-deckers. The EvoSeti is a huge people mover with up to 98 seats; that’s three school classes. At a time when you have fewer drivers, it can help to overcome that issue in place of two coaches.

“We’re also talking to Alexander Dennis and Volvo about their electric bus products and how we could bring something like that into our rental fleet. At the moment, everyone’s looking at funding electric vehicles over five or seven years. I think it’d be really interesting to put the concept out there that we have electric vehicles that you can rent for six or 12 months to overcome the apprehension over the promise of total cost of ownership. If you can operate one for 12 months, you can work out what the costs will be, and if it’s just one or two vehicles, you need a lot less infrastructure to test the water.”

As yet, no coaches have joined the rental fleet. Martyn added that demand is high against a backdrop of limited supply, but should suitable vehicles become available then Asset Alliance Group will look to add coaches to its rental fleet over the course of the year.

Concluding, Martyn said that 2024 will be an exciting year for Asset Alliance Group. “With the launch of the rental division and our ambitions to grow our lending portfolio in the sector, we’ve done very well with our loyal customer base and we’re expanding and investing in new people to go out and promote the services we can offer.

“The rental business is a significant investment, and although it’s not a huge sum just yet in the context of the overall business, it’s great to be able to support new and existing customers with their shorter term funding requirements. It’s very exciting.”

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