Who offers private lease?
Everybody wants a piece of the private lease pie. All major lease companies, whether captives or multibrands, and all major OEMs, via their financial affiliates, offer the formula. The major differentiator, for now, is geography.
The share of new cars sold to private customers in Europe is dropping fast: from just over half in 2010 (7.3 million private car registrations vs. 7.2 million corporate ones) over 42% in 2016 (6.3 million vs. 8.7 million) to a projected 37% (6 million vs. 10 million) in 2021.
Increasingly, private lease is a factor in this shift. Its relatively small market share is growing fast, and its geographical reach is still expanding. As it grows, it will further reduce the share of genuinely private new car sales. The major players all have private lease offers in place.
“There isn’t a lot of diversity or discrepancies in the private lease offers out there. Of course, captive lease companies will focus on their own brand’s models, but that’s about it,” says Octavian Chelu (Frost & Sullivan).
“The main driver for the homogeneity of the offer is that the individual consumers are strongly price-driven in their interest, and generally don’t care about one brand or the other. That will drive the private lease market to increasing unity. In the end, we will reach a unified offering, in which the remaining differences will be eliminated”.
At the moment, the main markets for private lease in Europe are the Netherlands and the UK. The system is less prominently present in southern Europe, where it is growing fast, and northern Europe, where unfavourable tax regulations limit the formula’s appeal.
“Private lease will expand geographically, also into Central and Eastern Europe, in the years to come. Much depends on the national legislation, as it will require changes to become operational in some countries. Overall, the growth of private lease could also be heavily impacted by the adoption of vehicle subscription models, which offer even more flexibility and options to the end-users.”
While private lease has many advantages for both suppliers and customers, it should be noted that there are also some potential downsides.
For suppliers dealing with individual clients without the intermediary of a corporate fleet, it may be harder to verify the credit-worthiness of potential customers.
Customers should remember that the vehicles are not owned and may be subject to certain restrictions. For example, the contract may stipulate that you’re not allowed to smoke in the car. It’s also important to review the fair wear and tear setup, to avoid that small damages come with a big price tag. Early terminations of private lease contracts may also be very costly – up to 60% of the total.
Private lease and other New Payment Models
Private lease can either be operational or financial. In the first case, the provider retains both the depreciation risk and the vehicle’s ownership. This can also be called Personal Contract Hire. In the second, the user accepts the depreciation risk, and will have to dispose of the vehicle, this is also known as Personal Contract Purchase. They are but two of a range of possible payment models, each with their pluses and minuses.
Personal Contract Hire (PCH)
You pay a deposit, then lease a car for a fixed period of time, after which you return it to the supplier. Maintenance is often included, but mileage may be limited.
- Pro: an easy way to drive a new vehicle without hassle or cost.
- Contra: extra mileage and early termination may be costly.
Personal Contract Purchase (PCP)
Similar to PCH, but your monthly instalments are paying off the depreciation, not its entire value. Users can pay off the remaining value in a ‘balloon payment’ at the end, after which they own the vehicle.
- Pro: monthly payments for PCP are lower than for HP, and you can still decide not to buy the car at the end.
- Contra: you don’t own the car until you make the ‘balloon payment’.
Hire Purchase (HP)
Pay a deposit, and then pay off the rest of the car’s value in monthly instalments. The loan is secured against the car, so you don’t own it until the last payment is made.
- Pro: flexible repayment (often up to 5 years) helps fit the vehicle in a monthly budget.
- Contra: can be much more expensive than outright purchase, especially with longer-term loans.
Personal Loan (PL)
You finance the car through a personal bank loan, meaning that you own the car outright from the beginning.
- Pro: full ownership means no restrictions on mileage, you get to keep the car and can sell it whenever you want.
- Contra: since you’re paying off the full value of the car, monthly instalments may be higher than other options, such as PCP.
Cafeteria Plan (CP)
A company offers its employees a range of benefits, from which they can select their preference (as with food in a cafeteria). These benefits can include the option of a company car, in exchange for which the employee sacrifices a part of their salary.
- Pro: an attractive way to tailor a corporate benefits package to individual needs.
- Contra: a CP may only partially fund the option desired by the employee.
Subscription Model (SM)
Instead of acquiring a vehicle, a customer takes a subscription to a car-as-a-service (CaaS). This is often called ‘Netflix for cars’.
- Pro: These formulas often allow customers to frequently exchange their vehicle.
- Contra: SM is often much more expensive than any other formula.