16 Mar 20

COVID-19: The impact of coronavirus on rental and leasing

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As many countries strongly advise people not to travel, rental companies will bear the brunt of the coronavirus. Leasing companies will be affected less directly, but they will also need to face certain consequences.

The number of countries that have closed their borders has become too long to list. Flights are being cancelled on all continents and an immense drop in short-term rental demand is inevitable.

Rental companies

This affects not only traditional business destination but also places that depend on tourism. Rental companies are trying to convince potential customers that their cars are safe and that they have efficient cleaning procedures in place, but it is hard to attract customers that simply aren’t there. And when they are, they are increasingly opting for longer rental terms than before to minimise the risks of infection.

This crisis is most unwelcome in the rental industry as many companies were already in dire straits financially. The outcome will depend on how long the coronavirus will be among us and the travel bans will remain in place but also, importantly, on how long people will wait before they regain their trust and they start travelling again. 

Leasing companies

Particularly if the coronavirus can be beaten in the next few weeks, leasing companies should be relatively unscathed. Closed down factories, for instance in China and Italy, can lead to delays in new car deliveries and a shortage of new cars. Most likely, leasing companies will respond to this by extending contracts, which is not a bad thing for them financially.

A bigger risk resides in residual values. However, since the last crisis, residual values are typically set at a lower level than they once were, which should make any effects manageable.

Nevertheless, as leasing companies have been growing their SME and private lease portfolios, they have also been opening up to new risks. If this health crisis were to be more persistent than we hope today, this could lead to an increase in customers defaulting on their leases.

The short-term rental and leasing industries had been going through a time of concentration for some time and this crisis could result in an accelerated pace of concentration. For the short-term rental industry in particular, much will depend on how soon we can go back to normal.

Image copyright: Shutterstock

Authored by: Benjamin Uyttebroeck