Avid readers of this column (I wonder if such a person
exists?) will know that for the last three months I have written
about the credit crunch and its impact on the fleet leasing market.
First I wrote about the government’s response to the crash (£50bn
liquidity fund for the baking sector) and the short-term
opportunity for contract hire companies to write lots of
higher-value leases before next April’s tax changes.
Go deeper with GlobalData
Access deeper industry intelligence
Experience unmatched clarity with a single platform that combines unique data, AI, and human expertise.
Then I wrote a cautionary tale that will be familiar to those of
us old enough to have been here before: Don’t respond to the
downturn by focussing on internal reorganisations that may make you
feel good but won’t deliver much bottom line benefit. Spend time
instead thinking about how to become a winner out there in a
rapidly changing market – then go out and do it.
Finally I reported on the feedback to a survey we had carried out
that had showed that the crunch was affecting nearly all lessors
and that they were particularly concerned about falling used car
values.
This month I want to give some free advice. (As I make my living
by giving advice that is anything but free you may imagine the pain
this is causing me.)
Don’t believe the hype
Most parts of UK Plc are still producing reasonable results but
we are already getting bad news from the retail sector – a
bellwether of bad news to come in the economy – and we know that
increasing interest rates and inflation are likely to cause
problems all round.
People are keeping their cash in their pockets, which is why
used car prices are falling. I know from work with lessor clients
that bad debts from SME business are increasing. Everyone is saying
this will get worse before it gets better. Businesses are likely to
extend replacement periods and hold back from writing new leases
because of fears about job losses and the need to early terminate
these leases.
Yet car manufacturers are still producing many more vehicles
than the market needs and are offloading them to bulk purchasers at
huge discounts. What the contract hire industry needs now is a
high-demand product that is affordable to customers, allows good
margins to be made by lessors, minimises their collateral risk in
the asset and will not require the re-engineering of the lessor’s
business.
This product exists now – nearly-new vehicle contract hire – and
I have no idea why more lessors are not piling into this market for
their and their clients’ sakes. There are many used cars being sold
out there that are less than a year old and the sellers are
desperate to get shot of them.
The traditional buyers are dealers who sell these cars on retail
forecourts, but these dealers are mighty wary at present about
paying too much or holding too much stock. Yes, for a lessor this
business will require a little more work but the rewards should
vastly outweigh the extra costs. Try it – you may just find that
you’ll like it.
