3 Nov 22

Inflation of the car leasing rates explained by the Experteye team

1.    Introduction

From January 2021, we have developed a Car Leasing Index. It is based on major leasing companies list prices. It is a good representation of the trends with a minimum of 10.000 different prices per month and per country. At present, the index covers France, the UK and Germany and it will be extended soon to Spain, Italy and the Benelux. The index includes financing and key services like maintenance and assistance.

Therefore, it reflects a combination of new car prices, discounts, residual values, aftersales costs and interest rate variations. The granularity of the database allows for an analysis at brand, model and lease company level.

 In 2021, leasing-prices have been reduced by 1,7% on average in France while they have increased by 17,5% during the first nine months of the year 2022. In Germany and the UK, rentals have increased 14,1% and 8,1% respectively this year. These numbers deserve an analysis to understand the market and make good decisions. This is what we can provide to you.

The Car Leasing Index is useful tool to make decisions on pricing policy for OEM and leasing companies or on car selection for fleet managers.

2.    In France, pricing policies favour electrification

In the graph below, we compare inflation per energy-type in France from January 2021. 
Leasing companies and OEM are clearly favouring full electric vehicle and petrol against diesel. They have adjusted their prices to follow market demands and taken a more optimistic view on future costs (RV, maintenance). The situation is surprising when it goes to hybrid cars and requires a detailed explanation at brand level to understand the evolution. The market has expressed some doubt on the technology and its efficiency to reduce CO2 emissions whereas brands have substantially increased their prices for those particular models.

3.    Interest rate increases and car prices inflation are slightly compensated by Leasing companies.

4 years euro IRS (interest rate swap) has gone from 0% in January up to 3% in October. It reflects the funding cost variation for leasing companies. Market observation and interviews reveals that Leasing companies, as usual, have only transferred a portion of the increase in their rates (2%). A 2% interest rate increase impacts 10.4% a rental (when all other parameters – length and RV) remain unchanged. 

Interest rate contributes for 10% of the 13% rental prices increase for Electric Vehicles. The combination of list prices increase and reduced discount add 4%. This is what you can see on the graph below dedicated to electric vehicles in France.
-    The purple surface represents the impact of list prices (+2%), 
-    the pink one, the reduction of the discounts (2%) 
-    and the grey one, the impact of interest rates (+10%). 
-    The black line is the evolution of the rental which shows a saving of 2% on other elements (it might be RV most likely or maintenance).

For the future we can expect further deterioration of financing costs as finance companies uses to recover their margins overtime. But on the other side we should see some compensation with residual values  increase due to inflation. On the other hand insurance costs and maintenance should increase due to inflation (unless compensated thanks to better follow-up with telematics)

For other energy type, the rental increase (which is more important than for electric vehicle) is the consequence of car manufacturers pricing policies (respectively 8%, 7% and 6% for diesel, petrol and PHEV)

We hope to meet you soon in Dublin!

Laurent Queinec, Florent Heitzmann, Guillaume Heron and Pascal Serres.