Russian car lease market has potential for expansion but problems persist

A recent Datamonitor survey has determined that major international leasing and fleet management companies in Russia rate the insufficient quality and reliability of suppliers as the single most serious obstacle to business growth in the country. Respondents to the survey awarded crash repair garages the inauspicious rating of one out of five with regards to customer satisfaction. Fuel management and fuel cards, which in Russia have considerably lower penetration compared to corporate car markets in Western Europe, have also been identified as a weak area, attracting an average rating of 1.2. Satisfaction of leasing companies with tire specialists, meanwhile, averaged a mere 1.5. The least amount of criticism was directed towards dealership garages for routine technical management of leased company cars, although this failed to earn them an average satisfaction rating higher than two. This is understandable: between 2000 and 2006, the number of fleet cars in circulation grew by an unprecedented 32% but the number of garages available to service those cars has not kept pace. It will take some years before this discrepancy is ironed out. The lengthy average lead time across crash repair centers is also a consequence of the high road accident rate in Russia. Datamonitor estimates that just under 10% of all cars in Russia are involved in an accident each year. This is relatively high: the figure in Germany, for instance, is 8%. Russia's high average is caused by the relatively poor quality of local roads and weak law enforcement in the country. Despite the teething problems highlighted by operational leasing and fleet management companies in Russia, none of them doubt the substantial growth potential of the market in the coming years. According to Datamonitor, the operational leasing market in Russia is forecast to grow at an average rate of 40% a year until 2012. However, the race is on to beat even these lofty predictions. With full-service operational leasing first offered only five years ago, the local market has already attracted the presence of Europe's major brands, such as ALD Automotive and Arval, and more companies are on the way in. Exactly when certain companies are going to enter the market depends on a number of factors, including the size of the market, their forecast of the growth pace, potential demand from their existing international clients for services in Russia, and past experiences with market entries. The fact that some companies have set up operations in Russia while others have chosen to wait implies different perceptions of the market and the actual demand from their own clients. However, it may also mean they are trying to correct mistakes made in the past, when they feel they may have acted too slowly or have entered certain markets too early. Several factors are thought to be fuelling the growing demand by corporate fleets for operational leasing, but at present the market is mainly expanding thanks to local subsidiaries of international companies. Hence, the pace of growth of foreign direct investments in Russia is one fundamental factor influencing the growth of the operational leasing market in Russia in the short to medium term, together with the growth of the gross domestic product in the country. Another important factor is the shortage of skilled labor, which is likely to become more acute in the coming years. As companies struggle to recruit skilled workers and managers, as well as contain attrition, the result is upward pressure on wages and employers expanding their compensation packages with non-monetary benefits, such as company cars which employees can use as if they were their own. Currently, less than 1% of all cars used by companies in Russia are funded by operational leasing. This ratio is expected to increase to at least 1.5%, bearing in mind the growth of the corporate car fleet itself. By comparison, in Europe's most mature operational leasing markets, such as the Netherlands and the UK, around half of all corporate cars are funded by operational leasing. This further highlights the potential which the Russian market possesses.