Tuesday, 22. November 2016
On the face of it nothing much has happened. There has been a bit of a drop off of cheap lease deals but that is pretty much down to the fact that most manufacturers will hit their new car sales targets this year with a total number of new cars sold, close to or hitting 3 million. And if you are hitting your targets why give away more discount than you need to?
You’d have to be nuts. This also means that in 2 or 3 years time when the lease deals end there will be a surge of used cars in the market just as we fully exit the EU. Good news for used car buyers but bad news for the leasing companies who have to try and predict future values.
With this in mind we have already seen an upward adjustment of rates due to two things. A price increase imposed by most manufacturers following the weakening of the pound and a re-alignment of resale values for the reason stated above. Now having said that leasing companies are very poor at predicting future values. They said that 2016 would see a slump but it didn’t, in fact used car performance this year has been particularly strong.
The problem is that leasing companies take a simplistic approach. They use a very simple supply and demand model, which for many seems to be the only way to predict the future. For example if we have sold a lot of cars this year on 3 year leases it makes sense to assume that there will be a glut of 3 year old cars in three years time, thereby driving down the price of these cars in auction and through the trade.
But my theory, and it is only my theory, is that the used car market isn’t linear. Let me explain, each year somewhere between 8 and 9 million used cars change hands. A linear approach would suggest that demand remains constant, so there will be roughly the same number of 1 year old car buyers (that’s the car not the buyer – good grief), the same number of 2 year old car buyers etc.
If we have roughly the same number of buyers of 3 year old cars in 3 years I agree that the average car price would drop. But this ignores desire. Experience has shown that as manufacturers change models more frequently there is a greater desire to have a much newer car with more gizmos fitted. So many 4 and 5 year old car buyers force themselves into the 3 year old sector increasing demand and forcing up prices.
So will we see any major changes as we exit Europe? Much depends on the trade arrangement that we negotiate. If we negotiate a strong tariff free deal it will not only ensure that we don’t have to factor in duties but that should also strengthen sterling. And with consumers mainly funding new cars on the more expensive PCP with only 5% using the cheaper Personal Contract Hire (PCH) I believe that the industry will remain generally buoyant with a few glitches along the way! You’re right I haven’t got a Scooby! Â By Graham HillÂ
Thursday, 22. September 2011
A constant problem when customers take out a lease agreement is insurance. You have to cover your car with fully comprehensive insurance. If other drivers will drive the vehicle they must also be covered by the policy and if the vehicle is used for business this must be covered also. The problem is where to go. I still find it amazing that I have Read more »
Friday, 5. August 2011
Buy or lease a new or used car and you’re pretty much guaranteed a 3 year period of fairly low cost motoring, subject to the car of course and your annual mileage. But you have a new car that will have on average maybe 2 services, that can be carried out by a non franchised dealer and maybe a couple of tyres. Compare that with the rocketing costs of Read more »
Wednesday, 27. July 2011
Insight Part 2: Whilst I’m in the mood to expose some of the trade secrets that lay behind contract hire rates let me delve a little deeper into the area of vehicle pricing and depreciation. Fleet News recently reported some incredible increases in new car costs, mainly as a result of the exchange rate against the Euro. Since January 2008, according to Read more »
Tuesday, 26. July 2011
Insight Part 1: I’m often asked why there can be some incredible differences between the contract hire rental rates quoted by different companies advertising on the Internet. There is no simple answer to this question, in some respects it is not dissimilar to the answer that an insurance company would give as to why insurance premiums can be Read more »
Sunday, 24. July 2011
If you are a regular reader of my postings you know that I rage on about simply taking the cheapest lease rate. In a recent article in Fleet News I found that I wasn’t the only one holding these views, most of the leasing companies do also. In fact it seems that the reason why many large lessors have pulled out of the broker market is that they don’t Read more »
Sunday, 15. May 2011
I seem to cover this subject frequently but in case you have only recently started to see my newsletter/blog let me explain the relationship between the person advertising lease deals on the Internet, dealers and you. First of all the people advertising on the Internet, often called something like amazingcarleasing.co.uk are not actually leasing Read more »
Saturday, 14. May 2011
For those that are keen to learn about the latest developments in accounting rules applied to leases, you need to get out more! As an accountant myself I guess I’d better take a few lines to get you up to speed, I’m sure someone must be interested. The main change proposed by the two main accounting boards, the IASB and the FASB, is the recording of Read more »
Thursday, 17. March 2011
There’s no such thing as a free lunch! What a load of bull, of course there is, I’ve had plenty over the years and I’ve not been expected offer my body up as a sacrifice or pledge in blood only to use the generous host’s product for ever more but more people are understanding the significance of the expression when applied to lease rates. Go with the cheapest Read more »
Wednesday, 16. March 2011
As people look for ways to save money they are certainly looking to prevent the bane of any driver’s life, the end of lease recharge. Many individuals and businesses have called in the services of the smart repairers to put their vehicles in an acceptable condition for return to the leasing company only to find the repair rejected and be faced with a full Read more »