29 Jan 16

Dean Bowkett: Private lease “could have positive impact on RVs”

Private lease is gaining a foothold in more and more markets across Europe. Whilst the push is currently from OEM’s captive finance houses, lease companies are also re-orienting themselves from a corporate to a more private clientele, but will this trend have an impact on residual values?

“Private lease has always been very popular in the United States, but it had never really taken off in Europe”, says Dean Bowkett (Bowkett Auto Consulting Ltd.) “Things started to change after Ford introduced balloon financing in Europe, in the year 2000. That formula has really taken off in the last 3 to 4 years. In many ways, private lease is comparable to balloon financing, except that there is no right to buy at the end of the contract. For many manufacturers, private lease will be a viable proposition”, according to Bowkett, who foresees further successes for the formula.

“Initially, private lease was seen as ideal in some markets with a lot of ex-pats. They generally have some difficulty securing the financing for the longer-term loan needed to purchase a car, but a 12-month lease does not pose similar problems. Building on this initial introduction, we now see U.S.-style private leases of 3 to 4 years gaining some traction across many markets in Europe. It is expected that private lease will become increasingly more popular following the trend set by personal contract purchase and balloon finance – which now represents about 80% of the U.K. private market”.

Dean Bowkett expects the U.K. market, where private lease currently has only a small market share of around 5%, to take the lead in Europe, “The British market is typically faster to embrace new concepts than many of the other European markets, whilst the current economic climate makes the fixed and consistent price offer of a lease for big-ticket items such as vehicles more attractive. Also the rise of expensive smartphones with a similar fixed-price arrangement and a new phone every two years is changing the spending dynamics of the typical young buyer. I foresee a timeline in which Europe will follow the U.K. model, by first seeing considerable growth of the balloon finance model, then steady growth of the private lease model”.

Accountancy rules
In any case, recent changes in the accountancy rules are pushing the industry towards private lease, Bowkett indicates: “Leased vehicles will no longer be kept off-balance, but will have to come on-balance. Many corporates will therefore consider buying cars instead of leasing them, forcing the leasing industry to re-orient themselves to new sales channels such as retail leasing”.

With that wave of retail leasing ahead, will we see a change in average residual values? Private lease customers do not have the same motivational support system that company car drivers have. “If anything, I think that private lease customers will feel more responsible for their lease vehicles than company car drivers, as they can be held responsible personally for any defects or damages to the vehicle at the end of the lease. So I would think that they take better care of their cars; private lease could therefore have a positive impact on residual values, rather than a negative one”.

Authored by: Frank Jacobs