European automotive

The transition to Mobilize: can new mobility finance products deliver a profitable and sustainable future?

9 February 2023

Summary

Auto companies are increasingly moving away from the traditional car ownership model to more climate-friendly mobility offerings linked to a company’s sustainability strategies. In a recent session at the AFC Winter Conference, the CEO of Mobilize Financial Services UK, Alice Altemaire, and Asset Finance Connect’s auto finance community leader David Betteley discussed the battle of planet versus profit in the motor finance industry and whether car companies have to sacrifice profitable returns for sustainable strategies or is there a way to have both?

Roadmap to green

Many auto and asset finance businesses have a ‘roadmap to green’ highlighting four steps towards large-scale green asset finance:

1. Leasing ‘green’ assets using a conventional leasing model.
2. Circular economy options added to the conventional leasing model (e.g. recycling, asset rotation, asset sharing).
3. Flexible ‘as a service’ solutions for largest customers through manufacturer risk-sharing partnerships.
4. New funding models (e.g. Solvency II reforms, securitisation, green bonds) to facilitate scaling up of new models.

The right level of regulation is required to support, embrace and enable sustainable innovation. Regulators believe that all businesses need to look at their emissions and how they can be reduced, e.g. work with logistics and suppliers in the value chain who must all work towards net zero. From 2019, large UK companies must report their emissions, try to be more efficient and support sustainability.

Scope 1, 2 and 3 emissions

In order to monitor the carbon emissions of the business world, Scope 1, 2 and 3 emissions reporting is now in place:

• Scope 1 emissions – direct emissions from owned or controlled sources, e.g. fuel used, air, and business car travel
• Scope 2 emissions – indirect emissions from the generation of purchased energy e.g. Electricity purchased for use in offices
• Scope 3 emissions– all indirect emissions (not included in Scope 2) that occur in the value chain of the reporting company, including both upstream and downstream emissions, e.g. emissions from products used by the company’s customers

As Scope 3 emissions usually account for more than 70 percent of a business’ carbon footprint, it is crucial that companies tackle these emissions to meet the aims of the Paris Agreement and limit global warming to 1.5°C. However, measuring Scope 3 emissions is a challenge.

There are numerous benefits associated with measuring and reducing Scope 3 emissions, where organisations can:

• assess where the emission hotspots are in their value chain;
• identify resource and energy risks in their supply chain;
• identify which suppliers are leaders and which are laggards in terms of their sustainability performance;
• identify energy efficiency and cost reduction opportunities in their value chain;
• engage suppliers and assist them to implement sustainability initiatives;
• improve the energy efficiency of their products; and
• positively engage with employees to reduce emissions from business travel and employee commuting.

While companies are now recognising the importance of addressing their Scope 3 emissions, action in this area must be scaled up to reach true net zero by 2050.

Mobilize Financial Services started their sustainability journey in 2019 when they subscribed to the SME Climate Hub with a commitment of decreasing their emissions by 50% by 2030 but also to be net zero.

Mobilize successfully monitor their carbon emissions in Scope 1, 2 and 3 and have effectively and efficiently reduced their carbon emissions as well as supporting and influencing their customers and suppliers to be more sustainable.

As Alice Altemaire highlights, changes to reduce Scope 1 and 2 emissions are easy to implement:

• Scope 1: business mileage and emissions – Mobilize have moved to BEVs, with incentive schemes for employers for EVs and chargers.
• Scope 2: office premises and utilities – Mobilize have switched electricity to recycled electricity and energy-saving options at their premises (e.g. solar panels). Alice Altemaire points out that while it is easy to spot problems here, it can be difficult to rectify if the building is leased. However, recent contracts have added a clause whereby premises must be net zero. This ease of transition is further reinforced by Vertu CEO Robert Forrester who highlighted in a recent interview that 50% of Vertu’s power will aim to be off grid in the next 12 months, from LED lighting and solar panels.
• Scope 3: seen as the “most challenging” of the reporting emissions as it is the reporting of the emissions of customers and suppliers. Alice Altemaire believes that businesses must try to influence and support their value chains suppliers to be more sustainable.

Mobilize is aware of reducing their carbon emissions and have invested in Scope 1 and 2 reporting. With this small amount of investment, Mobilize have been able to reduce their emissions and in turn significantly reduce their costs.

With rising energy costs, there is more motivation to save energy which equates to saving money, thus demonstrating that being more efficient leads to costs savings which benefits the business and the planet. Alice Altemaire is a strong advocate that saving the planet ultimately leads to saving money and increased profit: “saving on emissions is saving money and saving costs.”

“Saving the planet is also saving money so there is no excuse not to look at reducing emissions.”

Alice Altemaire

When discussing the emissions of Mobilize’s portfolio, Alice Altemaire highlighted that more emissions are produced in manufacturing electric vehicles (EVs) than ICE cars as the electric vehicle (EV) batteries are being shipped from Asia. Therefore, as Alice notes there is an urgent need to work with the manufacturer to localise battery products and car components to Europe.

Refurbishment and the circular economy

Alice Altemaire is very passionate about promoting the circular economy in the auto industry and refurbishing EVs. Sustainability and circular economy strategies go hand in hand, with cars being the perfect product to be reused, remanufactured and recycled.

“Sustainability and circular economy strategies go hand in hand, with cars being the perfect product to be reused, remanufactured and recycled.”

The circular economy is an increasingly attractive option for automotive players who want to be more sustainable, and shifting to circular manufacturing can open new business models and drive profits.

For example, Renault and Stellantis are both looking at businesses that encapsulate the circular economy. Obviously, decarbonisation plays a role in their plans, but they also have a focus on profits and lowering costs through the circular economy.

The Circular Cars initiative, a collaborative ecosystem-based program led by the World Economic Forum, lists vehicle sharing, smart charging, refurbishing, repurposing, and recycling as effective measures to reduce lifecycle environmental footprints and costs. The project has a clear agenda: to increase the environmental sustainability of mobility.

New mobility services

In the past, car ownership was the predominant model of mobility. However, in recent years with a new younger generation of drivers and increasing urbanisation, the focus has moved away from ownership to usership to mobility as a service (MaaS).

The most popular MaaS models are car sharing and subscription, both providing an alternative to owning or leasing. Most of these MaaS programs offer individuals access to a range of cars with new world tech, with maintenance, roadside assistance and insurance included for an all-inclusive price, lowering the cost and commitment involved in owning a car, and offering a flexible alternative to ownership. People choose subscription primarily for two reasons—either to expand their choices of cars to drive or to reduce the hassle of ownership of a depreciating asset.

Boston Consulting Group¹ has highlighted a number of reasons why car subscriptions are gaining consumer interest:

• Buying a car the traditional way is tedious: Many consumers find the conventional car-buying experience to be a hassle and they dislike the sales pressure.
• Ownership is less flexible and can be risky: The commitment is long, whether buying the car outright, financing it or leasing, and the residual value loss and risk is off-putting for many car owners.
• Car ownership is losing its lustre in many parts of the Western world: Ownership for young people is no longer the status symbol or all-consuming aspiration it was just a generation ago. People have a more utilitarian attitude about driving, and studies show that growing numbers of people do not think they need a car to get around.
• Subscriptions are a low-risk way to try out new brands and BEVs: Consumers who might shy away from new brands or battery electric vehicles are more willing to try one out through a subscription.
• Subscriptions are an attractive supplementary option for B2B customers: Subscriptions enable business customers, particularly small and medium-size enterprises, to quickly adjust their fleet size based on demand, and react to changing business conditions.

“In the current market, there is no one-size-fits-all mobility solution.”

However, the vast majority of people are still reluctant to move away from the age-old concept of car ownership, especially to a more expensive albeit more flexible option. As Alice Altemaire confirms, people are reluctant to give up the exclusive use of a car but this generational change will happen over a longer period of time. In the current market, there is no one-size-fits-all mobility solution.

In addition to traditional car owners, subscription and car sharing presents a dilemma for car manufacturers as fewer cars will be needed resulting in less CO2 which is good news for the environment, but for OEMs who want to sell more cars, the idea is not so appealing and profitable.

However, Mobilize’s Alice Altenaire is optimistic highlighting that less new cars were sold for the first time in fifty years in 2021-22, but financial companies, dealers and car manufacturers were still profitable, resulting in a very fruitful year. This shows that you can drive value over volume and is a positive sign when you look at the rising costs from technology, with BEVs being more expensive than ICE vehicles.

Mobility solutions are currently not creating much revenue, but utilisation is the holy grail as it leads to less cars meaning less emissions and a value-added product that provides a full-lifecycle of the car.

Alice Altemaire is aware that, while subscription is still minimal at the moment, it is slowly gaining traction, but as she rightly says, “you need to start the journey somewhere and need to have a forefront approach and the integration of working together (manufacturer, engineer, finance company, supplier) will support the global value chain and the customer.”

Looking to the future

Like Mobilize’s sustainability business model, Alice believes that all organisations need to understand the emissions of their own business and start from that point: reduce Scope 1 and 2 emissions and look at how you can support your customers with Scope 3 and any transition. Sustainable future-proof strategies are needed with products for the future.

In the short-term, such incentives are good for everyone’s wallet and in the long-term they are good for the company’s revenue line, but all sustainable forward-thinking mobility solutions are good for the planet.

Planet and profit can perform successfully side-by-side – green strategies that will help the environment are in unison with company profitability, with many customers now looking at the green and ESG credentials of an organisation to determine if they are worthy of their business.

Alice Altemaire’s resounding message at the AFC Winter Conference was that saving the planet goes hand-in-hand with saving money and increased profitability so everyone must act now.

Note:

¹ Boston Consulting Group article – Will Car Subscriptions Revolutionize Auto Sales? – https://www.bcg.com/publications/2021/how-car-subscriptions-impact-auto-sales – July 12, 2021

European automotive

JBR Capital: accelerating the high-end vehicle financing market

1 February 2023

Summary

Through a combination of a highly personalised approach and key strategic partnerships and channels, JBR Capital has immersed itself in the high-performance automotive community.

They understand the special relationship and passion that their customers have for their high-end dream cars and see their role as facilitating that dream and passion for luxury vehicles. Through this unique relationship, JBR place the customer at the heart of the business, from onboarding through the entire customer journey.

Chris Seaward, Chief Operating Officer at JBR Capital notes that, “at JBR we understand that the emotion for high-value cars exists with our customers and we are happy to help them achieve what they want to achieve.”

Rapidly developing relationships within their multi-channel network of dealers, brokers, franchises and direct customers, JBR Capital have achieved a reputation within the auto finance sector as the only specialised UK independent lender of high-value cars (from £25k to £750k) in the regulated and non-regulated space.

Building on significant momentum since the business was founded, JBR Capital has accelerated over the last 12 months – 2022 being the company’s most successful year with £279 million in lending alone – surpassing £1bn of lending since their inception in 2015.

Their growing business has seen their workforce rise from five to six ‘colleagues’ in 2015 to over 80 today. The maturing of the company allows them to look ahead and see growth for the future, aiming to repeat another £1bn in lending in just two years’ time by growing business across all channels.

Growth has been substantial and JBR has lofty ambitions. Over the past eight years, JBR Capital have shown that their model works, helping them to weather the economic challenges of Covid, Brexit, interest rate rises and rising inflation over the past few years.

“There is huge opportunity in our core business which we are looking to maximise all of the time.”

Multi-channel approach

JBR Capital operate through a multi-channel network – dealers, broker channel, franchise network, and direct to customer – and are constantly expanding all channels to reach their targets.

While these individual networks are all important to JBR, the strong broker market is the largest distribution channel with business soaring following the Covid pandemic. JBR also see significant future growth from the franchise channel presenting a big opportunity for expanding the market.

JBR works with its loyal introducers to maintain a ‘customer for life’ philosophy. As Chris Seaward notes, JBR’s introducer partners are strategic partners in the long-term vision of the business, and “the relationships with introducers are really important and the backbone of what JBR is built on.”

“Our introducer partners are our strategic partners in the long-term of the business.”

JBR believe that the direct to customer route is a more passive channel for JBR and will increase as the company grows and the brand becomes more visible through a number of initiatives:

• Tactical marketing and PR strategy
• Connection with luxury car enthusiasts by partnering with sector organisations and clubs
• Car shows – supporting the community and demonstrating JBR’s expertise in the sector

JBR Capital’s expertise and knowledge in high-end cars and customers in this niche market is very prevalent and they are seen as the main expert in the field. As Chris Seaward confirms, “As the business grows and becomes more capable and more credible and can deal with larger volumes, we will have an increased appetite to talk to a range of people about where we can help them with financing options.”

JBR see one of their key strengths as continuing to be independent and brand agnostic so that they can serve the whole market rather than specialising on any particular sub-segment.

Product range

JBR offer a limited range of regulated and unregulated products which fit perfectly with their clientele’s financial objectives – fixed and variable rate loans and hire-purchase products (with and without a balloon payment).

New mobility finance solutions including pay-per-use and subscription products are not offered by JBR Capital as they feel that they won’t work effectively in their niche sector and will not suit the needs of their traditional-style customers who, as enthusiasts who want to love and own their car, want the pride of ownership.

As Chris Seaward highlights, “We have a specific niche market of customer who love their cars and love to own them and I don’t see the subscription model coming into this space in the near future.”

Value-added products

Currently JBR Capital do not offer any value-added products, but with a growing client base and a solid foundation, JBR are always interested to explore different revenue-generating opportunities and partners who can complement their existing platform.

However, with only a 5% market share in their current market segment, JBR’s main focus is to grow and increase their market share in the lending space in their core business. In the future, they see a huge opportunity in generating revenue through additional value-added products and partnerships.

JBR have a platform where customers can advertise their cars for sale. This is an additional customer service offering. JBR do not own the cars and do not offer a wholesale stocking facility.

Customer relationships

Digitally enabled onboarding with a human touch

JBR Capital are a digitally enabled lender with a human touch; a business that fully understands the special relationship that their customers have with their cars.

The JBR onboarding process is a mix of manual and digital. While they use digital interfaces and APIs, the key differentiator between JBR and other lenders is that they perform manual underwriting. While they have the ability to have automated decisions as a guideline for underwriters, they also have a manual process so that they can understand the ‘real’ risk and opportunity.

JBR operate a rate for risk criteria where each introducer has a price banding from JBR with a fixed commission.

JBR Capital currently have access to sufficient wholesale funding arrangements to enable them to exploit their growth ambitions and to help them meet their aspirational target of £1bn in the next two years. This lending comes from a number of sources: senior lenders, mezzanine lender and a private facility, and in the future JBR will hopefully look at a public ABS transaction.

Good customer experience

For repeat customer business, JBR will direct the client back to their original source channel to maintain a consistent customer experience and seamless journey. JBR can boast excellent levels of customer retention, especially through their broker and direct channels, with strategies in place to retain customer loyalty.

A key strategic project for the future of JBR Capital, according to Seaward, is a JBR customer portal, enabling customers to access their account digitally and therefore further enhancing the customer relationship.

COVID

During the turbulent times of the Covid pandemic, JBR Capital followed the necessary regulations and witnessed a good experience throughout with their customers, resulting in few negative outcomes.

The company offered payment holidays, which had a relatively small uptake of approximately 20% of their book during the peak of the pandemic in 2020.

Seaward highlights the needs during this time to liaise with funders, implement new processes and educate the work force. He believes that learning how to react and re-engineer processes during this time tested JBR as a business, but it was a challenge that provided a good learning experience.

Consumer Duty

At JBR Capital, the customer is at the heart of the business and customer service is particularly important. As such, JBR are effectively adhering to and are fully compliant with the new Consumer Duty guidelines.

According to Seaward, JBR want to fulfil the spirit and letter of the Consumer Duty regulation, with the guidelines embedded in the DNA of the company.

Plans for Consumer Duty at all levels of the business were formed four to five months ago and are now fully implemented throughout the whole business. Raising the standards from TCF, Consumer Duty can be found throughout the entire end-to-end customer journey.

“Consumer duty is in the DNA of the company.”

JBR are proud members of the Finance and Leasing Association.

ESG credentials

JBR have implemented their ESG programme over the last two years, making excellent progress across all divisions.

Launching an industry standard-setting sustainability initiative in 2022, JBR Capital partnered with Carbon Neutral Britain by offsetting 5,000 miles of carbon emissions for each car financed by its clients, greatly reducing the environmental impact of high-end vehicle ownership.

The programme allows JBR to offset the carbon emissions of the first 5,000 miles in the first year of ownership for the client and the client can then sign up to the initiative for subsequent years.

Previously focusing on Scope 1 and 2 emissions where JBR have offset all business emissions, the sustainability initiative looks at ‘sold services’ under Scope 3 emissions by offsetting customers’ carbon emissions, an example of JBR’s responsible lending approach.

Seaward highlighted that JBR have a rightful obligation to do this for their clients and the planet when they finance cars that omit the most carbon. JBR’s initiative is also in line with their specialist financial services private equity investor, Cabot Square Capital, who have a strong demand for ESG strategies in their portfolio companies.

Other ESG strategies include engaging with two local charities – City Harvest and Talent Rise – to stay connected to the local area in which JBR can try to make a difference.

This philosophy continues into the JBR workplace, with employee-led initiatives in D&I, mental health awareness, wellness champions, and various workshops. Seaward emphasised the importance of a positive culture at JBR Capital, in order to retain staff in a niche marketplace and have an engaged workforce, which translates to an engaged customer.

“We’ve tried really hard at JBR to build a positive culture to retain our staff as the niche expertise we have is really important to us.”