Financial Daily from THE HINDU group of publications
Thursday, Feb 19, 2004
Corporate - Outsourcing
Companies comfortable driving this outsourcing business
Chennai , Feb. 18
THERE is an outsourcing business that is growing without anybody getting hot under the collar.
As companies include cars in executives' compensation packages, attendant issues such as locking money to buy cars and handling maintenance have become bothersome. The solution: outsourcing purchase and maintenance to specialists.
Maruti Udyog and LeasePlan India, a subsidiary of ABN Amro Bank, carry out a business of buying and maintaining vehicles for companies. Their offer covers irritants such as dealing with insurance companies and maintenance, and is sold as fleet management services.
The business grew out of companies' wish to get rid of hassles that were not central to their activity. Another reason could lie in what the Maruti spokesperson claimed: outsourcing "also proves to be cost effective in the long run." Coca-Cola, Reliance and Asian Paints agree, for they have chosen to outsource vehicles. Fleet management companies design packages to suit specific needs. One such is an offer to buy the vehicles and also provide everything that follows, including the driver. Based on the package a company chooses, costs are worked out and an equated monthly instalment has to be paid.
LeasePlan's spokesperson said the client is the registered owner of the vehicles, which have to be hypothecated to it. On the other hand, Maruti also designs packages that do not require hypothecation, but it deals only in its vehicles.
Companies are given up to five years to repay the cost of buying the cars, and once they are paid for, the package ends. Subsequently, a client can choose to buy the car. If not, fleet management companies sell them to second-hand vehicle dealers.
An industry official said this kind of outsourcing gives companies flexibility in using money. For instance, if a company does not have to set aside money to buy cars, but gets the benefit by just paying a monthly finance charge, investments could be restricted to its main business.
The flexibility includes a company's right to end the agreement prematurely. If a client ends a deal, LeasePlan sells the vehicles and asks the company to pay the unrealised part of the total financial package.
In offering fleet management services, Maruti has followed the footsteps of companies such as GM and DaimlerChrysler. The company's spokesperson said 70 per cent of the new cars bought by US companies are through leasing. In India, the spokesperson added, government departments such as Prasar Bharati signed up as clients.
LeasePlan, which has four branches in addition to its headquarters in Gurgaon, is considering opening a branch in Hyderabad. An outsourcing business on the upswing without friction.
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