Car leasing groups switch focus to used vehicles

Growth in hire finance schemes driven by slowdown in sales of new autos.

Auto-leasing companies, which have been the engine behind a surge in new car sales in the UK in recent years, are shifting into the second-hand market as they try to take advantage of a glut of used vehicles.

Growth in the new car market has been boosted by car-leasing deals, which provide finance for about three-quarters of new car sales in the UK, but industry experts are worried that used vehicles will flood the market when long-term leases come to an end.

Arval, LeasePlan and Lex Autolease are among the biggest companies that buy new cars from manufacturers and provide capital for personal contract hires, which are long-term rental contracts.

Unlike traditional finance schemes, such as personal contract purchases — where drivers have the option of buying their car at the end of the leasing period — vehicles bought through PCH are returned to the finance companies at the end of a contract. The companies then sell the used cars at auction.

PCH represents only about 8 per cent of all new car sales, but it is the fastest-growing segment of car finance. The number of new cars acquired by PCH in the UK increased 36 per cent in the first six months of this year compared with the same period last year, according to industry figures.

It’s only a matter of time before leasing becomes more commonplace in the used car market Paul Hyne, Arval

As a result, the number of used cars hitting the auction market is expected to rise sharply in the coming years.

A handful of smaller financing companies, such as Lancashire-based Hippo Leasing, already offer PCP for used cars. But larger groups, including Arval and LeasePlan, have also begun offering PCH for used vehicles.

Arval has issued 50,000 PCH contracts for new cars. Paul Hyne, the company’s chief financial officer, said he expected 5 per cent of the company’s leases to be for used cars by the end of next year.

“It’s only a matter of time before leasing becomes more commonplace in the used car market,” he said. “I would say it could be a major part of vehicle leasing if it catches on.”

Tex Gunning, chief executive of LeasePlan, agreed, saying: “Subscription models are growing in popularity, both for new and used vehicles. These trends will only accelerate in the years to come.”

Chris Lloyd, of Parkers Car Guides, said that offering PCH for used cars could be the logical next step at a time when consumers were looking to spend less money on their vehicles.

“It would seem that as low monthly payments are a reason for the popularity of PCH, creating even cheaper used-car leasing would make sense,” he said.

But management at Cox Automotive, which owns Manheim, one of the world’s largest auto auctions companies, have doubts about the viability of used-car leasing.

Philip Nothard, a spokesman for the company, said the UK used-car market showed no sign of distress. He added that dealers and other finance providers preferred to offer new cars over their used counterparts for good reason.

“They have few if any mechanical problems and need little maintenance for the first few years,” he said.

But both Arval and LeasePlan insist they can now predict maintenance needs for used cars better than in the past.

“The used cars coming out of our corporate leases are often only three or four years old, and they’ve been well maintained throughout that period,” said Mr Gunning. “Thanks to the excellent reliability and performance of modern cars, these vehicles still have a lot to offer for both individuals and businesses.”

Source: Financial Times

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