Vehicle pricing a major concern for leasing sector

Vehicle pricing is a major concern for leasing companies, with both acquisition costs and borrowing rates rising between order and delivery, according to the British Vehicle Leasing and Rental Association (BVRLA).

More than two-thirds (70%) of BVRLA members cite pricing uncertainty as a major issue, with both acquisition costs and borrowing rates rising between order and delivery.

And, with order books bulging and unfulfilled deliveries, more than half (58%) are resigned to the fact that longer lead times are now standard, the BVRLA’s latest Industry Outlook Report suggests. 

In the commercial vehicle sector, both vans and heavy goods vehicles are in desperately short supply, leading to price rises of 30% to 40% in a year, says the BVRLA.

Only a third of light commercial vehicle operators believe this supply crisis will improve to pre-Covid levels in 2023, with 57% forecasting that the current situation will continue for at least the next 12 months, and 10% predicting that the situation will never recover to its former levels.

Overall, 92% of rental companies identify vehicle supply as a challenge for next year, as manufacturers prioritise more profitable, longer-term business, compared to 78% of leasing companies.

But almost twice as many leasing companies (48%) anticipate the cost of finance being a significant issue in 2023, compared to rental companies (25%), a reflection of the longer contracts with customers and the greater difficulty in passing on these inflationary costs.

An extra challenge for rental companies is to hold on to employees in a cost-of-living crisis, with lower-paid branch staff susceptible to changing job – 38% of rental operators forecast that staff retention will be difficult in 2023, compared to 15% of leasing companies.

BVRLA chief executive, Gerry Keaney said: “The last 12 months have been punctuated by political chaos, huge regulatory realignment, a once-in-a-generation surge in inflation and immense supply chain challenges. Many of these challenges will continue into 2023.” 

Despite the difficult business environment, BVRLA members are hopeful of sales transactions increasing as the emergence of new business models keep the sector agile. 

The BVRLA report says that demand remains strong, with business contract hire steady, salary sacrifice soaring and residual values (RVs) remaining at profitably high levels.

Moreover, history suggests that worsening economic conditions favour rental companies and their flexible short-term hire solutions, says the BVRLA.

In the leasing sector, the swift electrification of car and van fleets lends itself to contract hire and its advantages of amortising the cost of higher priced vehicles while avoiding RV risk.

In the core market of business contract hire, 43% anticipate no change in demand over the next 12 months, while 28% expect an increase.

Optimism is even greater in the light commercial vehicle sector, where 45% forecast that 2023 will be a stronger year for van contract hire, an outlook that is more than twice as positive as predictions for HGV leasing (20% stronger).

Rental companies are particularly buoyant about the year ahead, according to the BVRLA report, with the flexibility of short-term hire proving attractive to businesses that do not want to make long-term financial commitments.

Overall, 44% of car rental companies and 40% of van rental companies expect demand in 2023 to be stronger than 2022, while flexi-rental products for light commercial vehicles are forecast to boom, with 57% of suppliers expecting the next 12 months to be stronger than this year.

Keaney continued: “Our Industry Outlook Report portrays a sector as pragmatic, positive and professional as ever. The findings show that BVRLA members are adjusting to new market realities, focussing on their growth opportunities and addressing their compliance priorities while making major leaps forward in the use of technology. 

“We go into 2023 with a great deal of optimism, ready to address these issues head on. If the last few years have shown us anything, it is how resilient and adaptable our sector can be.” 

The most vulnerable product for 2023, says the BVRLA, is focused on private rather than company car drivers, namely personal contract hire (PCH), with 57% of suppliers forecasting weaker demand.

Sharp price rises for new cars allied to much higher interest rates have meant drivers coming to the end of a PCH agreement and wishing to replace like-for-like with a new car face monthly rentals that are hundreds of pounds per month higher and in some cases double their previous payments.