Electric Vehicle and Private Car Leasing will be Dominant Themes in Global Fleet Vehicle Leasing Market in 2018
The global fleet vehicle leasing market had an eventful 2017 marked by a strong showing from the full service operational leasing segment which registered year over year (YoY) growth of 5.2%, and accounting for 58.6% of total fleet leasing contracts. Overall, the global company car leasing market covering financial and operational leasing, grew by 5.2% YoY, accounting for 51.0% of the total true fleet cars (company cars) registered in 2017.
In addition, there was some hectic consolidation activity as companies moved to achieve rapid, inorganic growth. Other trends included the emergence of new mobility business models, and significant investments in digital tools by lease companies attempting to create more customer-focused offerings.
While these were the key developments in 2017, Frost & Sullivan’s ‘Global Fleet Vehicle Leasing Market Outlook, 2018’—an annual study on major trends in the global fleet vehicle leasing market—finds that the two big themes that will dominate the market over the course of this year are electric vehicle (EV) leasing and private vehicle leasing. OEMs will focus aggressively on EVs leasing and will position themselves as lessors, thereby encroaching into an area traditionally occupied by traditional lease companies. At the same time, the demand for private vehicle leasing, particularly full service operational leasing, will continue to grow strongly. In 2018, the global fleet leasing market is projected to grow 5.3%, driven by demand from operational leasing which is expected to account for 30.3% of the total company cars sold.
OEMs Focus Aggressively on EV Leasing
EVs are becoming the go-to option for environmentally conscious consumers who want to reduce their carbon footprint. As demand rises, leasing will become the preferred route to accessing EVs. This will be due to two reasons: first, EV cars depreciate faster than their internal combustion engine (ICE) counterparts and, therefore, leasing helps customers avoid the pitfalls of low resale value and, second, leasing will allow customers to change their EV models more often, an attractive proposition since new EV models with progressively sophisticated features are being launched with regularity these days.
xEV leasing, covering both EV and hybrid EVs, is expected to grow 12.9% in 2018, hitting a sales volume of over 170,000 units. Paralleling this, OEMs will start to position themselves as lessors. Rather than focus solely on outright sales, they will also start selling EV lease contracts directly to customers. As this happens, they will increasingly edge out traditional lease companies, representing an opportunity cost for the latter. Already, Tesla and BMW, among other OEMs, are evaluating the value of various leasing models.
Multiple Benefits Drive Appeal of Private Leasing
Private leasing is anticipated to grow 4.0% in 2018, registering a strong performance in Europe and North America. In Europe, alternatives such as cash in lieu and mobility budgets are motivating company car holders to opt for more flexible lease solutions like those offered by private lease. In the US and Canada, private leasing is receiving impetus from a young population which favors this form of leasing due to the benefits it offers including easy, hassle-free usage and fixed mobility costs.
Used Car Leasing Gives Old Cars a New ‘Lease’ of Life
With an addressable market of over 12 million units in 2018, used cars are now big business for the leasing market. Old cars are receiving a new ‘lease’ of life with several leading lease companies including LeasePlan, Arval, Ally, and Orix already in the active in the space.
While a sizeable supply of used cars come from lease/rental companies, especially in the US and Europe, options continue to be limited. Question marks also persist over whether used car leasing will experience more maintenance issues typically associated with older cars. However, lease companies are confident that this will not be the case. They aver that due to improvements in predictive maintenance technologies, such cars are better maintained and have a solid servicing record.
SME Leasing Represents Significant Untapped Potential
Fleet leasing has transitioned from a service that targeted principally large corporates to embracing small and medium enterprises (SMEs). This is not surprising considering SME leasing offers huge, untapped potential of over 27 million cars. Leasing companies have already begun investing in units that specifically focus on leasing solutions for the SME segment. Through 2018, lease companies are expected to leverage digitization, customization and online channels to aggressively target SME customers.
New Mobility-as-a-Service Models Pose Competition
While there’s a lot to be optimistic about, leasing companies also need to gear up for key challenges that are likely to come their way in 2018. In addition to car sharing, mobility budgets and private leasing, the emergence of subscription services is also creating some unease in the leasing industry. With their potential to lure away company car users, these innovative and flexible mobility solutions are taking the fight to the fleet leasing industry.
Car Subscription Services Rise in Popularity
Subscription-based mobility services, in particular, have gained tremendous appeal, beguiling customers with their promise of simplicity and flexibility. While some early pilots have folded, Ford’s Canvas, Cadillac’s Book, Porsche’s Passport, Care by Volvo and Hyundai’s Ioniq Unlimited highlight the continued potential of subscription services. They allow customers the option of on-demand services—akin to Netflix and Hulu—and without any long-term commitment, unlike leasing. These services also allow customers to change vehicles based on their requirement, or pay varying amounts according to the type of car they use.
Implementation of IFRS 16 to Create Uncertainty
The implementation of the International Financial Reporting Standards (IFRS) 16 will impact the leasing market in 2018-2019, creating a burden on operational lease customers. It will lead to operational lease being considered an asset and being accounted for both in the customer’s balance sheet and income statement. This has created confusion in the market with increased burden on customers in migrating to this new legislation. Lease companies are partnering with audit firms such as PwC to support customers in making a seamless transition.
Digitization Provides Shot in the Arm
The vehicle leasing value chain is being transformed by process innovations and new technologies. Lease companies are starting to leverage digitization in order to provide cost-effective and instant services to customers. Blockchain technology is set to be an important catalyst in this transformation. While still in the early stages, technology companies and payment service providers are partnering to implement blockchain-based retailing and leasing platforms.
As leasing companies slug it out for a slice of unit sales projected to be about 7.8 million in 2018, consolidation is set to continue. The total transaction value of mergers and acquisitions between 2016 and 2017 was estimated at about $5.26 billion. Companies will continue to pursue such inorganic growth with some focused on expanding their geographic footprint and others concentrating on product/service expansion.
While significant challenges will persist, 2018 will be an exciting year for the global fleet vehicle leasing market with new products and services, segments and business models driving opportunities for growth.
The “Global Fleet Vehicle Leasing Market Outlook, 2018” is an annual research study that identifies and evaluates the key trends impacting the fleet vehicle leasing market, globally. It assesses the top leasing providers in Europe, North America, Asia-Pacific and BRICS and their distribution strategies. It also offers insights into new mobility solutions, technological advancements and legislations that will influence the market in 2018. The study also provides projected volumes of key auto leasing segments including operational, financial and private lease in 2018.
For more information on Global Fleet Vehicle Leasing Market Outlook, 2018, please visit https://www.frost.com/md66 or write to myfrost@frost.com to order your copy.
