A battle between fleet telematics suppliers over what financial model best serves them and their customers has erupted as concerns escalate over the viability of several telematics companies.

“It’s complete carnage,” said John Lawrence Trafficmaster sales and marketing director.

Globallive went into liquidation in May, and following a request for the immediate repayment of certain liabilities, trading of Eagle-i’s shares was – and still is – suspended.

It is believed a management buy-out is now underway.

And on the back of “harsh trading conditions” which saw sales to SME fleets down 40%, and a pre-tax loss of £2.5m, Minor Planet’s shares have plummeted from 24.5p this time last year to just 2.4p now.

Things will get worse.

“There are loads of smaller companies that will go out of business in the next 18 months,” suggests Lawrence.

It is not just small telematics companies that are in trouble: insiders suggest larger players have also been built on unsustainable models that require fleets to secure finance from a third-party and pay a lump sum to them for their telematics service.

“The industry has been operating on a rogue basis with some providers operating with dubious financial models for their business,” said Andrew Yeoman managing director of Trimble.

“The current credit crisis has exposed them and their revenues have collapsed.”

Many are now advocating fleet managers look for alternative payment models, such as pay-as-you-go (PAYG).

According to a Fleet News survey, a clear split between advocates of PAYG and those against is apparent.

The majority – 57% – of respondents (who were fleet managers as well as telematics suppliers) still do not prefer a PAYG model.

Of the respondents who are in favour is Paul Collins managing director of Syxth Limited, who summed up the benefits of PAYG for fleets:

“Too many telematics companies are going bust,” he said. “With pay-as-you-go, you are not left paying for a service that no longer exists.”

However, Hannaford fleet manager Leigh Stiff suggests that buying the hardware and paying to have it installed is the most cost-effective.

“Following a pricing exercise, we found that we were better off purchasing the units,” he said.

“This way, we get full use out of the product as I will look to recycle them within our fleet upon contract expiry of lease vehicles.”

But it is within the industry that the real battle is being fought. Stephen Furness, sales director for New Zealand-based National Fleet Tracking, warned: “Pay-as-you-go will kill the entire market.

"It will destabilise the telematics companies because they will struggle to keep any market share…ultimately no one wins.”

But the largest – and most stable telematics companies – either already offer PAYG as an option or are considering it.

Peter Nagle, chairman of Causeway, which bought Globallive’s assets, said he now offers PAYG: “Telematics in general has to be pay-as-you-go, and the suppliers must adjust their business operating models so that they are not dependent upon up-front leasing deals for funding their working capital,” he said.

“Causeway is offering all Globallive customers absolute surety that with Causeway they will never be asked to sign a third party leasing agreement to finance long term services”.

Yeoman adds:  “Pay-as-you-go protects customers from what is currently going on in the market that has seen some customers exposed with hardware or service they can no longer use."

"The absolute upside to the customer is that the provider must offer value on a month-by-month basis or risk losing the business.”

Trimble is now offering fleets a free three-month telematics trial with no upfront costs.

After the three months, fleets pay on a monthly basis, usually as part of a longer term contract.

“We do not use any external finance provider or leasing model," said Trimble.

“We can bundle all the cost into all inclusive, monthly payments – we de-risk the transaction.”

However, Trafficmaster is a little more reticent about PAYG, although it is still considering it should demand arise.

“Pay-as-you-go is a short-term sweetener,” said Lawrence.

“It provides easy access and easy exit, but fleet tracking needs to be a long-term strategy.”

But he agrees easy, low risk access to telematics is now very important for fleets and so offers monthly payment terms with no initial lump sum payments.

Trafficmaster is also tied up with manufacturers such as Citroen so fleets can specify new vans to come with its system pre-installed.

Trafficmaster and Trimble are united in their advice to fleets: research your supplier, check their finances carefully and if they require you to get third-party funding then think again.

Telematics providers that use this model are “borrowing from the future,” said Yeoman.

“Almost all of them are now in a very precarious position.”

There are other alternatives.

One telematics company Simplytrak provides in-house leasing.

“The most obvious means of protecting the customer is in-house leasing,” said a spokesman.

“What it means is that should the company ever get into financial difficulties, the customer would be 100% protected.

“This shakeout of the industry is long overdue and those cowboy companies who took five years’ worth of fees upfront and didn't plan for tomorrow are being pushed out.”

Even the software suppliers who provide some telematics companies with their system platforms are getting nervous.

Armin Fendrich, vice president of European sales for white label software supplier deCarta, which has just launched new highly-functional fleet software onto the market, told Fleet News that the company’s due diligence checks on the telematics companies it supplies has never been tougher.

“We are damn sure they are financial stable,” he said.

“We would walk away if we were not sure.”

The situation does not bode well for the troubled fleet telematics suppliers, as they struggle with losing customers and revenue and now the possibility that their upstream suppliers will get the microscope out to their finances.

Ironically the troubles within the telematics sector come at a time when the product itself has never been more attractive to fleets.

DeCarta’s new platform for example – WLNA Fleet Europe – is close to a complete package for fleet tracking and mobile resource management. It has features like in-vehicle navigation, two-way communication and integrated dispatching.

Navman Wireless has also just launched the latest version of its integrated tracking, messaging and navigation device, which it says will help fleet businesses slash operating costs.

It has new features like over-speed reports and driver ID functionality.

And deals are still being struck.

Trakm8 for example has just signed a new deal with E.ON to supply a bespoke fleet management system which includes engine management data to show exact fuel usage and ‘true’ carbison emissions in addition to standard tracking and reporting facilities.

It is undeniable that a properly managed fleet telematics system, delivered by the right provider, can offer significant savings well in excess of the investment costs.

As Bill Raynal, managing director of Tracker said: “The current climate makes the need for real-time traffic information more crucial than ever, reducing stress for drivers, while increasing the efficiency of the fleet.”

This is the case for large fleets as it is for SME fleets of just five or ten cars.

Indeed, Trafficmaster, which has 300 fleet customers in the UK, is concentrating much of its efforts on SME fleets, where Lawrence says market penetration is at just 10%.

“There are thousands of small fleets that haven’t even considered tracking,” he said.

But there is no escaping the problems now hitting the industry and there is one area where there is industry consensus - by this time next year there will be far fewer fleet telematics suppliers left and those that do remain will be tasked with restoring confidence in an industry devastated by the rogue practices of some of its main players.

 The fleet view of pay-as-you-go telematics

“Pay as you go would give us better flexibility in our use of telematics.

"As you will appreciate some vehicles do a pretty repetitive task, so we know what they do on a daily basis, they really do not need tracked.

"Others, we have to know exactly where they are and their productivity, driving speed and routes taken.

"With pay as you go, when vehicles change duties, or we need extra vehicles for a particular service, it is an easy fixed low cost for us to use.

"We do not want to be tied into a contract which, dependant on circumstances may be of no benefit after 18 months.

"Also as a public body it gives us the ability to track our “lone workers” and supply them with a panic locator, again without being tied into a long term contract if the person moves on.

"Last but not least, in the last year we have seen tracking moving on, very quickly.

"With the event of CANbus connection the systems can virtually set the vehicle to the most economical parameters available, including speed limiting.

"Our latest demo units are proving to be excellent, I have just detected a vehicle with a performance drop of 5 MPG, for no apparent reason, drivers style has not changed from previous daily reports.

"With PAYG, we can update to the best technology when it becomes available," - Jim Mcilory, transport officer NHS Fife