Martyn Bellis discusses the challenges and opportunities in the sector’s funding requirements, with a focus on electrification, flexible leasing and a total cost of ownership approach
Martyn Bellis, recently appointed Commercial Director for Asset Alliance Group’s (AAG’s) coach and bus division, is a veteran in the funding world with a wealth of experience in the coach and bus sector.
Here he shares his insights into the complexities of funding the transition to zero-emission vehicles, and acknowledges how that presents unique challenges in different regions of the UK.
The transition to zero-emission
Martyn’s appointment to the role of Commercial Director for AAG came during an already impressive growth trajectory for the company. AAG recently grew the funding provided by its dedicated coach and bus division for vehicles to beyond £500m, financing over 2,500 coaches and buses since its acquisition of Forest Asset Finance in 2015.
That growth, achieved at a steady pace over seven years, can be partly attributed to a good customer base that offers repeat business every year. “AAG’s strength is that it has had that repeat business,” explains Martyn. “We all know the coach and bus industry is one driven by relationships.”
Martyn now has to contemplate a future where he must continue that growth while grappling with a landscape diverse both in operating models and in vehicle drivetrains. When it comes to the latter, he feels it incumbent that funders try and have as much understanding of the technology behind the assets they supply as the operators preparing to run them.
“In a way, we have to be mind readers about what’s happening in the future,” he says. “If we undertake a finance agreement now – whether it’s a lease or hire purchase for five or seven years – by the time that agreement finishes, we have to be confident that, at that point, we will still be able to dispose of it.”
London and the rest of the UK already present two distinct markets. The capital has firmly committed to electric vehicles (EVs), with fixed contract terms of seven years. Martyn says that move allows funders to feel confident in investing in environmentally friendly options. The situation outside of London, however, is more nuanced, with varying contract terms and regional differences creating an uncertain landscape for the future of zero-emission coaches and buses.
Martyn acknowledges the challenges posed by this uncertainty. With contract terms ranging from three to seven years and the fate of vehicles uncertain after that period, it means finance providers must carefully consider their investments.
Yet, despite that challenge, and infrastructure installation presenting a barrier to entry for many smaller operators, Martyn is optimistic. One approach that AAG is exploring in helping finance zero-emission vehicles is a shift towards a total cost of ownership (TCO) perspective. While the financial outlay for an EV remains significantly higher than a diesel counterpart, Martyn notes that there are other cost savings that can help offset the increased purchase price – and by examining the overall TCO of EVs, funders and operators can better understand the long-term financial implications and make more informed decisions.
The landscape may be changing in other ways, too. Touching upon the coach sector, Martyn highlights how the traditional long-term ownership approach of hire purchase agreements and cascading of vehicles appears to be gradually shifting as operators update fleets more frequently.
In the bus sector outside of London, he also notes how contract awards seem to frequently cover shorter periods now: “Many [contracts] put out by local authorities to the small and medium enterprise sector are a lot shorter in period because the authorities are concerned about the increased cost not just of vehicles but of fuel, drivers’ wages and other factors.”
Such shorter contract terms bring challenges for leasing companies – but Martyn emphasises that AAG is prepared to show flexibility in working with operators to offer shorter-term leases, based on the understanding of residual value and demand for the specific type of bus.
A recent challenge for AAG with its rapid growth is a maturing leasebook, and the imminent return of many vehicles back to its own stock. Part of Martyn’s remit as Commercial Director will therefore be to work with the company’s commercial vehicle asset management team to set up a “disposal arm” for coach and bus.
“It’s not something the company has had to do in any great numbers before,” he explains. “The odd vehicle here and there can quite easily be dealt with by the existing sales team. But if you start looking at large quantities of vehicles, say, coming out of London, there needs to be a different approach.”
As the number of leased vehicles on its books increases, AAG is developing a tiered strategy for vehicle disposal based on volume. It plans to take greater ownership of returned vehicles, refurbish them, and offer financing solutions for their resale. AAG’s existing commercial vehicle contract hire business, already familiar with this process, will be used to support the coach and bus arm. Martyn also acknowledges the need to invest in people with expertise in the coach and bus sector. “We recognise in coach and bus that we can do the same as the commercial vehicle business,” he says. “But we need to have people that understand the sector, the market, and the product. We’ll be looking to invest in and recruit for that team.”
Opportunities for growth
Martyn is keen to highlight the benefits that would come from making funding available to leasing companies to further facilitate the transition to cleaner technologies. He suggests that, if leasing companies could access funds to acquire EVs, this could bridge the gap for operators with shorter leasing requirements.
“One of the challenges we’ve looked at with investing in EVs is the inability of the leasing company to get any funding to subsidise that front-end cost,” he says. “If there was a fund or facility available for leasing companies to acquire vehicles, we’d see a lot more go into the sector. People don’t necessarily have that five- or seven-year requirement for an EV lease.”
In exploring other opportunities for growth, Martyn is looking to the potential of partnering with EV infrastructure companies to provide comprehensive solutions for operators. Businesses like Equipmake, which focus on EV retrofits, might also present an avenue for funding providers to support the EV transition – provided the ownership of the vehicle is clearly defined. AAG is also open to funding alternative fuels, as well as shorter-term lease contracts on diesel vehicles.
By carefully navigating the market, adapting to regional differences, and exploring innovative financing solutions, AAG is helping to pave the way for operators. “We’re not holding back on our investment,” Martyn concludes.