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Light Vehicle Leasing Market to Cross 2.7 million Units by 2023

In contrast to Europe and North America, light vehicle leasing is still an emerging business segment in the Asia Pacific (APAC) region. Leasing penetration of 5.2% in 2019 was much lower than the 30.5% and 23.8% in North American and European markets, respectively. In 2019, the leasing market in APAC hit two million in unit sales with operational leasing comprising 46.7% of the total leasing contracts.

New lease contract sales grew at a rate of 5.4% in 2019 as Japan and South Korea turned out to be significant growth centers. Trends like fleet outsourcing and private leasing have been the major factors impacting growth in developed countries like Japan, South Korea and Australia, with China and India following suit. That said, Frost & Sullivan expects the total leasing market in APAC to register a growth surge with a CAGR of 8.1% by 2023 and record 2.7 million in new contract sales due to improved awareness about the benefits of leasing among corporate firms, SMEs and private consumers.

While that is from the demand side, the supply side is equally driving growth which means lease providers are actively focusing on offering attractive leasing solutions and services across markets. For example, while major car OEMs in India like Hyundai, Mahindra & Mahindra, Skoda and Honda are increasingly partnering with leasing companies like LeasePlan and Orix to provide private leasing solutions, leasing companies in countries like South Korea and Australia are slowly venturing into providing other mobility solutions.

Japan: The Japanese leasing market is healthy and has promising growth prospects driven by operational leasing in both corporate and private customer segments

The Japanese leasing market is highly mature with new contracts accounting for more than 1/3rd of the leasing market share in the APAC region in 2019. Even though the concept of company car as a perk is not as prominent a model in Japan as it is in European countries, factors such as new fleet acquisition and renewals among corporate firms and new private leasing registration are driving growth. Market share is highly concentrated among the top three participants; Toyota, ORIX and SMAS command nearly 2/3rds of the active leasing contracts. Moreover, buoyed by nationalistic consumerism, domestic companies are exerting their dominance.

The provision of purchase subsidies and preferential tax treatment is expected to augment the uptake of new energy vehicles over the coming years. In parallel, as the market gets saturated over the next five years, leasing companies will need to slowly work on shifting their business focus towards newer customer segments like SMEs while improving their operational capabilities.

South Korea: Favorable policies have enabled a mature leasing market even as changing user demands have pushed leasing companies to evolve into end-to-end mobility providers

South Korea has a well-developed leasing market that functions in a fashion similar to its counterpart in Japan. Operational leasing is the most preferred funding option due to favorable legislation and the concurrent reduction of fleet management responsibilities. Meanwhile, with over 80% of contracts, leasing service providers are mostly local companies like Hyundai Capital, Lotte Rental and SK Networks as they better understand consumer requirements and local policies. While service offerings have been restricted to pure leasing, consumer demands have driven leasing companies to develop end-to-end offerings like car-sharing and ride-hailing.

New business models like xEV leasing and used car leasing are still underdeveloped as users and service providers alike are cautious about the uncertainty in their total operating cost. However, as has been the case with European markets, first movers have had the upper hand in implementing new services and developing support technologies. Therefore, leasing companies must work on educating corporate clients about the benefits of operational xEV leasing in order to be in a better position to capitalize on the opportunities arising from impending market growth.

Australia: The Australian leasing market was mainly characterized by corporate leasing in 2018, but the continuous rise of private lease or novated lease has slowly been shifting leasing companies’ attention towards individuals

Leasing in Australia is going through a transition phase as trends like corporate fleet downsizing, fleet efficiency and growth of novated leasing affect the market. Consumers are opting for novated leasing contracts over perk vehicles as they combine flexibility with cost and tax benefits. Drawing on years of expertise, local leasing companies like SG Fleet and CustomFleet have established a strong presence and account for more than 50% of market share. In addition, their telematics services contribute to higher fleet savings and improved customer satisfaction.

New trends such as car sharing are also helping companies to reduce spending on mobility and better utilize their under-used car fleets. This, in turn, will allow businesses to focus on their core operations. Therefore, it is critical for leasing companies to concentrate on offering similar solutions as both corporate and individual consumers place greater importance on the total cost of asset ownership. Furthermore, leasing companies should also leverage digital marketing techniques to enhance lead generation and collaborate with distributors to expand their market presence.

China: Private leasing is more popular than company car leasing due to car plate purchase limitations in tier I cities, low installment rates and greater flexibility in terms of leasing contract options

The Chinese leasing market is still in the early stages of development. Private leasing registers more annual contracts than corporate leasing but penetration levels of just 1.4% (of retail registrations) are far lower than the 16.0% penetration of corporate leasing (of total true fleet registrations). The growth in new leasing registration is driven by high vehicle taxation, car plate purchase restrictions, higher flexibility, and central government efforts to encourage provincial governments to implement policies related to operational leasing. However, the market is restrained principally by the preference for vehicle purchase – a trend that is reinforced by rising disposable incomes – as well as by the strong preference for new mobility solutions like car-sharing and ride-hailing.

The Chinese operational leasing market is highly fragmented and the top three players Yestock, Avis, and Dazhong collectively hold less than 10% of total market share. Leasing companies’ expertise in digital solutions is minimal in comparison to competing corporate mobility providers like DiDi and Shouqi, while their accessible service area is also limited to just 200 cities, half of what car hailing companies cover. Therefore, to stay competitive over the long term, leasing companies should invest in enhancing their digital capabilities, sales and marketing strategies, continuously innovate new services and also focus more on indirect sales channels in order to leverage demand from tier I and tier II cities.

India: Vehicle leasing is still an emerging market and is expected to record healthy growth over the next five years driven by rising awareness about the benefits of leasing

The leasing market in India is mainly characterized by corporate leasing since private leasing as a business model has been offered only for the past two years. However, corporate leasing penetration in true fleets is just 9.0%. While new registrations were negatively impacted by the implementation of GST two years ago, sustained efforts by leasing companies to educate clients and design suitable business models have revived growth. Corporate leasing is the major avenue for growth owing to the rising awareness of its benefits, while the brand value is an important decision making factor that influences consumer choice of leasing companies.

The top three participants, ALD Automotive, LeasePlan and Sundaram Finance, account for more than half the market share. While OEMs are increasingly offering private leasing solutions as they try to counter the decline in new vehicle sales, the most indispensable factor that affects growth is pricing. To boost future prospects, therefore, it is imperative for all leasing service providers to develop attractive pricing strategies. Additionally, recognizing key consumer segments and educating them on the salient features of leasing will be crucial to aiding growth.

Conclusion

The APAC leasing market is shifting towards vehicle outsourcing, a trend that is common in the West.  This shift reflects the consumer preference for greater flexibility and ease of use over ownership. The Japanese and South Korean markets are expected to lead the way as China and India, which have unlimited potential, slowly migrate towards usership. Leasing companies, meanwhile, should focus on company car leasing and private leasing even as they continue to invest in digital technologies and innovative sales channels to propel growth.

About Smrithi Venugopal

Smrithi VenugopalMobility Research Analyst at Frost & Sullivan. I conduct research on the fleet & leasing markets, interacting with key players to analyze and assess emerging market trends, industry drivers and obstacles, as well as forecasts.

About Smrithi Venugopal

Smrithi Venugopal

Mobility Research Analyst at Frost & Sullivan. I conduct research on the fleet & leasing markets, interacting with key players to analyze and assess emerging market trends, industry drivers and obstacles, as well as forecasts.

About Raghav Koundinya

Raghav Koundinya

Mobility Research Associate at Frost & Sullivan. My area of expertise includes the fleet vehicle leasing market and I interact with OEMs, leasing companies and aftermarket service providers to analyze market trends and understand its impact on the automobile industry.

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