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Growth will be boosted by sales in Western Europe and APAC countries, while North American market will remain stable

The global private vehicle leasing market grew 1.1% in 2018, and will continue to grow at 1.0% in 2019. While North America dominated the market in 2018, with a share of 67.6%, APAC and parts of Europe will drive the demand in 2019, finds Global Private Vehicle Leasing Market Outlook, 2019. Unit sales are set to grow from 6,930,256 in 2018 to 6,998,244 in 2019, despite the sales saturation in North America.

While the total market value of private operational leasing (OL) – where the lessor accepts both the financial and residual value risk — was 20.7 million in 2018, the volume of private financial leasing (FL) – where the lessee accepts the residual risk and lessor the financial risk– was just 3.1 million. Globally, 82.6% of total new private leases in 2018 were full-service OLs, and most of them came from the U.S.

However, because of the decline in the U.S. market, which is expected to lose 100,000 new contract sales in 2019, OLs will decline 0.5%. This will be offset by other private leasing hotspots, such as Japan, South Korea, France, Spain, Italy, and Sweden. Increasing uncertainty in car residual values due to rapid changes in car policies such as emission norms and vehicle taxes is a major motivation for consumers to shift towards private leasing across Europe. Additionally, increasing number of cash for car/ mobility budget takers will drive private leasing in Western and Northern parts of Europe. Meanwhile, the private FL market is expected to witness robust growth of 7.7% in 2019. China and France are the only two countries that are driving this growth with a total addition of about 80,000 new contract sales.

Vehicle subscription and private OLs will co-exist in 2019, with the likely migration towards full-service OLs, globally. However, vehicle subscription is growing aggressively, and the market will have to wait and watch to see if private leasing market gives way to the former.

Where’s the market?

While the most-developed parts of Europe buy private lease in the OL format, the rest of Europe focuses on the FL format bundled with maintenance and buy-back options. In Europe, private leasing is gaining popularity in the northern, western, and central regions. Six of the top ten European countries, in terms of GDP, are expected to post double-digit growth in private leasing through 2019. The market, however, is likely to be affected by the decline in auto sales this year.

While private leasing is not present in Latin America it is in the nascent stages in most APAC countries, India, and Brazil. The market has been growing at a rapid pace in the last four years in South Korea and Japan due to changing consumer preferences. While service providers are currently testing the market in India, the complexity of the country’s tax system is proving to be a hindrance in Brazil.

Private leasing is a big market in North America, where individuals predominantly opt for close-ended contracts. In the U.S. alone, one-third of the retail sales are acquired through leasing. The U.S. market dominates private leasing globally due to the lack of ‘company car as a perk’ system. However, the market is likely to be affected by the decline in sales in 2019.

OEMs want a share of the pie

Leasing among individuals has grown fast, at a historical compound annual growth rate of 8.3% between 2013 and 2018. To increase their participation in the value chain, Original Equipment Manufacturers (OEMs) are investing heavily to evolve into providers of full-fledged mobility services in Europe and North America. The OEMs are entering the market predominantly through acquisitions. Leading players such as Daimler and VW are on an acquisition spree.

Other players such as Volvo, PSA and Renault are investing aggressively in new mobility solutions – car sharing and car subscription services. OEMs are also forging partnerships with authorized dealers for better reachability. However, the vehicle scope is limited to group brands. The OEM captives provide all-services-included OL contracts to customers, with durations ranging from between 6 and 60 months, along with fixed cost maintenance plans. OEMs also provide FL contracts ranging between 18 and 48 months, with an option to purchase the vehicle at the end of the contract period.

Meanwhile, as the company car market is beginning to saturate in parts of Europe, mainstream leasing companies are entering the private OL market, with the objective of expanding their revenue stream. For this, they have started forging partnerships with OEMs in APAC and Europe, and focusing on online channel platforms. The independent lease companies are also moving towards a flexible contract system, where customers can modify their contract conditions depending upon requirements.

The all-service OLs offered by the mainstream companies include maintenance and insurance for a period ranging between 6 and 60 months. That apart, they also offer ad hoc services such as emergency care, fuel cards, accident repair, insurance claims handling and replacement cars. Unlike independent leasing companies and OEM captives, banks and financial institutions do not adopt any aggressive strategies for transformation. They continue to focus on flexible car finance options.

Re-leasing cars, a growing trend

Re-leasing cars that are near new or driven very little is proving to be a promising business segment. Though it does not provide attractive pricing, lease companies are working to get it addressed. This is an attractive option for many customers as the monthly lease fee of used cars is 6-10% cheaper in the case of OLs and 15-20% cheaper in the case of FLs.

The private leasing of used cars is also perceived to be an attractive option for providers, to remarket their off-lease cars and, thereby, reduce the residual risk of the asset. The off-lease cars come with an estimated residual of about 40-50%, and lease companies extend their utilization. OEMs are offering warranty periods of up to 5 years. Car aged 3 years or less can be leased out for 1 to 2 years in OL formats.

The availability of well-maintained used cars help many small firms and individuals to reduce their spending on mobility. Opportunities exist for used car leasing, which propose to be cheaper, reduce asset liabilities, and streamline monthly billings.

Shared mobility, a threat or opportunity?

Factors such as license plate restrictions, increasing emission-based taxes, and lack of parking spaces in urban locations – which making owning a car difficult – are pushing individuals to opt for shared mobility services. While car sharing competes with private leasing to an extent, the subscription model is expected to coexist as another car service model in the short term. The congested cities of France, Germany, Japan, South Korea, and Spain, alone have over a million car-sharing subscribers, limiting the growth potential of private leasing.

OEM captives have already begun launching their own car-sharing services for individuals. Independent leasing companies are also increasing their participation in the value chain. As there is a shortage of quality vehicles in the peer-to-peer sharing segment, leasing companies are offering services to individuals who want to affiliate their vehicles with car-sharing platforms.

In conclusion, although car subscription – popularly known as the Netflix of mobility – will coexist with private leasing in the short term, both can turn out to be competitors in the future.

For more information on the Global Private Vehicle Leasing Market Outlook, 2019, please contact Abishek Narayanan, Program Manager – Mobility at abishekn@frost.com

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