2018, the year of Powertrain revolution, private lease explosion and market consolidation

1. 2017: A good year for the car industry worldwide, with accelerating changes in powertrain technology In 2017, worldwide car registrations are expected to grow once again at about 1.6%, reaching 78.6 million new passenger vehicles. China alone will represent 30 % of the market, while Asia as a whole close to 50%. Growth in Asia should continue if we consider China has approximately 120 cars per thousand inhabitants, while Europe 600 and the United States 800. In Europe, growth comes with a significant switch in powertrains. For the first time, diesel car registrations represent just under 50% (previous maximum was at 55.7% in 2010). The major change happened in France where the share of diesel vehicles reached 72% in 2010 and is now just over the average with 52%. The diesel affairs, new taxation policies and threats from political authorities have created the right conditions for change. Electric car sales are once again accelerating: the stock doubled from 1 million in 2015 to 2 million in 2016. In 2017, EV and hybrid cars will represent 3.2% of total registrations, as well as the strongest growth in the market. This summer, Volvo announced it will become the first major car manufacturer to go all-electric, stating every new car in its range will have an electric powertrain available in 2019. The company said the announcement marks “the historic end” of cars solely powered by petrol or diesel and “places electrification at the core of its future business”.

2. Private lease and new mobility solutions are disrupting the existing car sale business In Europe and, to a certain extent, North America, manufacturers have been promoting new car sales by advertising on monthly rental costs, pushing the retail market towards new schemes. Major leasing companies and OEM captives have started to offer Full Service Leasing (FSL) to private customers. This product was sold for a long time in the United Kingdom, but did not exist in Continental Europe. It is a huge market, which has suddenly become an opportunity for fleet management companies.

The multiplication of VTCs (Uber and many others) and numerous start-ups offering car-sharing solutions and peer-to-peer mobility alternatives are disrupting the retail and the corporate leasing markets, accelerating their transformation toward mobility solutions. Tex Gunning, CEO of Leaseplan in charge of restructuring the company after its acquisition by private equity funds, summarized its new strategy in four words: “Any car, Anytime, Anywhere”. This means the company needs to develop the ability to manage a portfolio of cars and ensure its customers can have the car they need in any place (and not just a car in a garage), thus switching from a company car business into a mobility business for all segments. Other market leaders are likely aiming for the same and investing in “any term” leasing (from 1 day to 6 years), including used cars in their portfolio (by necessity), for all markets (retail and corporate).

3. More competition and partnerships

Private leasing growth will bolster competition between leasing companies and OEM captives, while medium term lease solutions will also bolster competition between Rent a car and leasing companies in businesses where economies of scale and financial resources matter. In 2017, it was possible to observe an acceleration in market consolidation strategies: PSA bought Opel, while ALD bought Parcours in France and BBVA rent in Spain. ALD went public in June and there are rumours about Leaseplan doing the same in the near future. Sixt and Europcar went public 2 years ago, while Daimler bought Athlon in December 2016 and Europcar bought Goldcar in Spain. The consolidation of businesses that started in the aftermath of the crisis have accelerated in 2017, together with a quest for additional financial capacity in order to rationalise processes, make operating savings and leverage power of negotiation. This is an ecosystem where actors are competitors and partners at the same time. They all need cars and OEMs need distribution networks. At the same time, they compete and offer relatively similar products. Success depends on a delicate and unstable equilibrium that might evolve in the future.

3 topics to be followed in 2018 The split of powertrains from diesel to fuel engines and the growth of electric vehicles should accelerate in 2018. The rhythm of changes will depend on taxation, city regulation and manufacturers’ offerings.

Private lease markets and mobility solutions will enlarge the overall leasing market. Corporate fleet managers and Human Resources will have to increasingly manage company mobility solutions. This includes providing both company cars and all kinds of new solutions to transport staff and ensure working mobility.

We can expect further market consolidation within the full service leasing business, but also within the whole ecosystem as business specificities disappear. Merging a Rent a car business with FSL could provide the emergence of new market leader with greater purchasing power and capacity to better manage a car portfolio. At the same time major capitalisations will favour new business initiatives to get innovation benefits.

These trends should help reduce mobility costs and increase efficiencies to the benefit of society and successful businesses alike. The market is changing fast and it will be interesting to see how it all evolves in 2018!