21 Feb 20

Used-car leasing in Europe “worth €5.9bn by 2030”

Used-car leasing used to be like communism: great in theory, but unworkable in practice. Well, that's changing – for used-car leasing, at least. “(It's) well on track to becoming a $6.4 (€5.9) billion market in Europe by 2030,” Sarwant Singh, Senior Partner in Frost & Sullivan, writes in Forbes Magazine. Here's why. 

On the face of it, used-car leasing is a no-brainer: vehicle leasing providers can squeeze another round of revenue out of their assets, and consumers get access to high-quality cars that, okay, may have had a bit of a life, but at significantly reduced rates. 

Profit margins

  • It's just that in practice, used-car leasing required too much admin. Profit margins weren't interesting enough for the lease providers to pursue the option. Digitalisation has now changed all that. Quotes are generated, credit is checked and contracts are concluded online, helping to streamline the process. 
  • Digitalisation is just one side of the coin, though. The other key factor: increased vehicle performance and durability – nicely quantified by the increase in warranty terms, from 2-3 years a decade ago to up to 7 years today. That provides room for a second lease on the same car. 

Both factors combined are finally allowing a growing supply of good quality used cars to meet the consumer demand for solid-quality, reasonably-priced vehicles, says Mr Singh, who heads Frost & Sullivan's Automotive & Transportation group. 

B2C channels
For clear evidence of the trend, look no further than Europe's main lease companies. They used to remarket their off-lease vehicles mainly through brokers, auction houses and other B2B channels. Now, they're investing in B2C channels, selling or leasing their off-leases directly to end-users. 

  • “LeasePlan kick-started the trend in 2017 with CarNext,” writes Mr Singh. “Not to be left behind, Arval, Alphabet, ALD and PSA also leapt into the fray, introducing similar offerings in Belgium, the Netherlands, France, Germany, Finland and the UK.”
  • But smaller lease companies and tech startups are also getting into the game. Mr Singh cites the example of Lizy, a spin-off of Belgian car dealership D'Ieteren, offering flexible leasing of used cars. Lizy manages the digital platform, D'Ieteren manages the contracts: that division of labour keeps operational costs at a minimum.

Excellent records
The current generation of vehicles is not just more durable and dependable, but if they're off-lease, they also come with excellent usage, repair, mileage and accident records. 
That's why used-car leasing typically includes all the features of a standard operational leasing contract, such as maintenance and repair, breakdown cover and a replacement car. 

The consumer benefits – but in some regions more than others, Mr Singh points out: “In Western and Northern Europe, the monthly rate for the operational lease of a used car is lower by up to 34% than for a new car of the same model. However, in Southern and Central Eastern Europe, the difference is currently as low as 15%.”

Emissions norms
But even in regions where the price incentive is still smaller at present, tightening emissions norms and increasing taxes will push up new-vehicle TCOs, making used-car leasing more attractive, Mr Singh predicts. 

So, B2C remarketing is set to grow strongly in the years to come. But it's not all sunshine and roses for used-car leasing. Those stricter emissions regulations can also have a negative effect on residual value estimations, which makes offering those assets in used-vehicle lease a less promising business proposition. 

“It is unlikely that B2B remarketing channels will be neglected anytime in the near future as global leasing companies still lack local expertise in most markets,” Mr Singh concludes.

Image: Shutterstock

Authored by: Frank Jacobs