The automotive industry has experienced a remarkable 20 months. The pandemic and the various lockdowns that resulted, the global semiconductor shortage, supply issues resulting from Brexit, as well as a national fuel shortage are just some of the challenges that have piled pressure on one of the UK economy’s most vital sectors. Paul Harrison, head of strategic partnerships at Leasing.com, writes
Despite all this, the shops are open, the children are back at school, most of us have made our return to work and millions of car agreements have been due for renewal, meaning car usage and motoring requirements are on the up. So, it’s worth pausing for a moment to consider the state of the industry and the macro-trends, such as supply issues, the move towards electric vehicles (EVs) and the make-up of vehicle financing in the face of changing consumer behaviour.
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No chips to spare
The global chip shortage is continuing to wreak havoc on the automotive sector, well over a year on from the beginning of the crisis. In April 2020 global lead times on vehicles almost doubled from more than 12 weeks in February to 22 weeks as the semiconductors needed for vehicle electronics felt a huge drop in demand and were thus redistributed to other sectors.
The squeeze of this is being felt by the major automotive manufacturers, with Volkswagen and Stellantis recently blaming the crisis for their disappointing financial results. The shortage is expected to cost the industry a total of $210bn by the end of 2021.
Bad news for manufacturers has however meant good news for their retail networks – dealerships have been able to sell existing stock that has been sat on forecourts during lockdown closures. And many UK dealerships had stockpiled vehicles ahead of Brexit, allowing for retention of strong stock levels. That stock is now dwindling though.
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By GlobalDataThe question that remains is how this has impacted the consumer. Previously, motorists would order their vehicles directly from the factory to the colour and specification of their choice, but with ongoing delays and the resulting increase in waiting times for new vehicles, behaviours have changed.
Leasing.com research suggests that the dramatic increase in lead times is causing leasing consumers to cancel factory-ordered vehicles in favour of in-stock models already built and shipped to the UK. Our data also shows that during April 2021, in-stock orders were up 280% compared to the same month in 2020, and 7.67% higher than factory orders overall.
Supply was expected to recover in the second half of this year, but with December now upon us, the shortage is forecasted to continue well into the second half of 2022. In fact, Daimler chairman, Ola Källenius, has predicted that it may last until 2023.
EV demand continues to surge
Moving towards EVs is a central policy of the UK Government’s net-zero strategy, with pure petrol and diesel vehicles set to be banned from sale by 2030. This, along with manufacturer investment, consumer preference, as well as the recent fuel crisis, has accelerated demand for EVs beyond the strong growth that had already been seen.
Our data shows enquiries for EVs – incorporating battery electric vehicles (BEVs), electric plugin and electric hybrid vehicles – grew 66% in Q3 compared to Q2 of this year.
The huge overall growth in demand for new EVs between July-September 2021 was the result of growth in the individual BEV, plugin and hybrid segments. Those three EV segments recorded a combined sales enquiry market share on Leasing.com of nearly a third (32.1%) in Q3, up from under a quarter (22.9%) in Q2.
The increasing demand for EVs is providing a significant boost to the leasing providers. September saw the best-ever month for sales enquiries via the Leasing.com website, seeing a 60% increase compared to September 2020, with much of this being driven by EV enquiries.
A question of finance
Demand for new vehicles remains robust despite supply challenges. Consumers are increasingly willing to adopt EV technology and are turning to personal contract hire (PCH) to make this transition. The latest data from the Finance & Leasing Association (FLA) show that nearly 94% of private new cars were financed in the 12 months to September 2021 using specialist motor finance – hire purchase, personal contract purchase (PCP) and PCH.
The FLA’s data also shows that PCH is the fastest-growing type of motor finance with the value of PCH agreements up 44% in the year to September 2021 versus the same period in 2020. PCP remains the dominant private new car finance product, but the growth rate of leasing has so far surpassed it in 2021.
When we compared the 10 lowest total cost leasing deals on economy vehicles with the equivalent manufacturer PCP offer we discovered some interesting results. In particular, leasing customers saved an average of £1,794.46 over PCP over the term of the agreement. The monthly savings of leasing over the same vehicle basket, meanwhile, averaged out at £42.72 compared to a PCP agreement.
Across the 10 models that were compared, leasing was cheaper than PCP for all but one, with some deals saving customers over £5,000. Leasing a Fiat 500, for example, cost £8,409.52 across a 48-month term, whereas the total PCP cost for the same vehicle was £13,827.24.
Across some of the most popular models within the premium categories, leasing customers could save even more, with a BMW 3 series saving drivers £5,274.47 on a PCH contract. Similarly, the Volkswagen Golf, one of the UK’s most popular hatchbacks, cost £3,026.36 more on PCP.
Based on these findings, the growth of PCH as a financing method relative to its competitors is unsurprising. And with the ability for motorists to trial new technologies without making longer-term financial commitments, leasing is undoubtedly a gateway product to the ongoing uptake of EVs as we reached the EV tipping point in the new car market in 2021.
