The globalisation of vehicle leasing is ongoing
New cars sales could break the 100 million mark (PV – 70 million and CV – 30 million units) worldwide in 2019; they have grown regularly year after year from 66 million ten years ago (according to OICA – International organisation of motor vehicles) mainly because of China which represents 30% of the market nowadays and 50% of growth over the same period (from 13 to 30 million).
There is limited information on how these 100 million cars have been financed by their buyers and who they are, corporates or retails customers? In this analysis, we are making some estimates to understand the future landscape and opportunities.
Europe: full-service leasing moving from corporate to retail
New cars sold in Europe are around 21 million units per year (with all markets including Russia). Until very recently operating leases were exclusively operated for corporate customers, the UK being the only exception. In 2019, the market is dominated by the five multi-brand lessors, Leaseplan, ALD, Arval, Alphabet (BMW) and Athlon (Daimler) and the four European manufacturers’ captives, Volkswagen Financial Services, RCI Bank and Services (Renault), Free2Move Lease (PSA) and Leasys (Fiat). Together, they manage 80% of their market (around 3 million cars in Europe, i.e. 15% of new car sales).
In the last 2 years, the retail market has been moving towards operating lease. The movement is accelerating and will create enormous opportunities for further growth. Currently, most leasing companies are preparing new product for retail and expecting double digit growth in SMEs and the private market. Leasing might also develop in new mobility fields including the sharing economy (e-hailing, corporate or private carsharing).
North America: fleet management remains stable
The North American car market is more or less the same size with around 20 million new cars sold. However, corporate sales are much less significant. Most company cars are perks in Europe as it is an efficient way to manage remuneration packages but that is not the case in the USA where fleets are mainly service cars and trucks. On this market, US leasing suppliers (fleet management companies) are even more concentrated than in Europe: ARI, Element, Wheels and LeasePlan represent 85% of the market for maximum 5% of new car sales. Market leaders are enjoying slow growth and do not seem very interested in moving into the retail market, which is riskier.
European lessors have not demonstrated much interest in investing in the US market. Similarly, American lessors have been reluctant to enter the European market by themselves. LeasePlan is the only one with a substantial presence in both regions. ALD had bought a small company years ago, but gave up almost immediately. Currently, European and US market leaders have preferred to partner to service international customers looking for large coverage as entry prices are high on both continents and business models very different. When Element bought GE a few years ago, the new shareholder preferred to share the acquisition and leave the European network to Arval (historical partner of PHH). Others have tried to impose a US fleet management model in Europe: Wheels with the creation of Fleet Logistics before the alliance with ALD and ARI more recently when it lost its partnership with ALD. None has been successful so far.
Latam: fast-growing with European lessor interest
Six million cars are sold in the continent, mainly to the retail market. The corporate market is growing quickly and represents around 1.2 million cars (most of it in Brazil and Mexico). In South America, local investors engaged in short term renting 50 years ago and moved naturally into full service leasing in specific sectors like mining, distribution or the pharmaceutical industry. Localiza, the biggest one on the continent, operates more than 200,000 cars in Brazil mainly, in car rental and full-service leasing both for corporate and retail. All US leaders have opened in Mexico to serve the three countries in the North of the continent but have been reluctant to move south of Mexico. Following their customers ALD, Arval and LeasePlan invested ten years ago in the region and compete with national heroes managing enormous fleets. Product on offer is relatively similar to that in Europe.
At present, full service leasing represent less than 5% of the total market. We can see a growing interest for retail and mobility business and expect very dynamic growth.
Asia: most dynamic car market, but very complex for lessors
In Asia, information is even more difficult to find than in Europe. Big operators are from the region like Oryx and Sumitomo in Japan and South East Asia and they cater for all markets (both retail and corporate). South Korea is dominated by Hyundai Capital. Australia is slightly more mature with almost 2 million company cars on the road (300,000 operating leases per year). ALD is partnering with Fleetpartners in Australia, Arval with Sumitomo in Japan and Australia and ARI with Oryx in Japan, Australia and all other markets where Oryx operates.
India remains a very small market for corporate leases, a market which is less than 50,000 contracts per year shared between ALD, Arval, LP and Oryx (Arval has just announced it is leaving the market after 10 years). Thousands of very small renting companies are also operating. Questions can obviously be raised about the opportunity to be there rather than partner, considering market immaturity and the potential of the country.
Is it necessary to be in China? This is a difficult question that both ALD and Arval have answered positively years ago but so far without success. True operating leasing in China is very limited and regulation still immature.
Finally there is the region Africa and Middle East. The Middle East gathers various smaller markets whereas Africa is a mixed continent, mixed in terms of country size and development, vehicle sales growth and economic dynamics. This makes the Africa Middle East region not yet significant in the vehicle lease market, with the exception of South Africa and Morocco.
The future is bright
Operating lease markets do not represent more than 6 million new contracts per year (of which 4 in Europe and 1 in the US). Because of new mobility trends, potential for growth is enormous:
From corporate to retail in Europe and marginally in Latin America (including the merging of short term and long-term products) Continental specialisation in North America, Europe and Japan/Asia will likely remain for the foreseeable future, strengthening partnerships The Chinese market remains the biggest uncertainty but will likely develop like other giants in the new economy (Didi, Alibaba, Renren…). Western leaders would have no other solutions than to partner and sell their existing tiny ventures.