As Fleet News reports in this week's edition, fleets using telematics are facing the real prospect that some major suppliers will go out of business.

Telematics suppliers are struggling with intense competition for the declining number of clients who can secure finance lease to pay for the systems.

Earlier this year, Minorplanet Systems, which focused on supplying telematics to smaller fleets, reported a £2.5m loss in six months of trading, with sales to the SME sector down 40%.

In May the company negotiated a temporary increase of its overdraft facility and said it was also “considering a number of strategic options, including seeking an acquirer for parts of the business” and raising further debt finance.

Its financial statement warned there was a “significant doubt over the ability of the group and company to continue as going concerns”.

Late last week, another telematics company, Eagle-i had its shares suspended after it received a request for the immediate repayment of some of its liabilities.

Fleet News understands that a management buy out (MBO) is now underway, led by the company’s senior directors.

The two companies’ problems have prompted industry insiders to suggest that their troubles are only the tip of the iceberg.

“There are some large and well-know names in the industry widely known to be struggling financially and, in the current climate, their ability to survive looks both uncertain and questionable,” said Tony Neill, Navman Wireless executive vice-president and director.

Typically, a fleet secures lease finance based on its credit rating to pay for telematics.

However, should the telematics provider stop trading the fleet is left paying back money for a service it may no longer be getting.

“There are too many suppliers chasing too few customers,” warns Ian Keam-George, chief executive of Enigma Vehicle Systems.

Paul Wilson Trakm8 sales director agrees: “If the supplier to a lease deal goes out of business the customer is left with residual lease charges and no guarantee of an ongoing service.”

This situation puts fleet managers in a precarious position.

One fleet whose telematics provider was taken over is now being asked for more money from the new supplier.

The Canute Group had 62 vehicles fitted with a GlobalLive telematics system. It leased the hardware via a third-party finance provider.

GlobalLive was taken over by Causeway Technologies in May.

Now Causeway is asking for another £6:40 per month per vehicle.

Canute is also repaying the lease finance company for the initial cost of the service.

“If we don’t pay they say they will cut us off,” explained Mark Longhurst the Canute Group’s IT Manager.

Now Canute along with other fleets is saying telematics providers should carry the risk, not them.
“Pay-as-you-go (PAYG) is the way forward,” said Longhurst, whose remaining fleet is shifting to Quartix and its pay-as-you-go system.

“There is no risk to us and it means they will fight harder to keep their customers.”

Quartix launched its PAYG service last month.

Andy Kirk, Quartix sales and marketing director said leasing is now in sharp decline: two years ago it was the company’s most popular method of payment, accounting for 60% of sales compared to 40% for outright purchase.

Today, those figures have been reversed.

By the end of the year, Kirk believes the split will be equal between pay-as-you-go and outright purchase.

Trakm8 has also modified its offering: “When it became apparent that businesses were either struggling to obtain finance or were finding it hard to raise capital in other ways, Trakm8 announced a new direct debit scheme,” said Wilson.

“Customers are looking for the provision of a scaleable quality service, without the need for large upfront capital expenditure.”

The PAYG model involves no (or minimal) upfront costs and monthly payments direct to the telematics provider.

There is also a minimal notice period.

But pay-as-you-go has its critics.

“These non-committal PAYG models are high-risk for both supplier and customer,” warned John Wisdom, Cybit sales and marketing director.

“A fixed-term fixed-price contract provides security for both supplier and customer.”

Graham Mackie, managing director of the Road Angel Group agrees: “We do not believe it is a sustainable model and is probably a knee-jerk reaction,” he said.

“By offering PAYG services the telematics supplier is, in effect, acting as a bank and funding all of the upfront costs.”

That, argues many in the industry, is an unsustainable model.

Telematics providers “would need a huge amount of cash to operate that model successfully.

"It also takes a long time to build a massive base to make it work,” said Martin Port, managing director, Masternaut Three X.