Brexit – a threat or opportunity for the UK’s car leasing sector?

Friday, December 14, 2018 - 09:58
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March 29th is fast approaching, yet Brexit continues to cast a foreboding shadow over the UK’s automotive industry, its customers and suppliers.

At the time of writing, we’re still no closer to knowing what Brexit means. What is certain, however, is that the stakes are high; the UK exports 800,000 vehicles and imports 2.3 million vehicles from EU member states every year.

Coupled with currency fluctuations, falling consumer spending and the threat of import tariffs, 2019 is set to be a challenging year before the dust settles and any benefits of leaving the EU are felt.

For the car leasing sector, specifically, there are both threats and opportunities ahead…

Financial regulation

 Motoring finance regulation currently falls under EU law, so if the UK was to leave the European Single Market (ESM) full responsibility will be passed over to the Financial Conduct Authority.

At this stage, it’s unclear how much legislative change there will be after the two-year transitional period (which could always be longer). The government isn’t likely to rush through any legislative changes since they would not want to make it harder for businesses to operate cross-border with little notice.

With pressure on personal and business finances likely in the transition period, there may be the opportunity to review policies to make access to finance easier and increase consumer rights and protections, benefitting both leasing companies and their customers.

Rising costs

Currency fluctuations are pushing up the cost of importing vehicles and with the pound continually down against the Euro, manufacturers are starting to pass their increased costs down the supply chain to dealers and brokers.

In the event of a no-deal, or the UK leaves the ESM, import and export tariffs may be a reality at borders, pushing up the cost of many European vehicles – Mercedes, Fiat, Renault and BMW to name but a few.

Research published by UHY Hacker Young found the cost of leasing a new car in the UK had gone up 9 percent on average in the 12 months leading up to April 2018, with the biggest rises seen for German-made cars: the Mini Cooper D, up 31 per cent; the Audi A3, up 23 per cent; and the Mercedes-Benz C220, up 19 per cent.

The challenge ahead for leasing companies will be how much of the rising costs to absorb or pass on to the customer. Deep discounting attracts customers but it’s risky if the demand isn’t strong enough.

 Consumer confidence

 The car leasing sector serves both business and personal customers. In uncertain times, it’s normal for both to become more reserved when it comes to spending money.

However, leasing companies (for any product in fact) occupy a unique position in that they offer an attractive alternative to paying upfront. Particularly with business fleets, flexibility is also an attractive benefit and lessens the risk associated with investing in high-value assets.

Helping customers spread the cost of a new or used vehicle over a time period which suits them, finance brokers may in fact see a rise in enquiries and sales.

 Weathering the storm

The UK car leasing industry is booming; the latest statistics published by the BVRLA show the total fleet grew by 5 percent in Jan to June 2018, totaling over 302,413 contracts.

Personal Contract Hire is driving this impressive growth, representing 61 percent of new contracts in the first half of 2018. The industry is also perfectly placed to deliver the electric vehicle revolution, as well as maximise the value of used-cars as they become an increasingly popular offering.

The UK is currently the third largest auto and asset leasing market in the world, putting it in good stead to remain strong amid uncertainty. While the next couple of years will be challenging for the sector, we’re in the strongest possible position to weather the storm.

Author: Tom Preston, Managing Director, Hippo Leasing

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