Reducing Concentration Risk Helped Drive Growth

 

Amid a short history of explosive growth, International Fleet Sales learned that its path to continued success would depend on its ability to reduce concentration risk with large clients and to confidently extend credit on larger deals. The company found a strategic solution to those issues with credit insurance.

 

Industry:

Automotive

Challenge:

Concentration risk

Policy Benefit:

Increased sales growth

Challenge

Risk comes in many forms. After passing the $1 billion mark in sales in less than 16 years of operations, International Fleet Sales (IFS), a San Leandro, Calif.-based distributor of U.S.-origin General Motors vehicles, faced difficult decisions about both its risk tolerance and the need to balance growth with risk management. It had become apparent that the company’s sales had become concentrated with relatively few large customers that required ever larger deals to meet their needs. The related risks took two forms—the risk of sales concentrated in too few customers and the risk of extending credit to these clients to facilitate larger deals.

The company, which serves an international customer base by offering unrivaled expertise in export services, logistics, parts, service and training, had initially reacted to the situation by becoming more conservative in the risks it was willing to assume. However, it quickly became apparent that this more conservative approach was hampering sales and customer relationships.

“A good customer from South Korea placed a very large order but did not have enough working capital available to finance the deal,” said IFS president Mike Libasci. “We were concerned that extending credit for the deal was too risky because we couldn’t handle the loss if we took a hit. But we also didn’t want to lose the deal.”


“It was very clear from the start that Euler Hermes really understood our business. Our agent showed us how we could benefit from a policy and collaborated with us to put the pieces together of this great tool. They have been a great partner ever since.” - Amy Schweng, CFO

Solution

Although IFS had considered purchasing credit insurance in the past, it was unable to find a policy that fit its unique needs. However, when the company began discussions with Euler Hermes, company leaders recognized that it was dealing with a different type of insurer. “It was very clear from the start that Euler Hermes really understood our business,” said Amy Schweng, the company’s CFO. “Our agent showed us how we could benefit from a policy and collaborated with us to put the pieces together of this great tool. They have been a great partner ever since.”

The end result is a flexible credit insurance policy that reflects the company’s unique business structure. With economists and expert underwriters present in more than 50 countries, Euler Hermes has also become an important extension to the internal IFS credit team. Euler Hermes has important insight to offer that allows IFS to make quick and reliable credit decisions for its multinational portfolio.

Results

Since IFS began working with Euler Hermes and carrying credit insurance, IFS has been able to sharpen its competitive edge. “Most of our competitors are manufacturers that require guarantees or letters of credit,” said Libasci. “Credit insurance eliminates the need for those tools and puts us in a better position than the competition.”

With the ability to approve credit limits faster, reduce risk, and offer open terms where its competitors can’t, IFS enjoys a major advantage in the marketplace. “In the short time we’ve been with Euler Hermes, we’re already seeing a great return on investment,” said Libasci. “We’ve brought in deals we would have turned down before our policy was in place. This product is changing the way we do business.”

IFS has turned its Euler Hermes credit insurance policy into a central pillar of its growth strategy. “Credit insurance has allowed us to take on customers and transactions we wouldn’t have felt comfortable taking on by ourselves,” said Libasci. “We can handle larger deals and offer more liberal terms with the results going straight to our bottom line. Euler Hermes has been a great partner in helping increase our sales.”

Download the full case sutdy

Read IFS's Story Get a Free Quote