Electrification drives trend towards longer leases for cars

This article has been taken from the FN50 2024 special report, providing insight into the UK’s biggest car, van and truck contract hire, leasing and fleet management companies. It is sponsored by The AA, Ford, Allscreens Nationwide, Cox Automotive, Fleet Procure, FMG, Geotab, Jaama, Leasing Portal, Mer, Nexus, System Edstrom and vGroup International.

The average replacement mileage for cars on the FN50 has increased year-on-year, while more vehicles are being returned on time.

Figures from this year’s FN50 show a year-on-year increase of almost 2,000 miles in the average replacement mileage, with cars now being de-fleeted every 47,265 miles, on average, compared with 45,579 miles, last year.

The average distance covered by company cars before being de-fleeted had been on a downward trajectory for several years, having dipped below the 50,000-mile mark for the first time in 2020.

It fell by almost 2,500 to 49,944 miles, before continuing to fall over subsequent years.

Home-working and virtual meetings have helped drive down average mileages postpandemic, but with cars now being kept for longer they have registered an increase.

FN50 figures show a lengthening replacement cycle, despite a good availability of product, which was not the case in previous years.

More than a third of cars (39.9%) leased by FN50 companies were returned on time – up from 36.2% in 2023 – and the proportion of cars returned late has fallen from 52.9% to 43.4%.

Fleets have been driving the new car market, with figures from the Society of Motor Manufacturers and Traders (SMMT) showing that in the first three quarters of 2024 – January to September – more than 925,000 cars have been registered to fleet and business, 125,000 more than were registered in the first nine months of last year.

Cars were replaced on average every 38.2 months, according to this year’s FN50, two months longer than the 36.2 reported last year.

Three-year lease agreements now account for 48.8% of the leased car fleet, up from 44.9% in 2023, while almost a third (31.4%) of vehicles are contracted for four years, unchanged year-on-year. One-in-10 cars – 9.6% of the cars leased by the FN50 – have a 24-month lease, with 6.5% having a lease of up to 12 months. 

Just 2.9% and 0.8% of the FN50 car fleet is leased for five and six years, respectively.

Greater flexibility

Shorter replacement cycles can give greater flexibility, allowing fleets to change vehicles more regularly, test EVs on a shorter cycle or take on new vehicles or technology, potentially bringing better fuel consumption and reduced CO2 emissions.

The downsides include the greater administration and higher lease rates.

Lengthening cycles, meanwhile, driven by greater reliability and lower annual mileages, may reduce monthly outlay, but can be detrimental to driver recruitment and retention.

The most recent data from the British Vehicle Rental and Leasing Association (BVRLA) shows new business contract hire agreements for cars are now, on average, 39 months long and for 50,000 miles.

Tusker launched a longer replacement cycle of five years (60 months) for its salary sacrifice cars in September.

Kit Wisdom, Tusker managing director, explained that the idea had come from collaboration within Lloyds Banking Group, its parent company.

Sister company and fellow FN50 firm, Lex Autolease, has offered five-year leases for several years and, while Wisdom acknowledges it was a lease length Tusker had not been interested in offering in the past, the data convinced it otherwise.

The EV salary sacrifice specialist says that the longer lease is fundamental to keeping lease costs down and to giving drivers certainty.

“About 10% of our orders in July were for 60-month contracts,” says Wisdom. “That’s a really powerful product for us, and I appreciate it’s a tweak on an existing product, but it’s really quite a powerful tweak.”

Currently, its average replacement cycle on its risk fleet stands at 42 months, but Wisdom expects that to lengthen as more employees choose a 60-month term.

With leasing companies suffering huge losses on EV stock, because of a collapse in used values, longer leases offer a way to mitigate any potential downward turn in the future and give customers the chance to access lower lease rentals.

The leasing industry faces significant change as electric vehicle residual values continue their two-year decline, impacting profits and prompting calls for government support of the used EV market. The impact has been significant: after the record £2 billion profits seen by the FN50 in 2023, a £645 million reduction has been recorded this year.

Yet, this year’s FN50 also brings signs of robust growth. For the first time, funded fleet levels have surpassed 1.8 million vehicles, breaking a record set only a year ago. Both car and van totals saw increases, with the latter returning to growth after last year’s decline. Additionally, this year has been marked by change across the top 50 leasing companies with 5 new companies entering the list and 8 from last year appointing new leaders. 

This dynamic landscape—driven by innovation in AI, fleet management, and emissions strategies—is explored in 2024's FN50 report, along with key industry challenges and growth areas.

It is sponsored by The AA, Ford, Allscreens Nationwide, Cox Automotive, Fleet Procure, FMG, Geotab, Jaama, Leasing Portal, Mer, Nexus, System Edstrom and vGroup International.