French car lessor Arval unveils growth drive

When companies stop purchasing cars for their executives, lessors begin to smile.

That's because business expansion opportunity beckons car-leasing companies as corporates cut costs during a slowdown. Which is why Arval, a French car-leasing firm, is shifting gear.

It will invest Rs 400 crore in the next three years to add 6,250 cars to its current fleet of 500.

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Arval, a subsidiary of financial powerhouse BNP Paribas Group, has been leasing cars to Indian companies since the last one year.

So far, it has clocked a minuscule market share of 2% through 500 vehicles. Globally, the company has a corporate fleet of over 625,000 vehicles in 32 countries.

"The target is to take the market share to 15% in the next three years," said Liam Donnelly, managing director of Arval India.

"In times of credit crisis such as now, it makes much more sense for companies to lease their vehicles than acquire them. We expect to see the operational leasing sector nearly doubling in the next five years," he said.

Under operational leasing, lessors such as Arval give cars to a company for a specified period and rent. The maintenance risk, service risk, insurance risk, replacement risk and depreciating value risk are all borne by the leasing company.

Arval's lease contract looks at an average lease period of three years and a mileage of 15,000-20,000 km, Donnelly said.

"We typically charge 70% of the car value to our clients, paid over the lease period, which removes the financial burden from their balance sheets and lets them concentrate on their core business," Donnelly pointed out.

Companies such as LeasePlan, Orix Leasing, ALD, US giant Hertz Corporation, along with Arval, have leased out about 30,000 cars in India.

Arval will source the funds for its expansion from Indian banks, while parent BNP Paribas will provide Rs 27.5 crore working capital.

"We hope to see Arval taking 15% share of the operational leasing market by 2011, and have annual sales of Rs 200 crore from monthly rentals," Donnelly said.

The company has operational and sales offices in Mumbai, Delhi, Bangalore, Pune and Chennai and will add its Hyderabad and Kolkata offices by beginning next year. Arval plans to tap clients of its parent BNP Paribas, apart from multinationals.

Arval only operates brand-new cars for all its lease contracts and sells the vehicles in the organised second-hand market after the lease expires.

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"This adds many relatively new, well-maintained cars in the market and can cater to the replacement demand of the older non-environment friendly cars," said

Vincent Rupied, international director of Corporate Vehicle Observatory, BNP Paribas' independent research arm.

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