The Rise in Leasing Amidst Market Turmoil?
It is without question that the novel Coronavirus has shaken our economies to the core. In this article we are looking into how this may affect the auto financing industry where the future might look brighter than expected for those who can offer what the consumers prefer.
The auto industry experienced dramatic drop in sales of new cars and temporary shutdown of car factories. Even though many countries have started to open up again, it will take time to get back to normal, and the new normal is most likely not as it was before.
Yet, despite market turmoil - consumers still need transportation. Will there be need for more cars due to instructions to avoid public transport? Will the technology shift towards electric and hybrid cars contiunue in the same speed as before? Will road trips by car be more popular? Or will we just experience a major decline also in the need of transportation and car sales in our new normal? An interesting observation is that two of the largest finance companies in Norway saw a sudden sharp incline in the amount of loan applications for used cars, despite that we were in the middle of the Corona lock-down.
Independent of the different scenarios, we strongly believe that the auto finance companies will play an even more significant role in the future of mobility.
Stability in an Unstable Market
In times of uncertainty, consumers tend to shift towards buying options that will ensure stability, affordability and market value predictability.
“When times are unpredictable, leasing is much safer for the consumers,” says Banqsoft CEO Terje Kjøs. “With leasing you have a predictable cost of the car, you do not have to tie up large amounts of capital, and best of all you can avoid the risk of the residual value when you are going to sell it. If you were to buy an expensive car now, with the current financial outlook and the ongoing technology shift, leasing is a good option to reduce risk.”
Predictability & Convenience
Most consumers want more predictability - especially in times of uncertainty. Consumers have the power to drive our financial and auto markets in relation to how much they are willing to pay and invest to cover their mobility needs, and we expect the consumers to have less risk appetite on e.g. the residual value going forward.
Convenience is another important aspect. Consumers prefer hassle free and paper free processes also when buying or leasing cars. The financing part is often seen as a pain, and those who can offer a convenient process, will be the winners. Added services is key to ensure convenience for the user of a car, and we also see that rental companies with flexible, all-inclusive offerings are growing, most likely because of the great flexibility and convenience for the consumer.
We consider that these may be some considerations to what is driving the leasing trend.
Changes in Digital Transformations
Consumers today expect high-level digital experiences, to the extent that some businesses have created fully automated systems in place to take an application process start to finish from the comfort of their own home. Carvana, an up-and-coming online used car dealer based in the US who brand themselves as a ‘car vending machine’, is a leading example of this offering a fully automated application process for buying and financing used cars online, while also offering car delivery straight to your door. In other words, consumers want convenience. This fully digital example goes to show how quickly the industry is transforming.
The Future of Leasing
It is a question as to how the industry will develop based on consumer priorities: Will this incline in leasing lead to changing mobility trends? Could it lead to car-sharing and environmentally friendly transportation?
According to a forecast report for the Global “Car Leasing Market”, the Global Car Leasing market size is estimated to grow at CAGR of 15% with Revenue USD 18.38 mn units during the forecast period 2020-2024. The "YOY (year-over-year) growth rate for 2020 is estimated at 12.4% by the end of 2024.*
Reflecting on the growth of leasing in the past couple years, we forecast that leasing will have a growing, promising future in the auto market. The financial outlook can also limit alternative ways of financing cars like paying them from the mortgage.
“With an increase in leasing, rental and new convenient mobility services based on the leasing concept, the asset finance companies will play a significant role in the future. They will be the one owning the cars and have a stronger relation to the consumer. When owning large fleets of cars, they also can get access to data giving good insight to develop new services. The opportunities for them to create great mobility services with current available technology will be more or less unlimited,” says Kjøs.
Automated End-to-End Solutions
While we cannot predict exactly how the market will develop in the future, what we do know is that technology will be key to be competitive. Convenience and simplification for the consumer means more complex and automated solutions for the financing company. This will require more auto finance companies to implement software that offers simplified processes for online sales and to make financing easy and predictable for consumers with fully digital and automated processes - and this is where we can help. Banqsoft offers future-proof systems in order to help auto finance companies stay ahead of the game. From end-to-end standardization and highly-automated customizable platforms and processes, Banqsoft has the insight and technology to keep your finance company up to speed of future market changes and innovations.
2020 Global Automotive Consumer Study. Deloitte, 2020, https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Manufacturing/gx-2020-global-automotive-consumer-study-europe.pdf. Accessed 22 May 2020.
Global Car Leasing market 2020-2024. Industry Research, 2020, https://www.industryresearch.co/global-car-leasing-market-15165975. Accessed 22 May 2020.