The ALD's takeover could have an impact on the vehicle leasing market in Luxembourg. This development comes at a time when the local market, heavily affected by the pandemic, is struggling to recover financially.
According to the memorandum of understanding signed between ALD and Leaseplan, the transaction is worth almost €5bn. This makes it the largest buyout in the history of the Société Générale Group. The transaction is expected to be financed in both cash and shares. Société Générale is committed to remaining the majority shareholder of New ALD, with a 53% stake, while Leaseplan's shareholders will retain around 31%.
With ALD managing a fleet of 1.6 million vehicles and Leaseplan 1.8 million, a new global car leasing giant should emerge by 2023. The company expects a growth of at least 6% after the integration of the two fleets.
This new entity would be instrumental in moving the automotive industry from vehicle ownership to subscription models and zero-emission mobility.
It is expected that New ALD will develop “a strong position to lead the digital transformation of the industry and capture the growth of the mobility sector”. The emergence of a data-driven mobility industry and the transition to zero-emission sustainable mobility are expected to be the main goals of the ALD and Leaseplan merger. As Tex Gunning, CEO of Leaseplan, explains, “This new entity would be instrumental in moving the automotive industry from vehicle ownership to subscription models and zero-emission mobility.”
Advantages, but also disadvantages
Contacted by Delano's sister publication Paperjam about the implications for the Luxembourg market, the local subsidiary of Leaseplan is not yet authorised to communicate on the issue due to the sensitivity of the transaction. Most of the issues are expected to be discussed after the closing of the takeover, i.e. not before the start of 2023.
Backed by a major banking group, access to financing would be more accessible and less expensive for New ALD. While the Société Générale banking group would continue to broaden its range of activities as well as diversifying its sources of income.
On the other hand, being consolidated within a banking group does have its disadvantages. For example, an additional strain can be accumulated by the increased workload due to the control and compliance functions of regulated banking entities. Long-term leasing companies and subsidiaries of banking groups have seen a significant increase in workload in these areas since the 2008 crisis.
Shortage of electronic chips
The Luxembourg car market has not managed to regain its pre-crisis levels of growth, in part due to the greatly extended delivery times following the shortages of microprocessors. In September 2021, for example, the SNCA (Société nationale de circulation automobile) recorded a 27.6% drop in new car registrations compared to 2020, following four consecutive months of decline.
Some would have hoped that the arrival of New ALD would have brought with it some solutions to reduce delivery times. However, according to ALD Luxembourg the closing date of the transaction, scheduled for the end of 2022, is too far away for it to have any influence: “We hope that the shortage problems we are currently facing will be resolved in 2023.”
As for Leaseplan Luxembourg, its board of directors was very clear about this in its latest management report for the 2020 period: “Supply chain disruptions related to the microprocessor technologies used in cars continue to have an impact on the delivery times of new vehicles.” The management report did not rule out the possibility of an impact “on growth as well as on financial performance”, in particular on profit. The board of directors then committed to closely monitoring liquidity and ensuring that sufficient credit lines were in place.
A local leader in electric mobility
Until recently, leasing companies saw the arrival of electric cars as a risk to their business, particularly as it could impact the residual value of their vehicles at the end of the lease term. To this end, full service leasing companies did not wait long to initiate the electrification of their fleets. While a draft regulation aiming to incentivise low emission company cars via government aids was recently announced.
At present, 27% of ALD's fleet in 43 countries in Europe and more than 13% in Luxembourg already consists of electric vehicles. While that figure for Leaseplan's fleet globally speaking is 23%. Both leasing companies aim for 50% of their fleets to be made up of electric vehicles by 2025.
From day one, New ALD will operate one of the largest fleets of electric vehicles and continue to set the ESG standard in the mobility sector.
Leaseplan's CEO Tex Gunning does not hide the new company's ambitions: “From day one, New ALD will operate one of the largest fleets of electric vehicles and will continue to set the ESG standard in the mobility sector.”
In Luxembourg, the arrival of New ALD may well change the landscape of the car leasing market. Currently, ALD enjoys a 30% share of the local market with its fleet of over 16,000 vehicles. With ALD employing around 100 people in Luxembourg and Leaseplan around 50, the creation of New ALD offers great prospects. “This transaction would provide multiple opportunities for the management teams and talents of both companies, in all regions of the world”, announced ALD CEO Tim Albertsen.
This story was first published in French on Paperjam. It has been translated and edited for Delano.