FOR several years industry experts have predicted that, before long, some of the major players in the leasing industry would join forces. Last week, their predictions proved correct.

HSBC Vehicle Finance announced that it was outsourcing its contract hire fleet to its major rival, Lex Vehicle Leasing.

The £440 million deal, which is subject to regulatory approval and goes live on November 1, involves the sale of about 45,000 contract hire vehicles to Lex, which becomes Britain’s biggest leasing company with an estimated 168,000 vehicles, taking the crown from Lloyds TSB autolease.

HSBC Vehicle Finance will continue to sell contract hire products that it has designed and it will decide the leasing rate that will be offered on each vehicle.

The sales team will be backed by its parent bank’s massive 2,500-strong branch network, which will promote the contract hire product to current customers.

But Lex Vehicle Leasing takes over everything related to back office operations, purchasing the vehicles, predicting residual values, taking the residual value risk, managing maintenance, handling driver queries and dealing with disposal.

Everything will be provided on a white label basis, so to all intents and purposes customers will be dealing with an HSBC-branded operation at all times, even though Lex is providing it. Fleets currently using the service should have a seamless transition if all goes to plan, both firms claim.

So what gives a contract hire company the confidence to hand over its business – and its reputation – to a rival, especially when HSBC has a customer approval rating of more than 90%? Peter Hollinshead, managing director of HSBC Vehicle Finance, explains: ‘By joining forces in this way, we can continue to deliver the highest standards of service to our customers with the benefit of our branch network, but give them access to Lex’s state-of-the-art systems and infrastructure.

We have the reach, but we wouldn’t have had access to this sort of technology without massive investment. This move gives us a fantastic platform from which to grow the business and develop our position in the market.’

In other words, HSBC sales staff and branches can generate as much business as possible, without being distracted by the internal business pressures of recruiting to cope with the impact on its back office operations. Instead, 200 of its staff will transfer from its Birmingham headquarters to Lex Vehicle Leasing’s new Manchester headquarters to help handle the increased workload.

Lex will effectively be paying HSBC Vehicle Finance commission for generating new business and then using its secret weapon to cope with the expected increase in fleet size.

Technology features heavily in the justification for the deal. Lex Vehicle Leasing, owned jointly by the RAC and HBOS, has invested £22 million in its own bespoke IT system – called CLASS – which aims to seamlessly help manage everything from acquisition through in-life vehicle management to disposal.

IT systems are at the heart of what makes a leasing company tick, so investing so much in creating a new system from the ground up is certain to make a difference – and has been key in this deal.

Jon Walden, managing director of Lex Vehicle Leasing, said: ‘The industry is spending money on the same things several times over and IT is a perfect example, where two companies will spend huge amounts. In this case, both companies benefit from the investment and potential savings.

We have the ability to manage an increase in fleet size in a very efficient way.’

But like any good outsourcing arrangement, the whole deal is supported by stringent service and key performance indicators.

Walden added: ‘If you look at the size of the market and how it is split up, then we have about 8-9%, which leaves more than 90% of the market to go for. The most important part of growth is that it is profitable.’

And considering that Lex Vehicle Leasing been already been part of an outsourcing contract with the MoD white fleet and has taken on the Business Partner leasing operations of Ford group, then the smart money is on this latest venture being a great success. The question is whether there are more in the pipeline and how the rest of the industry will react…