We’ve made it to the midpoint of 2023 so we asked our Sales Director Spencer Blake to give us an update on what has happened so far and what he expects to see changing in the leasing sector over the rest of the year.
The News Has a Large Influence in Leasing
We’ve found over the last three months that the retail sector has continued to be very volatile. When I last wrote I noted that customers were very reactive to the news cycle and this seems to have increased in the last three months.
Our enquiry levels and order take are intrinsically linked to consumer confidence which in turn is affected by the negative press relating to the cost of living, inflation and interest rates. In the past few months, we’ve seen that any negative news on these subjects is having an immediate impact on our enquiry level. We’re also seeing customers, no matter how far down the order journey they are, reconsidering their new car after a negative story in the press, which highlights that it’s people at all stages of the leasing journey who are more cautious.
We have seen demand for fleet supply and salary sacrifice remain strong throughout the last quarter which is a good indication that business requirements remain strong.
How are Global Conditions Affecting Car Leasing?
I don’t think Covid is having a significant impact on car manufacturing or leasing any more. The war in Ukraine is the most recent global event to have an effect, although that isn’t specific to our sector but more around the rising energy prices which have had an inflationary effect on all goods and services.
Extending Leases Could Lead to Higher Costs for Customers
I’ve already mentioned interest rates and inflation in terms of how it’s affecting consumer confidence, but it’s also having an impact on the actual pricing of leasing. Rising interest rates have driven up the cost of leasing, and as a result we’re seeing a high number of our existing clients extend their current leases rather than get a new one.
With more customers extending their leases I do worry that we have an industry-wide problem looming as customers hold onto the vehicles outside of their warranty and we see issues with the cars that the customers cannot afford to fix. There are some manufacturers who have longer warranties, like Kia who offer seven years, but the majority are still only three years.
New Car Supply is Stabilising
Supply for many manufacturers appears to have stabilised and a large percentage of model lineups now have a 12 to 20 week lead time.
In terms of stock, availability has remained fairly static over the quarter and over the past six months as we’ve seen the global supply chains recovering which is reflected in the reduced lead time for factory orders.
Here at Xcite Car Leasing, we’ve been working with manufacturers and dealers to place orders for vehicles during the past two years of stock uncertainty which means we’ve had a steady supply of vehicles arriving in the UK during this time. This has allowed us to provide our customers with shorter lead times on some models and in stock options for those who need a car quickly.
One area where we are seeing delays is at the ports, this is happening on both sides of the ocean in mainland Europe and in the UK. This has been an area of concern since we left the EU but we’ve seen a notable increase in delays over the last six months, which indicates a wider issue with processing new cars through the ports.
Going forward, I don’t expect much to change in the next quarter but by the end of the year I think it’s possible that more stock will be available and the issues with vehicle movement through ports should be improved if not resolved. Supply is becoming more aligned with demand and will be even more so by the end of the year with small pockets of stock appearing more often.
Hybrids Have the Longest Wait Time
Although stock and lead times are improving there’s one type of car we’re seeing going the opposite way – hybrids. Hybrid cars have both an electric system and an internal combustion engine which means they use more parts so they’re more likely to be affected by parts delays. We’re continuing to see hybrids with extended factory lead times and many manufacturers are now looking at early 2024 delivery for orders being placed now.
Demand for EVs Falling
We’re continuing to see the demand for electric vehicles (EVs) fall in the personal leasing sector. In the past few months, I’ve noticed there’s been a marked shift back towards petrol rather than electric power trains.
I’m not surprised by this move as the cost of leasing an EV has risen. The resale value of electric cars has been quite volatile in recent months following Tesla’s decision to lower the retail price of new models. Additionally, the cost of electricity remains high, whilst the cost of petrol at the pump has started to come down so the affordability of a petrol car is better than it was this time last year.
On the other side of things, we’ve seen continued interest from business customers, company car drivers and salary sacrifice. I know that for business drivers there are still incentives, like the dramatically lower company car tax rate, that make them a better choice.
I think generally some of the largest barriers to drivers accepting EVs are reducing, with range anxiety and charging speed concerns both lessening as new models with better batteries are introduced and the charging infrastructure expands. Both Instavolt and Grid Serve have massive rollout programmes underway.
Customers Are Considering More Options
We have seen more consumers over the past quarter looking towards alternatives to leasing, especially at PCP agreements. This is largely driven by the financial support available for the product from manufacturers and that residual values have remained strong on the cars. Leasing still remains in demand but a deal now needs to measure up against other finance options not just other deals.
The leasing market has always been driven by providing customers with great value, and that is harder to demonstrate currently with the increase in the cost of vehicles and an increase in the cost of funds which has a real impact on the perceived value of a lease. There are still really strong offers available, just not as many of them. One way in which we’re helping our customers consider more options is by securing competitive offers across all makes and models so there’s a wider range of choice for them, even if it is on vehicles that they hadn’t previously considered.
Affordability is Becoming More Important than Credit Score
We have seen an increase in declines, but this is based on affordability rather than creditworthiness. What this means is that customers with a perfect credit score might not be approved for a lease because they are already financially committed as much as they can be without overextending themselves.
What’s Coming Up for Leasing in 2023
I think the next quarter is going to bring both opportunities and challenges. I expect the volatility to remain both in terms of pricing and enquiries but as ever there will be opportunities for us to construct competitive lease offers for our customers.
I hope for stability in the economy which will help build consumer confidence so that drivers don’t feel as hesitant in getting a new car. That stability would also lead to more settled pricing which in turn breeds further confidence. For the last 12 months pricing has been changing weekly. The main influences on the lease cost are:
- The car’s residual value
- The cost of funds
- The basic list price of the vehicle
- The discount (which can be from the manufacturer, dealer or funder)
All four of these factors are ever-changing at the moment which makes staying on top of the market and finding value for a customer more challenging. We have developed tools to support our teams to adapt and work within this continuously changing environment so that we can offer our customers the very best lease offers at any point of time and in their journey.
I expect our salary sacrifice offering to continue to grow as more of our clients sign up and look to provide the savings the scheme provides to their employees. If you’d like to learn more about how it works then get in touch with us on 0330 221 0000.
We’re continuing to preorder vehicles so that we have a solid supply for our customers in the current quarter, for later in the year and even early 2024. There’s also an exciting rebrand project being worked on behind the scenes which will go live in a few months. It’s been a lot of work for the team and has involved us really thinking about how we can make the leasing journey even better for our customers, so you can expect to see something new and exciting from us soon (including a new website).
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