It's yet another example of the trend towards outsourcing of non-core activities among corporates. Companies, especially those requiring a large number of automobiles to ferry their executives around, are increasingly outsourcing the ownership and maintenance of cars, instead of blocking valuable capital by purchasing cars en masse.

Some of the benefits to be gained by outsourcing fleet management are as follows:

• Better preventive maintenance, leading to lower replacement costs
• Upgraded maintenance skills
• More efficient use of capital, leading to better productivity

Orix India, a joint venture between Infrastructure Leasing and Financial Services Limited (ILFS) and Orix, Japan, is a leading player in the fleet management business in India. Orix has a presence across 25 countries worldwide, and is a leading global player in automobile leasing.

In India, Orix is into three lines of business: Vehicle financing, car rentals, and service stations. The company has structured a range of services to cater to individual customer needs. The vehicle financing options could take the form of  pure financial leases, or maintenance linked leases. In the latter case, Orix takes on the responsibility of the servicing and maintenance of the vehicle, in addition to funding its acquisition. The company boasts an impressive client profile, including leading organisations in IT and Consulting.

The market for funding of corporate vehicles is undeniably growing. According to an Orix spokesperson, "Ten years ago, no one in India would take a loan to buy a vehicle. But that mindset has changed considerably. The same is true of the corporate sector as well. There is definitely a lot of growth potential in the market. One needs to structure one's offerings to cater to varying customer requirements. In our context, it could mean having a presence in economy, mid-range and luxury cars, and for car rentals, offering a variety of packages depending on the time of use and mileage. We have also set up service stations in certain cities, which means that the client does not have to depend on any third party for maintenance of the cars."

While the market may show impressive growth potential, the critical success factors for serious fleet operators would lie in:

• A comprehensive range of offerings in terms of variety of cars, and service options (long term and short term)
• A presence at every stage in the life cycle of a car, from financing the purchase to operation, maintenance and disposal

Since company cars are not generally seen by management as a strategic or high priority issue for the organisation, fleet costs often do not get the attention they deserve. Not every organisation necessarily has to outsource the ownership and maintenance of its vehicle fleet. Some questions a company would do well to ask itself prior to arriving at a decision on whether to purchase and maintain its own automobiles, or go for outsourcing, are:

1. Which is the best way to acquire the vehicles, whether by outright purchase or some form of outside funding (mainly leasing)? This may involve detailed Discounted Cash Flow calculations.

2. Which is the most cost-effective way of operating the vehicles? That is, how much of the operational procedures should be outsourced to a third party to access their purchasing power and professional experience in  vehicle purchase and disposal, maintenance control, car hire etc.

3. Which is the most cost-effective type of vehicles to acquire and what is the period and mileage over which to run them?

4. How to arrange all the products and services needed to operate the fleet? (This is an area with considerable cost-saving potential)

5. What are the tax implications of having one's own cars, as opposed to rented/leased cars?

Each company would need to consider these, and other questions before arriving at a decision on outsourcing its car fleet.