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Financial Services Advisory

A shift towards car as a service

Private leasing is growing, as consumer mindsets shift from ownership to subscription. The growth of subscription offerings (e.g. Netflix, Spotify, WeWork, Go Car) and companies such as Google and Amazon has resulted in consumers being more informed in their purchasing, having researched online, and more open to subscription offerings than ever before. This presents a growth opportunity for the asset financing industry in the form of Personal Contract Hire (PCH) products, a long-term vehicle rental agreement targeted at a private individual who does not wish to own cars at the end of an agreed term.

Trends in the Market

Following in the footsteps of other industries such as music and media, the automotive industry is seeing a shift towards a service based model where customers are increasingly inclined to pay a subscription fee for a service as opposed to purchasing a good or asset in the form of Personal Leasing or Person Contract Hire. Personal Leasing or PCH is a long-term vehicle rental agreement targeted at a private individual who does not wish to own the car at the end of the agreement, meaning there is no expectation of a final, balloon payment.

In the UK, Personal Contract Purchase (PCP) is the most popular source of new vehicle finance (80% market share), followed by PCH (11%). PCP was introduced to the Irish market after successful consumer adoption within the UK, EU and US and in light of the financial crisis to address the drop in car sales (63% drop in 2009). Similar to the UK, Ireland can expect the see the number of PCH contracts rise as we move towards car as a service.

Current trends such as zero emissions vehicles and carbon neutral manufacturing demonstrate the growing significance of sustainability in the automotive industry, however, also raise a concern for used car consumers who won’t want to invest in new or used vehicles which may be deemed unsuitable and expensive to run as regulations and tax initiatives change to favour lower emission cars. Leasing or car sharing instead of owning is a suitable option for many consumers, and not just for environmental reasons.

Brexit and the introduction of the NOx levy have made it more expensive to import cars from the UK. The UK now only account for 82% of all used imports, having previously accounted for 91%. This has also lead to an increase in Japanese imports, which now account for 10% of used cars imported. As used cars becoming more expensive and difficult to source, we are likely to see a shift in consumer behavior towards private leasing.

With new vehicle registrations are up 26.5% compared to the same period (Jan – June 2020) and further economic recovery anticipated in 2022, a move towards car as a service is expected.

Benefits of PCH

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Opportunities for your organisation

The PCH market is relatively new, but seen as a significant growth opportunity in Europe. Private customers generally require transparent products, quick access to a vehicle, reliable service offerings and competitive pricing. Providing this service for customers will open up a greater market share for your organisation, with limited OEM captives and dealers currently offering personal leasing plans. Organisations seeking to expand their product suite with the addition of PCH will benefit from leveraging the operational, logistical and technical requirements in place to supply HP and PCP.

In recent years new car sales have fallen as used car imports from the UK have grown, as consumers took advantage of a weakened sterling and the vast UK used car market, which is predominantly made up of diesel vehicles. January 2020 saw the introduction of the carbon dioxide (NOx) levy, and a 26% drop in UK imports from January 2019. This, coupled with tighter regulatory barriers as result of Brexit from January 2021,resulting in a dramatic reduction in UK imports and consumers will look to alternative options. PCH offers an alternative option for Irish consumers to acquire new vehicles, without purchasing at a time of economic uncertainty as result of Covid-19, without the worries of depreciation.

Changing regulations and fast paced technology change present a challenge to consumers, making them likely to think twice before purchasing a new vehicle. PCH gives consumers flexibility to upgrade their vehicle while technology advances as they are not tied down to long term leases. Marketed in the right way, PCH could be an attractive alternative offering for your business, allowing consumers to make sustainable choices, without the risk of unreliability and residual value. By replacing vehicle ownership in favour of a market leading leasing based solution consumers may be empowered to make the switch toward greener vehicles.

How we can help

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