Spread the ideas, not the virus: Impact of COVID-19 on the Vehicle Leasing Industry
The entire value chain of the leasing industry will undoubtedly be impacted by the COVID-19 outbreak. The dynamics of how, why and where this disruption will play out will be shaped by the circumstances in which it is most unlikely to unfold - an immediate slowdown in the global economy, followed by a plateauing, and then a gradual recovery over the next few quarters. There are five areas across the vehicle leasing value chain that are already transforming.
Due to COVID-19, OEMs like Ford, PSA, VW and Nissan have halted production, while others are manufacturing only select models. This will create supply delays for contracts already signed as well as delays in the signing of new contracts.
The B2C segment will be more affected than B2B as customers tend to visit dealers in person to do test drives, push for the best deals, and sign sales contracts. CECRA, the European dealers' association, announced that its members would respect pandemic control measures announced by various governments in Europe. ALD Automotive, LeasePlan, Arval and Alphabet have started interacting virtually with their customers. I anticipate the limited focus of leasing companies on digital sales to change over the next few weeks and replace traditional dealership touch points.
A faltering global economy will reflect in delayed payments from two critical growth segments for the leasing industry: SMEs and B2C. Meanwhile, some OEMs—such as GM’s zero financing or Ford’s ‘90 day no payment’ contracts—are relaxing repayment terms. I expect other lease companies to follow suit, offering flexible payment terms and extended lease contract durations.
As a value-added service, lease and mobility companies have started providing pick up and drop facilities for their mobility customers.
Despite the auto parts industry being challenged by supply constraints, dealers’ associations in countries like France and Belgium have committed to ensuring continuous supply. Lease companies’ service partners will face lengthier service turnaround times due to labor shortages, increased service costs, and additional expenditures associated with enhanced safety and sanitation requirements.
Opportunities for Lease Companies
Lease companies can leverage the move away from shared mobility services like carsharing, ridesharing and ridehailing. They can win over erstwhile shared mobility customers by offering short-term lease contracts of about 3 to 6 months.
According to Frost & Sullivan research, globally, an estimated 8 to 9 million off-lease vehicles were returned to lease companies at the end of 2019, while this figure was about 2.5 to 3 million units in Europe alone. Unlike a decade ago, vehicle service, maintenance and repair have improved and service predictability has become more sophisticated. This further reinforces the potential of used-car leasing as an alternative revenue generating stream.
E-commerce, the lifeblood of cities amidst the current COVID-19 crisis, is set to grow further in the coming weeks. Lease companies can focus on offering short-term LCV leases, more particularly short-term leases of used LCVs since straightforward urban deliveries do not require highly sophisticated trucks.
Overall, the success of leasing companies over the decades has hinged on their ability to provide hassle-free mobility solutions and support companies in reducing costs. This philosophy will catalyse innovative leasing solutions, more streamlined purchase processes, and improved customer service, enabling the leasing industry to ride out the COVID-19 storm.
Sarwant Singh, Managing Partner, Frost & Sullivan
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