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Toshiaka Ogata (Orix): "China is different"

Orix is one of the largest international non-banking financial services company, operating in 34countries today. It started in 1964 in Japan and the main business was originally financial leasing. Then the company extended gradually to develop operational leasing services, insurance, banking and other domains. Orix is listed in Newark, Tokyo and Osaka.

“Automotive leasing operates in 19 countries, with a total fleet size under management of over 1.1 million vehicles”, says Toshiaki Ogata, Vice General Manageerof Pangda Orix China. “We started our car leasing business in China in 2012. We have thePangda group as our local joint venture partner, the largest dealer in China and listed in Shanghai, a top 500 company in China. It has a dealer network throughout China, though most dealers are in the north. It sold 453,000 cars in 2012. It handles over 100 brands, most European, Japanese, Chinese and American brands. More or less the only brand we don’t have is BMW, because it is competitive with Mercedes-Benz. “
 
Why did you come to China?
“The Chinese market is the largest in the world, so very attractive to Orix. When we came in, we didn’t of course know the registration systems, the trading systems very well. We could quickly understand these things in Australia and the USA, but China is different. So a joint venture was the right way for us. As we are trying to focus on operating lease with all the services, and we have a long history of this, we are very familiar with this segment. Pangda was clearly a good fit for us because of their experience. But they also enable us to offer one-stop shopping at reasonable cost. Sales, survey, supply, spares – these are the ‘4S’ of our one stop shopping strategy here.”
 
Do you have any market figures?
“Our estimates show the total cars on the road to be 70 cars per 1,000 head of population in 2010, against, for example, 580 in Japan and 830 in the USA. So there is still a huge potential for growth. In most countries the figure is around 600. The operational leasing market stands at around 3.6 leased cars per 1,000 cars on the road. We expect the percentage figure for operational leasing to be about ten times higher in twenty years than it is now, which will be similar to Japan. In 1975 Japan was in the same position as China is now. To put this into unit terms, we believe that in 2011 there were 375,000 cars under lease in China, most of these (300,000) cars, the rest minibuses and utility vehicles. Around 240,000 of the leased cars are under operational lease, the rest under financial lease. Our assumption is that commercial vehicles are under financial lease as operational lease is difficult in this segment. Of the leased cars, we estimate that for cars, around 75,000 are under long term lease. Average lease contract lengths are 24 months, to maybe 36 months. The remainder of the figure is short term, which is actually closer to renting. We define rental as shorter than 3 months, although there is no absolute definition for this. Long term is always B2B, and financial lease too. Renting is often B2C. The figures are produced by us using competitor data, our data and open market data, but it is not sure everyone is working on the same basis.”
 
Which types of companies offer leasing?
“China Auto is the largest rental company in China, with around 40,000 vehicles, and does a little leasing – but only 10% or so in leasing we believe. Shouqi and Shanghai Bus come next, but restricted to the Beijing and Shanghai areas, respectively. Following these are also some of the manufacturers’ in-house finance companiessuch as VW Finance and Toyota Finance. Dealer leasing companies also come into the picture and professional finance lease companies, which do not provide operational leasing and are not specialised in automotive. The international leasing companies such as ALD are not well represented in China yet, but they will have a big potential market. Our advantage against them is the purchase cost we can obtain through our partner Pangda. The ability to deal with used cars and offer services plays a part too. And we can provide all the services a dealer can provide, again because of Pangda.”
 
What is your strategy towards fleets?
“We have the experience in operational leasing and are number one in Japan as Asia as well. We achieved this by following customer needs. We believe we can offer common benefits for all leasing users – decreased management time, off balance sheet accounting etc., for operational leasing. But we have to respect the local market habits and culture. We do not want to transfer Japanese habits to China with no change.
We are trying to attract both local and international fleets. Our sales activities are aimed at both segments, but we do this differently. We are still developing this market. Our official objectives are to become the largest Chinese B2B leasing company, we do not deal directly with consumers. In five years we are targeting 100,000 cars. This means a market share of approaching 15% as we believe there will be 700,000 operationally leased cars in five years on the Chinese market.”
 
Why do you think operational leasing will grow?
“We have to balance two factors: global growth and Chinese growth. We clearly see that Chinese activity in capital markets is growing. So as they expand they try to become more efficient, they begin to outsource. These are Chinese companies operating on the global stage. China has come out of its very rapid growth period, so companies are starting to pay attention to cost. The leasing solution can reduce their total costs. Staying with issues specific to China, the country is reforming where government cars are concerned. The government is beginning to avoid having its officials drive around in expensive, purchased cars – they are switching to leasing. Eliminating corruption is another objective, and replacing purchase by leasing brings more transparency, helping in this.”
 
Do you offer fleet management?
“We offer this in Australia and Japan, but not here yet, because the market is not mature enough. China is at the start of the leasing and outsourcing process. China is still behind Thailand and Indonesia in this respect, for example. Some Chinese companies’ fleet managers have virtually no knowledge of leasing, they know nothing about balance sheet management. They are basically in charge of operating the fleet, of administering it, but not of financing it. Where international companies in China are concerned, the perception is of course much better. And some clients already know of us in other markets. On an international level we are partners with Global Fleet Services and ARI in various places. This relationship enables us to introduce some new clients to us – American clients who may come to China, for example. We still need to show them concrete benefits though. A real example of this involves a foreign company which leased a few cars from a local company, but the lease contract was only one or two pages and the various conditions were not detailed or clear. So they switched. “
 
What do you see next?
“Stable growth for the car fleet market. The players will sort themselves out – the good ones will grow and the bad ones will disappear. There will be mergers and acquisitions and there will be strong competition. The key will be service and costs.”
07/10/2013  |  Steven Schoefs

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