Since Clitheroekid’s excellent post has raised 298 recs (and counting), I think the questions he has raised deserve to be addressed in a comprehensive manner. He sets out a highly cogent and compelling bear case so I’ve done my best to address his points in order to re-assure myself that he hasn’t raised anything that I had missed in my notes and what follows is my own interpretation of what he has said that is fact and what is fiction. Hopefully, readers will decide for themselves whether the shares are a buy or a sell – my goal is simply to try and establish facts.

ACE have assisted around 130,000 motorists and settled 80,000 within the accounting settlement provision . The balance outstanding is a result of their growth rates in the past few years – the number of new cases is now running at around 4,000 a month.

The sheer volume of cases closed and settled is an important point to bear in mind in all of this because what we seem to have on this thread is the opinion of someone who has their own single experience to talk about. I find it puzzling that one individual out of 130,000 customers (or one in 80,000 settled claims) should be affecting the thread so heavily with his post. Some balance is required.

Clitheroekid said:

I felt it might be interesting for potential investors in this company to hear from one of their unfortunate customers.

In November 2004 I was involved in a no-fault accident. I was driving a Merc SLK 350 that I'd bought just 3 weeks earlier, so I was not a happy bunny.

I reasoned that with such a new car it should go back to the main dealer for repairs, and took it to my local Merc dealer. They said that as part of the wonderful service given to the buyer of such a prestige vehicle they would arrange a replacement car of the same type at no expense to me, courtesy of a company called Accident Exchange.

Needless to say, I was mightily impressed, and true to their word a brand new SLK 350 was delivered to my door in no time at all.


I was obviously aware that it was technically a hire car, but I was again told by the rep who delivered the car that all the hire charges would be recovered from the other driver's insurers. In any event, being in the trade I knew that this was the standard practice of all credit hire companies.

It is important to note that CK is a solicitor who knew exactly how credit hire worked and can can clearly read a contract before he signs it and he knew exactly what his obligations were. The daily rate would have come as no surprise at a later stage since it would have been clearly stated on the agreement he signed on delivery of the car. So far, a happy customer who had the added benefit of knowing exactly how the business worked.

I must admit to being somewhat taken aback by the hire charges, which ultimately worked out at £353 a day but reasoned that at least it would serve as a powerful incentive for the other driver's insurers to settle the claim quickly.

Unfortunately, it didn't. I ended up having the car for about 3 months.

CK may have been taken aback but, as a solicitor familiar with the industry, would have known that the insurer would get a substantial discount to the GTA rate if they settled within 90 days. If they didn’t then the rate charged would be the rate agreed by the courts if things got that far.

I'd largely forgotten about it until last summer when I received a County Court Summons from ACE for approximately £24,000! On reading this it became clear that the total `hire' bill from ACE had amounted to no less than £29,378.67. ACE had `only' managed to screw £6,000 out of the insurers, and were (and technically still are) therefore suing me for the balance.

I believe this is a disingenuous statement. The payment of £6,000 would equate to a daily rental rate of less than £55 plus VAT per day for a Mercedes Benz SLK which is unrealistic by any standards. An alternative reason for a payment to be reduced to this extent is that the insurer disputed that CK was completely blameless for the accident or used the hire car for longer than he should. As I mentioned earlier in this thread, I suspect that there was a counter allegation from the other insurer and ACE needed CK to assist in dealing with that counter allegation. CK would know, as a solicitor, that a firm cannot just issue proceedings ‘out of the blue’ and that he will have received requests for assistance from the company. The request for assistance shouldn’t have come as a surprise, nor should the law suit given the notifications he would have been given.

So much for my experience. Now to deal with some of PP’s comments:

ACE focus mainly on vehicle credit hire of prestige cars. So if you have a car accident, and it's not your fault, the law says that you're entitled to a like-for-like replacement vehicle (if you need one) whilst your own car is off the road. The cost is borne by the insurance company of the at-fault party.

Like most legal situations it’s by no means as black and white as that.

Firstly, you would only normally be entitled to `like-for-like’ if your own car’s fairly new. My case was a classic example – the car was only 3 weeks old, so it would be difficult to imagine a clearer justification. However, if you’re driving a 5 year old BMW 525 you could not justify hiring a new BMW 525. The value of the damaged car is very relevant, and if your Beemer’s only worth £10,000 you’re only entitled to a Mondeo or something similar.

The GTA provides a mechanism (based on a car being 5 years old or more) where the credit hire operator will downgrade the group to a cheaper vehicle to comply with the requirements of the GTA.

In other instances the test is about reasonableness and there is no precedent in law that requires someone driving a 5 year old BMW to hire a Mondeo. Equally I have not seen anything that suggests the Company is not doing what it is supposed to do.

However, I’ve heard on the grapevine (completely unattributable and it may well just be rumour) that ACE have been doing exactly what I’ve just said is not on – namely, hiring a new prestige car as a replacement for an old one.

This is a mischievous statement, IMHO. Facts simply don’t support it, as CK himself implies.

The net effect is that if ACE hire you a car costing £350 a day when they should only have hired you one costing £150 a day the insurers are not just going to roll over and cough up. They will, quite rightly, fight hard.

There is no evidence at all that ACE are hiring a car costing £350 a day when they should only have hired one costing £150 a day.

The second point concerns PP’s assertion that “you're entitled to a like-for-like replacement vehicle (if you need one) whilst your own car is off the road.”

This is only true if you can’t avoid your car being off the road. The car owner has a duty to mitigate his losses, and if the car is off the road for some unjustifiable reason the owner won’t be able to recover hire charges, particularly at these exorbitant rates.

Again, I understand that many ACE bills are challenged on this ground. (To be fair, it’s probably a common problem in the credit hire industry, but because of the level of ACE’s charges the incentive to fight is that much greater).

The GTA imposes clear obligations on credit hire operators which requires that they review the progress of vehicle hires every two days and report any unavoidable delays to the other insurer in order to ensure their client does keep his hire costs to a minimum. I personally saw a team of about 50 people in a team called ‘on hires’ who were doing just that and updating their computer screens in real time to indicate compliance with the GTA.

Insurers have the right to audit a credit hire company to deal with any concerns in this respect as part of the GTA. If there had been a consistent abuse in this regard, I’m sure they would have undertaken that right – they haven’t, it’s as simple as that.

Paul said:

What went wrong in 2007 then ? A lot of this has been covered before here, but in a nutshell, there was a problem with the wording of some of ACE's older contracts, a problem they were aware of & had already corrected.

“A problem with the wording”? Well, yes, I suppose you could put it like that.

My hire contract referred to a finance agreement with a company called Accident Exchange Finance Ltd.

This company does not exist and, so far as I’ve been able to establish, never did exist.

My hire contract said that I would have the benefit of a legal expenses policy with a company called Accident Exchange LEI Ltd

This company does not exist and, so far as I’ve been able to establish, never did exist.

The test cases in both the case of Barker and Corbett held that they were satisfied that this issue of the incorrectly named companies related to a very simple clerical error which the Company identified themselves several years ago and which was accepted in the evidence they gave to the court. The companies did exist, they were just misnamed on the rental documentation because the original names registered at Companies House were not available but someone forgot to track through the changes into the rental documentation.

These issues were fully dealt with before senior circuit judges who found that the clerical issues and the arguments advanced by the insurers were baseless so they lost. The insurers haven’t appealed because the judgments were unequivocal and not capable of being appealed. This bulletin board isn’t going to dig up anything new on this point.

In any event, any customer who had the terms and conditions which were challenged last year had the benefit of the indemnity policy which meant that as long as the customer cooperated with the solicitors nominated by the company to assist in the recovery of the hire charges then he would be indemnified in full if the company failed to recover those charges. For reasons only known to CK, he chose not to co-operate and he hasn’t told us what makes his case so different from the 80,000 that settled without an issue.

Paul said:

It's important to note that legal action to collect payments is a normal part of business in the credit hire industry, as insurers will simply delay paying as long as possible, and perhaps had become comfortable withholding payment using the legal enforceability challenge as an excuse.


CK replied:
In general terms insurers are sensible people, who know how to run a business profitably. Whilst they may to some extent delay payment of claims it really isn’t in their interests to delay unnecessarily, as the GTA agreed rates don’t apply unless payment is made within a month of the hire invoice being produced to them. If payment is delayed beyond a month there is a 7.5% penalty added to the hire rate, and this increases to 15% after two months. If the invoice isn’t paid within three months the GTA no longer applies at all.


Consequently, there is a strong incentive for insurers to settle hire bills quickly, and if they aren’t doing so there must be a good reason.

It appears to me that there’s a very good reason, namely that ACE’s bills are just too damn high.

Setting aside the fact that insurers make their profits from holding on to cash as long as possible, the charges that ACE or any other credit hire operator can recover is the cost that a man in the street would have to pay for a replacement hire car from an ordinary rental company. The exception is when he cannot afford to pay the bill in which case he is entitled to the full hire rate charged by a credit hire operator. When someone drives into your car and puts it off the road for three months that gives you three options. You can get public transport, hire a car and ask your solicitor to get your money back or use a credit hire operator. Those options were clear to CK at the time he had an accident and he chose to use ACE knowing what the charges would be to the insurer.

For example, in my own case they were charging me £353 a day (and this, believe it or not, was their long-term hire rate - it was over £400 a day for short term hire!) The GTA daily rate for my car is approximately £241 - http://www.abi.org.uk/tphire/SupportingDocuments/Agreed_car_...


This means that ACE were attempting to charge 46% more than the ABI rate. Is it any wonder the insurers refused to pay?

CK has got this back to front. The process is not to start at the GTA rate and work out how much you can get above that. ACE gives the insurer an offer of a significant discount for settlement of the hire charges within the terms of the GTA and I guess they either declined or failed to pay up. They lose the discount opportunity because of that. It’s not sharp practice it’s simple business. If they pay on time they save money and if they don’t they don’t. That’s the risk they take in forcing litigation processes to be started and they are fully aware of that.

This must be a very common situation, and it would worry me if ACE’s figures for sales were simply the aggregate of the invoices issued, as quite clearly they are not going to recover anything like the full value of those invoices.

ACE’s revenue recognition policy is not based on the aggregate of the invoices issued. Full details are set out in the annual accounts and the recent circular for the convertible which make it clear that they make provisions based on what they expect to receive in respect of their charges.

Paul said:

But as ACE point out, there isn't any issue with legal challenges any more, it's done & dusted in ACE's favour. The law is perfectly clear, and ACE are the right side of it.

CK said:

With respect, I simply don’t agree. There may or may not be other legal challenges with regard to major points of principle, as in the test cases, but there are thousands of legal challenges in respect of their everyday business.

Ask yourself why they have over 9,000 cases with solicitors. As I said earlier, insurers aren’t stupid, and they will generally pay fair claims without the need for litigation. I’ve been dealing with claims like this for over 25 years, and in my experience insurers are quite happy to pay reasonable claims – what they won’t pay is unreasonable claims, and that’s why ACE are involved in £54m worth of litigation.

ACE are not involved in £54m of litigation. They have £54m of cases with lawyers and have found from empirical evidence that 50% of those cases settle before proceedings have been issued, the simple threat of a solicitor’s letter being enough to make insurers act reasonably. Was it another 25% of cases that settled after the issue of a writ? And the majority of the remainder before any case is actually heard?

I fail to see that ACE are wrong to adopt a strategy that involves the use of lawyers to expedite the settlement of claims outside of the GTA. I think HHR spent £25m recently on buying CS2, a firm of lawyers, because they recognised the value that legal pressure can apply.

Unfortunately for ACE the law is, indeed, perfectly clear. It will only allow reasonable hire rates to be recovered.

And what is reasonable is determined generally by the courts and based on the information in the IMS on over 6,000 cases settled in pre-litigation and litigation is 135% of the GTA rate.

Paul said:

But the company explained to us today that ALL 6,121 of the abovementioned claims have been paid ! The key words which the market seems to have overlooked are "that have now been progressed to conclusion", i.e. they have all been paid.

CK replied:

No, the key words which are missing here after the word “paid” are “in full”. I’m quite sure that ACE will be taking big hits on a lot of their claims, and we simply don’t know what proportion of their invoiced charges are being recovered. Maybe PP could ask SE next time he speaks to him.

The IMS makes it clear that ACE have experienced no deterioration in their settlement provision and so I think it is fair to say that those 6,121 claims have been settled within the terms of the their existing settlement provision which has not deteriorated.

Paul said:

ACE … are now taking a harder line on late payment, without needing to offer discounts.

CK replied:

There is no analogy with a trader who sells goods or services and then offers a discount to a late payer. ACE aren’t in the position of being able to say “we’re fully entitled to our £350 a day but if you pay us now we’ll settle for £300 a day” – the fundamental entitlement just isn’t there in the first place.

This is simple business. I doubt a solicitor, for example, would react kindly if someone used his services, knowing on day one that the hourly charge out rate was £200 an hour and that when he sent a bill for 90 hours work (£18k plus VAT) the client came back and said we’ll do a deal on what we think we’d rather pay.

ACE do have a fundamental entitlement. In the case for CK they were acting for him and he knew what he was getting. If ACE seek to recover the full amount of their charges I fail to see why there is any difference from a solicitor seeking to get his £200 an hour. You argue about the value of the bargain when you sign up to it and not later. That’s what the GTA is for.

How much discount is “huge”? Prestige manufacturers such as Mercedes, BMW and Audi often don’t need to offer any significant discounts, as they can shift most of the metal they make without doing so.

What is the evidence for it? ACE are a corporate volume buyer of cars. Prestige manufacters DO offer significant discounts, especially in current markets. Go to any Merc dealer and ask how much discount you’d get for buying 300 cars a year if you don’t believe me!

However, it’s a virtual certainty that such cars will depreciate more quickly with the new punitive VED rates that they attract.

Not sure there is any evidence to suggest that the ACE fleet is full of those cars which will be hit by the new car tax charge or that if the tax reduced customer demand that we would not follow suit. However, to the extent that manufacturers will find it harder to sell the gas guzzlers to retail customers they will have to offer fleet buyers incentives to take the stock the retail consumer won’t want and that such discounts will offset that potential depreciation increase.

There is no logical nexus here. ACE are competing in the new vehicle market with mostly wealthy private / company buyers, who aren’t unduly bothered about the price they pay for a prestige car.

The suggestion being that corporate buyers do not negotiate harder to reduce their costs. The Company has made it clear that they are now using manufacturer standard specifications to reduce the overall unit fleet cost and that their purchasing process had improved dramatically over the past twelve months in terms of reduced buying costs.

Such buyers are equally unconcerned about taking a hefty loss when they sell.

However, the market for second-hand prestige cars is much more price-sensitive. These are nearly always private buyers, who are much more aware of what they’re spending.

Consequently, it’s perfectly possible that the market for new prestige cars will hold up well whereas that for used prestige cars will take a dive. There’s therefore no certainty at all that the suppliers will need to offer a bigger discount just because the car depreciates more quickly.

I don’t think any of us has any knowledge or understanding on the dynamics of operating a fleet of 6,000 vehicles and this statement is clearly not capable of being supported.

Paul said:

Also the culture of the business felt really good. As we walked round, many of the staff acknowledged the Director on first name terms, from office staff even to the cleaner.

CK said:

Enron spent three years on the list of 100 Best Companies to Work for in America.

My basic feeling is that ACE has striking similarities with the late unlamented Claims Direct. Both CLA and ACE were set up to exploit the inefficiencies of insurance companies in dealing with claims.

They both relied on being able to screw insurance companies for more than was legally recoverable.

They both succeeded to a very significant level at first, as the insurers were too slow and stupid to realise what was going on, and simply signed the cheques.

They both started running into the sand when (1) other ambulance chasers with a better business model entered the market; and (2) the insurers started fighting back.

ACE are one of around a hundred credit hire companies and one of just a few who now provide their services to insurers who want to offer their own customers credit hire.

I think CK’s opinions are based on his own circumstances and miss the point about how the market has evolved. SAGA, AA, Norwich Union, Admiral, Bell, Elephant, E-Sure and a whole host of other insurance companies now use credit hire companies to solve their customer’s mobility problems and the respective credit hire company recovers the GTA or commercial rate charges from the negligent insurer. HHR has close ties to a larger number of insurers but that comes at it’s own price in terms of margins.

The only difference is that CLA have now gone bust and ACE haven't – yet.

One other point that I noted from their RNS statement a couple of days ago:

"Since November 2007, improved planning has allowed greater visibility of the fleet mix and alignment of fleet acquisitions and disposals with the vehicle profile required by the referral base."

With the bullsh*t filter applied?

They're having to move downmarket as there aren't enough rich people having accidents.

The average value of an AX prestige car is £23,000 and the most prolific cars on the fleet that ACE have are the BMW 318, Audi A4 and Mercedes C180 – not exactly unique cars on our roads. My impression is that it has grown its mainstream fleet to satisfy the demands of some of its larger dealer groups who have both prestige and mainstream dealers. If they hadn’t then they would have been a dual supplier to their referral partners which is never desirable since it leaves the door open to a competitor.

This is commercial suicide, as it means ACE will be trying to compete with the likes of HHR, who have the (down)market largely sewn up.

HHR use insurers and insurance brokers and body repairers as their main thrust. HHR bought SWIFT a few years ago to compete in the ACE space but in the most recent data that HHR published after the acquisition they attributed only £10m of revenue to SWIFT. ACE were at £120m last year so the overlap isn’t great so far.


It's also interesting to note in this context the following comment:

“...there is evidence of some upward pressure on commission rates from competitors. This commission challenge is usually counter-balanced by the strength and quality of our service levels, proven over time, and the acknowledgement of the synergistic and differentiated value we bring to commercial relationships."

I think this meant that one competitor (SWIFT) were trying to buy business but failing. CK might see it a b/s but don’t forget they have grown revenues from £7m through £21m through £67m through £120m and forecast £167m this year.

"Synergistic and differentiated value"? More pure b/s. I’ve often noticed that the more b/s appears in company pronouncements the more they’re wallowing in the real stuff.


Also note the use of the word "usually". Sadly for ACE the service levels that have been "proven over time" can't be sustained if they're renting Nissans to the hoi-polloi. Consequently, the supposed counter-balance goes out of the window and as they can't match the increased commission rates they're (yet again) dead in the water.

In their last statement HHR said commission had gone up by 19% in the period since they last reported. ACE said that their commission rates remains unchanged since it was last reported and that whilst there was upward pressure from the competition they had managed to avoid getting into a price war.

I think I’ve done my bit on addressing the concerns as I see them. I appreciate CK’s input since it’s made me look again at some of the stuff I was told but I have to say that a lot of his criticisms don’t stand up to serious scrutiny. They have an added gravitas because they are well written and he’s clearly an experienced solicitor but there’s also stuff there that simply doesn’t add up. To his credit, he has admitted that he has greatly profited from being short, although he has now closed that position. The question remains whether he will continue to be correct in calling the share down from the sidelines? Hopefully, people can take Paul’s ultra bullish post, CK’s ultra bearish post and my own contribution which hopes to clarify what I consider key points of fact and everyone can make up their own minds.

That’s about it for me on this thread, so I hope no-one minds if I don’t respond any further on it.

WShak