How's the leasing sector changed in the last quarter of 2022? Our Director Spencer Blake takes a look into the changes we’ve seen over the past 3 months, giving us his insight into what's prompted these changes and what we can expect in the upcoming quarter too.
Changes in the leasing sector at the end of 2022
Over the last quarter, since the start of October, we’ve seen some significant changes to the leasing sector. We’ve seen a softening across the industry with customers being more cautious with their spending choices. For a leasing broker like us, this translates as fewer customers enquiring about getting a new car and when they do, considering the decision more thoroughly with fewer committing to leases. This hasn't been entirely unexpected as whenever there’s uncertainty in the economy it has a knock-on effect, and with the triple hit of a cost of living crisis, rising inflation and rising interest rates at the moment, there's definitely been an impact on consumer confidence.
We’ve also seen captive funders protecting the stock they're able to source and pushing it through their own finance arm with enhanced support and RVs for their funding which can make it difficult for other funders to compete.
Supply remains the biggest challenge the leasing industry faces
For the leasing industry vehicle supply has continued to be the biggest challenge that we face. In particular a lack of electric cars and vans as we're seeing more and more drivers looking towards electric vehicles (EVs) as the market shifts towards them in time for the 2030 ban on the sale of pollution emitting vehicles.
Supply of vehicles has been a challenge throughout this year and for the previous year or so as well. One of the long-term impacts that the Covid-19 pandemic, made worse by the war in Ukraine and factory closures due to poor weather or fires.
Lack of supply has fed into other challenges, having a knock-on effect on deliveries and higher vehicle prices; both existing challenges in the leasing sector that we're facing.
Stock beginning to come back
While stock's still a challenge, we're seeing general improvement on the whole with lead times coming down from 8 to 12 months a year ago to around 5 months now. The industry is gradually recovering from the impact of the pandemic on supply shortages, closures and reduced manufacturing due to prevention measures and I expect this rebounding to continue over the next year or so.
However, there are some manufacturers still really struggling with clearing their back orders and producing stock that's available for new orders so there's variation across the market between manufacturers and even models.
Over the past few months, we've seen more stock becoming available which I think is due to a softening in the demand due to economic uncertainty and the increased cost of leasing, which has risen due to higher basic list prices, reduced discounts and increased costs of funds from the funder. I expect to see stock availability to continue improving due to lower demand into the new year.
Funders respond to the cost of living crisis
We've seen a change in the way funders process new lease deals. The majority of them have reviewed their underwriting criteria with a noticeable focus on affordability as they're having to factor in the impact of the cost of living crisis on the customers’ ability to repay over the term of the lease.
This closer scrutiny is likely to see a few more customers be declined finance or be conditionally accepted as funders make sure that the additional financial commitment won't overextend them and lead to financial strain during the contract.
How is Xcite car leasing ending 2022?
The softening in the leasing sector is a bit of a contrast to what we’ve seen in other areas of the business with fleet management and salary sacrifice both being areas of growth. As a business, we have reallocated some resources to support these areas as well as the authorised representatives (AR) part of our leasing channel, to diversify our income, and help our business maintain and grow despite the challenges we’re facing in leasing.
Overall, we end 2022 on a positive note, having moved to a new office location in the heart of Salisbury, entered into new business ventures and expanded our team with new roles that have come as a result.
What does the next quarter hold for leasing?
I expect the situation with stock will continue to improve especially with internal combustion engines (ICEs) cars as the market transitions to EVs and these become less popular choices. We’re already seeing free release stock lists from some manufacturers with far more cars than at any point over the past 12 months and I expect this to continue.
While stock will improve, I think that the demand from customers in the immediate future is unlikely to change much and the retail space will remain challenging for leasing and other sectors of the automotive industry.
I’d love to see the softening of demand lead to improved discounts from manufacturers and funders to stimulate the market however I’m not hopeful this will happen in the next quarter but maybe later in the year if the market remains as it is, or declines.
Here at Xcite Car Leasing, we've already begun making adjustments to our business to mitigate the impact the softening leasing market has on us. We’re changing funding strategies to make sure the business continues to grow in new and exciting ways while also maintaining our strong presence in the leasing sector and cultivating our relationships with funders, manufacturers and dealers to find the best lease prices for our customers.
We’ve got a great team and despite the challenges, we still expect to have a successful quarter one of 2023. Additionally, there'll be opportunities for our business in the fleet management, maintenance and salary sacrifice departments and I think this coming quarter will see us continue to expand in these sectors.