Leasing companies could look at UK used car market for future consumer hire contracts

19 December 2017

19 December 2017 Vehicle leasing companies are looking towards the second-hand market as they try to take advantage of a large number of used vehicles becoming available. Although sales in the UK are down compared to 2016, with eight consecutive months of decline and a projected market around 4.7% down for the whole of 2017, much of the previous years’ growth has come from car-leasing deals. However, many of these contracts are due to end, and with the option of trading in for newer models, the used car market could see a large number of vehicles available. The Financial Times newspaper spoke with three of the biggest leasing companies which buy new cars from manufacturers and provide capital for personal contract hires (PCHs), or long-term rental contracts. These differ from personal contract purchases (PCP) in that the end of the term doesn’t give the driver an option to purchase the vehicle. Instead, they are returned to the finance company. This only represents 8% of sales in the UK but is the fastest growing segment of vehicle finance. PCPs have been in the news recently, with authorities concerned that they are being offered to consumers who cannot afford them. The uptake in PCH deals increased by 36% in the first six months of 2017, and this could mean an increased number of vehicles going through auction houses in the coming years. Arval has issued 50,000 PCH contracts for new cars. Paul Hyne, the company’s chief financial officer, told the newspaper that he expected 5% 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.’ Therefore, rather than concentrating on new vehicles, it may be worth leasing companies investing in decent used-car stock, offering that for sale through PCH agreements and saving themselves money. It would also make an attractive proposition for customers, giving them a choice in lower payments for a good quality vehicle. However, Philip Nothard, a spokesman for Cox Automotive, which owns auction house Manheim, told the Financial Times that 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 a good reason. ′They have few if any mechanical problems and need little maintenance for the first few years,’ he said. Both Arval and LeasePlan state 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 Gunning. ′Thanks to the excellent reliability and performance of modern cars, these vehicles still have a lot to offer for both individuals and businesses.’