New ALD, future car leasing giant in Luxembourg?
On January 6, Société Générale confirmed the acquisition of Leaseplan via ALD, its long-term vehicle leasing division. To be born from the takeover operation, a new entity temporarily called New ALD.
According to the memorandum of understanding signed between ALD and Leaseplan, the transaction amounts to nearly 5 billion euros. This makes it the largest takeover operation in the history of the Societe Generale group. The latter is planned to be financed both in cash and in securities. Société Générale having undertaken to remain the majority shareholder of New ALD – up to 53% –, the shareholders of Leaseplan would hold almost 31%.
With ALD managing a fleet of 1.6 million vehicles and Leaseplan 1.8 million, a new global car leasing giant is expected to emerge by 2023. According to figures shared with the media, growth of at least 6% is expected after the integration of the two fleets.
This new entity would be instrumental in shifting the auto industry from vehicle ownership to subscription models and zero-emission mobility.
It is also expected that New ALD will develop “a solid position to lead the digital transformation of the industry and capture the growth of the mobility sector”. Indeed, the birth of a data-driven mobility industry and the transition to emission-free sustainable mobility should be the main synergies of the merger of ALD and Leaseplan. As explained by Tex Gunning, CEO of Leaseplan, “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 Paperjam regarding the implications for the Luxembourg market, the local entity of Leaseplan is not yet authorized to communicate on the issue with regard to the sensitivity of the transaction. Most subjects were scheduled to be disposed of after the buyback operation closes, i.e. not before dawn of 2023.
On the side of ALD Luxembourg, the same story. However, tongues are loosened more easily, giving some explanation on the strategy behind the operation. Backed by a major banking group, access to financing would thus be easier and less costly for New ALD. As for the Societe Generale banking group, the latter would then continue to broaden its range of activities while diversifying its sources of income.
On the other hand, reintegrating into a banking group does not only have advantages. This is particularly the case with the workload, which is increasing due to the control and compliance functions specific to regulated banking entities. As a result, long-term rental companies, subsidiaries of banking groups, have observed a significant increase in the workload in these areas since the 2008 crisis.
The shortage of microchips
The Luxembourg automotive market is unable to regain its pre-crisis growth, in particular due to greatly extended delivery times following shortages of microprocessors. In September 2021, the National Automobile Traffic Company (SNCA) recorded, for example, a 27.6% drop in new car registrations compared to 2020, after four consecutive months of decline.
The hope would therefore have been that the arrival of New ALD would bring with it some solutions to shorten delivery times. However, at ALD Luxembourg, the hope is quite different. It is explained to us that the horizon of the closing of the transaction, scheduled for the end of 2022, is too distant for it to have any influence: “to be resolved in 2023.”
On the side of Leaseplan Luxembourg, the board of directors was very clear on this subject in its last management report for the period 2020: “Disruptions in the supply chain linked to microprocessor technologies used in cars continue to have an impact on delivery times for new vehicles.” The management report did not exclude the possibility of an impact “on growth as well as on financial performance”, in particular on the evolution of profits. The Board of Directors then undertook to carefully monitor liquidity and ensure that sufficient lines of credit are in place.
The Covid pandemic will have been there
ALD Luxembourg indicates that it is still premature to express an opinion on the potential impact of the arrival of New ALD on the Luxembourg market: “If the process is going smoothly, the market will not reveal this acquisition until sometime 2023, at the earliest! »
By then, the Covid pandemic will have already had time to impact the Luxembourg car leasing sector. As Leaseplan Luxembourg explained in its latest management report, “the Luxembourg automotive market was strongly impacted by the blockages that occurred during the pandemic”.
As a consequence of Covid, Leaseplan executives said the entity’s turnover in Luxembourg fell by 10.78% in 2020. The value of its rental portfolio, meanwhile, fell by 4% in during the same period.
A local leader in electric mobility
Until recently, leasing companies saw the arrival of electric cars as a risk for their activities, which could in particular impact the residual value of their vehicles at the end of the lease term. To do this, long-term rental companies did not wait long to initiate the electrification of their fleets. This was a winning bet recently confirmed by the draft Grand-Ducal regulation to overhaul the benefits in kind of company cars, recently presented by the Minister of Mobility and Public Works, François Bausch (déi Gréng). The aim is to fiscally favor cars with zero or low running CO emissions2.
At present, the ALD fleet already has 27% electrified vehicles in 43 countries in Europe and more than 13% in Luxembourg. For its part, Leaseplan has a fleet that is 23% electrified globally. In addition, the two rental companies aim to electrify 50% of their fleet by 2025.
From day one, New ALD operates one of the largest fleets of electric vehicles and is set to set the ESG standard in the mobility industry.
The CEO of Leaseplan, Tex Gunning, does not hide the ambitions of the future entity: “From day one, New ALD operates one of the largest fleets of electric vehicles and is determined to define the ESG standard in the sector. mobility.”
In Luxembourg, the arrival of New ALD is therefore likely to change the landscape of the car leasing market. Currently, ALD enjoys nearly 30% local market share with its fleet of over 16,000 vehicles. With ALD employing around a hundred people in Luxembourg and Leaseplan around fifty, the creation of New ALD opens up promising prospects. “This transaction would provide multiple opportunities for the management teams and talent of both companies, in all regions of the world,” said ALD CEO Tim Albertsen. Of course, for this, it is still necessary that the takeover operation is successful and that the financing of the respective location portfolios does not become entangled in interest rate fluctuations.