Appetite for expansion allowed Merrion survive collapse of the company car market

It was July 2008 when Merrion Fleet Management first saw signs of the recession that was to come.

"It was like someone turned off a light switch," recalls managing director David Hurley. "It was pretty scary. We were wondering would business continue and would anyone ever want to buy a car again."

It wasn't the first scare however for the company founded in 1999 by Sarah Dunn, who currently acts as the company's finance director, and Conor Kelly, who left the business in 2006. In the late 1990s, there was just one fleet management company of size operating in Ireland, and the founders saw an opportunity to replicate the UK business model of car ownership, where about 50 per cent of company cars are owned and operated by fleet management companies. In Ireland, the equivalent was just about 15 per cent so the opportunity for Merrion was clear.

However, as with many start-up tales, things didn’t exactly follow the business plan.

“After one year, the company needed more money and we had to invest more money two years later, which led to some fairly difficult board meetings,” says Hurley.

One of the original investors, at the time Hurley worked with pharmaceuticals company Elan, but he joined Merrion in 2004. By that point, the business was motoring along and Merrion was progressing along the lines of its original business plan, counting Aviva and Smurfit as some of its earliest customers. “Once you had a name, you could go into presentations. As an Irish company effectively competing against a multinational we had to break the mould,” he says.

As the economy started to take off, “everything lifted and Merrion went with it”, says Hurley.

The first signs of a major obstacle to growth came in July 2008. “People didn’t want to buy cars any more,” says Hurley. This was an issue because when someone hands back a car, Merrion typically sells it on. It sold 1,000 cars in 2008, but just 300 the following year.

“It was pretty dramatic,” says Hurley. “Our fleet dropped by 25 per cent in 2008 and it was 2010 before it steadied again.”

The company quickly responded to the new economic environment, letting some staff go, cutting salaries and extras such as Christmas parties.

Most of its customers decreased the size of their fleets and some went bust. “Companies who would have had 300 vehicles in 2006/07 now have about 60,” says Hurley.

But despite the difficulties, opportunity also presented itself when Lombard, owned by the Royal Bank of Scotland group, decided to get out of the Irish market in 2010. Merrion saw that a deal was to be done, and struck, taking over the company at a "very effective cost".

“It worked really well. It allowed us to double our fleet, maintain our headcount, and it gave us more customers.”

Merrion had benefited from having a strong balance sheet, which allowed it to make the acquisition, having always reinvested the profits of the business. However, the company depended on bank finance to acquire its vehicles and, while it continued to receive financing during the bad times, the relationship has changed.

“Banks are a lot more risk-averse and they want more security. It’s the credit people, who are running the banks rather than the sales people. It does hinder our ability to grow,” says Hurley.

Luckily for Merrion, the car manufacturers saw what was going on and entered the financing market, with Merrion striking up a particular relationship with BMW.

“Without them it would have been very difficult,” says Hurley.

The business also got a boost in July 2008 when the Government changed to taxing cars based on C02 emissions. This led car prices to fall – Hurley says a BMW 5-series model cost about €64,000 before the switch and €44,000 thereafter – which kept the market for larger cars going strong.

“More people were driving bigger cars because they had come down in price. At one point the BMW 5 series was the top registered car in the market, which was very unusual.”

Now growth is back on the company’s agenda and, while the vision of replicating the UK model may have never truly come to fruition – Hurley estimates that the percentage of fleet models has increased to about 25 per cent, still far short of the UK equivalent – he believes there is still some scope to get to the UK model. It’s all part of a plan which will see Merrion hope to reach 7,500 units by 2016, pushing its turnover up from about €45 million to €60-65 million.

But it won’t be all smooth driving. “There are still lots of challenges. Finance is always a challenge and to get back to some normality is still some way off.”

How companies operate is also changing. “What has happened in the market is that the perk company car sector has declined, whereas, for the driver who has to drive for work, companies are finding that it’s cheaper to give them cars than car allowances.”

With a premium on car parking in city centre offices, car pooling is another change, and one area that Merrion is looking at closely, with the potential to offer companies access to three or four cars which can be used by staff.

“Technology comes into play here, as you would need a booking system, but it’s something we’re looking at. It will be a growth area,” says Hurley, adding that electric cars are also on Merrion’s agenda. It has about eight vehicles, some of which are on lease to customers.