“In a credit crunch, banks, hedge funds, mutual funds, and other organizations sell what they can, not what they want to.” Mike ‘Mish’ Shedlock
Of the satanic corporate mills I’ve worked in over the years, perhaps the most glowering was the dark bulk of Arval Centre; squatting atop Windmill Hill on Swindon’s westernmost fringe.
When I was there, it was called PHH Centre and its beating heart was the AllStar Fuel Card business.
A fuel card is like a credit card, except that drivers can only use it to buy petrol, diesel and lubricants. AllStar is the grand-daddy of all fuel cards, with a pedigree going back 45 years. Today, there are million AllStar users and it enjoys a billion-pound turnover.
It’s such a strong product that it dominates the UK fuel management scene even though, unlike its rivals, it doesn’t give customers volume-related discounts. And most AllStar customers also have to pay annual fees for their cards and services.
But the really big money comes from the cut that AllStar gets from filling stations. It may be only a couple of per cent of each transaction these days (it used to be more)… but just look again at that turnover.
They once reckoned that PHH’s profit margin went up by a million quid every time the price of fuel went up by a penny a litre. PHH just sat back, watched the numbers change on the garage pole signs and counted the pennies. That’s what you call a cash-cow.
AllStar was sold several times over the years. First to PHH, then, always along with the fleet management and funding side of the business, to Avis, then Cendant and then to Arval, the fleet finance arm of BNP Paribas.
The ‘ker-ching!’ noises made by this tasty little profit machine must have been music to the ears of the French bank, which is otherwise drowning in toxic instruments of financial fiendishness and bucketfuls of imploding euro sovereign debt.
But just before Christmas, Arval announced that it had sold AllStar to FleetCor Technologies, a leading US-based fleet card provider (although virtually unheard-of in the UK) for what looked like a bargain price of £192 million.
AllStar “was not central to the business,” Arval airily averred.
A spokesperson added: “The Arval Group business model allows companies of all sizes to outsource their fleet management and company fleet related risks through a comprehensive bundle of funding and fleet solutions, while the business model for AllStar is to deliver transactional services.”
In other words, we should believe that it’s better for Arval to pin everything on the hard work, low-margin, overcrowded funding and management end of the fleet business, while it gets rid of the bit that makes the company a mint just for the effort of getting up in the morning.
Mish Shedlock sees it differently. Referring to the on-going fire sale of assets by French banks, he writes:
Banks are shedding assets, not because they want to, but rather because they have to. The reason they have to is they are over-leveraged or need to raise capital for numerous reasons including new Basel requirements.
The unfortunate irony is banks may be shedding profitable organizations simply because there is still a bid for the assets.
Credit Crunch Math
In a credit crunch, banks, hedge funds, mutual funds, and other organizations sell what that can, not what they want to. In essence, distressed sellers weaken themselves by shedding profit centers to retain assets for which there is no bid.
He’s right, of course. It’s nonsensical to suggest that fuel isn’t central to a fleet services business. Not only was AllStar an enviable profit centre for Arval but its pre-eminence in the fuel management sector also gave Arval a high level of ‘lock-in’ with its major fleet management clients, who got a great one-stop-shop service for their cars and vans.
It also gave Arval a direct channel for punting additional products to the tens of thousands of SMEs and public sector fleets that relied on its fuel cards.
It’s a sign of how bad things really are in the global economy that, after four decades of ‘standard’ recessions, and three oil-price shocks, the business has finally parted company with AllStar.
As a footnote to the Arval story, Fleet Support Group, a UK fleet services business, was sold to another US fleet company a few days after the AllStar deal was made public. FSG is based only a few miles from Arval Centre (where AllStar will remain for the next few years), in Chippenham.
All it would take is for one of the new US parents to flip AllStar or FSG to the other for a quick profit and you’d have more or less replicated the old PHH one-stop-shop service model (less the burden of the finance risk on Arval’s 87,000 vehicles) in a brand new business.
Stranger things have happened.