Have recent PCH product
launches correctly identified a shift in the UK consumer appetite
towards car leasing – or will PCP and HP continue to dominate the
market? Motor Finance talked to industry insiders in
search of the answer.
Go deeper with GlobalData
Increasing numbers of motorists are
turning to long-term car leases, according to recent market data
released by the Finance & Leasing Association (FLA), with the
value of leases for private cars rising by 55% in the second
quarter of 2011, compared to the second quarter of 2010.
More than £100m was granted to
customers leasing cars in the second quarter of 2011, compared with
£66m in the second quarter of 2010.
The report comes hot on the heels
of news that point of sale market leader Black Horse has launched a
personal contract hire (PCH) product for consumers, in response to
demand from its dealer network, as well as a contract hire product
for its business customers.
The product was developed in
collaboration with Lex Autolease, the largest fleet lessor in the
country and a sister business to Black Horse under the Lloyds
Banking Group umbrella.
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By GlobalDataBlack Horse managing director Chris
Sutton says the new products were developed specifically with
dealers in mind.
He adds: “We have solid, two-way
relationships with our dealers and we take on board what they
say.
“It has been clear for some time
now that dealers and their customers have been crying out for a
flexible and hassle-free rental product where the costs are fixed,
which very few of our competitors or manufacturers currently
offer.
“I am confident our contract hire
offerings will prove to be popular additions to dealer showrooms,
with many private individuals opting out of company car schemes,
due to limited vehicle choice and tax implications.”
Captive finance giant Ford Credit
appears to share Black Horse’s confidence. It has recently launched
a PCH product for retail customers, pointing out that it tackles
customers’ depreciation concerns, for those don’t want to own the
car at the end of the contract.
Spokesman Christopher Makin adds:
“It is very early days, but we are finding that the majority of our
retail customers prefer the flexibility of the Ford Options product
[which offers the right to purchase, return or renew the vehicle at
the end of the contract].”
Like Sutton, Makin says: “PCH does
appeal in particular to customers who are opting-out of a company
car scheme.”
Volkswagen Financial Services also
appears to take a positive position. Spokesman Mike Graham says
VWFS (UK) has a PCH product which is used on a tactical basis when
suitable for a particular area of the market and includes a current
campaign for SEAT.
The past few years have revealed
that there is definitely a customer market for PCH.
However, PCH at Volkswagen is
currently not as popular as it is in the company’s US market, where
the product is the biggest seller for VW Credit, Inc.
Toyota Financial Services spokesman
David Crouch says Toyota has PCH and leasing products in its
portfolio.
“In the past, however, demand from
private individuals has been limited,” Crouch says, “but there has
been a recent flurry of competitor PCH and leasing advertising in
the marketplace.
“PCH is a pure rental product more
used in the business and fleet markets where business-related tax
benefits can exist and, of course, the customer doesn’t benefit
from ownership.
“While there is a
limited market, we don’t see this expanding dramatically in the
immediate future as the British psyche seems to favour
ownership.”
Whatever the benefits of PCH, the
prevailing mood among most captives and independents can best be
described as lukewarm.
Honda Finance’s general manager
Philip Ross, for instance, says Honda has offered contract hire to
private individuals for a number of years, but that the uptake
continues to be “relatively small”.
“The dealers like the option of
another product,” says Ross.
“Customers may take it if the
rental is at the right level for their needs, bearing in mind they
have to pay VAT on the rental which they cannot get back.
“PCP gives the customer equity at
the end of the contract to buy another car, and therefore is a
better proposition for the customer and dealer.
“At the moment we don’t see PCH as
a major growth area as UK customers still like to own their car,
but we offer the product and will continue to monitor its
performance.”
Renault Finance’s brand manager
Andy McCabe says the same thing.
He says: “My belief is that PCP
will always be a better proposition for the consumer in the UK.
“The option to own the car and the
legal protection customers receive under the Consumer Credit Act,
which they do not receive with PCH is attractive.
“There is no ‘half’ and ‘third’
rule, and no early termination right.”
Alphera Financial Services would
seem to concur with Renault’s view.
Sales manager Kirk Franks said
Alphera has always offered PCH to its partners.
“We haven’t been experiencing a
huge demand for PCH from dealers or consumers,” Franks adds.
“While there has always been a
steady demand, there certainly hasn’t been a notable spike of
late.”
GMAC was unequivocally uninterested
in the product.
Spokeswoman Susanne Gehrling says:
“Regarding PCH, the answer is quite short – GMAC has no current
plans to introduce a PCH product in the UK at this time.”
She adds: “We constantly look for
innovative products and will continue to monitor this
position.”
Meanwhile back in the independent
sector, Carlyle Finance takes the same lukewarm position, saying it
doesn’t have a consumer contract hire product, nor does it have any
plans to launch one.
Whatever the pros and cons of PCH,
Toby Poston, head of communications at fleet leasing association
the BVRLA, is convinced personal leasing products have a future
among fleet providers.
“We have definitely seen an
increasing uptake in this method of finance,” asserts Poston.
“Our member statistics show that
there was a big rise in the number of PCH contracts in 2010.
Members reported having 158,856 cars on these contracts in 2009,
which rose to 250,963 in 2010.”
Poston adds: “Mind you, the
personal contract purchase fleet also increased during this period
– from 16,420 in 2009 to 59,168 in 2010.
“On a broad level, consumers are
definitely getting more used to the benefits of fixed-cost
motoring,” Poston continues. “PCH adds the extra benefit of no
residual value risk.
“From a dealer perspective, many of
them are more attracted to offering PCH because it enables them to
access the same fleet terms from manufacturers as when they sell
corporate contract hire.
“These terms usually aren’t
available for PCP deals.
“Basically they don’t get the same financial support from
manufacturers when selling PCP.”
Personal contract hire:
one expert’s opinion
Personal contract hire has
struggled to gain traction in the UK market for a number of
reasons, writes PCH expert Graham Filmer.
• The monthly rentals are
subject to VAT, inevitably this creates a pricing obstacle for many
consumers unable to offset the VAT. Using their tax allowances,
leasing companies can move to use their tax situation to help
offset this. (It’s somewhat complex, but, in brief, leasing
companies often operate 12 businesses, one for each month to
maximise the offset opportunity, a ‘saving’ they can pass on in
lower rentals, although not usually any lower than PCP/HP). This
creates a natural barrier for non-leasing companies in
terms.
• While there is plenty of
evidence that consumers value convenience, which is certainly
offered by contract hire, this is exceeded by the desire of
consumers to ‘unbundle’ products in order to price-compare them.
Over recent years, aggregators such as Compare the Market and Money
Supermarket have encouraged consumers to save money by comparing
prices and switching their insurance, and as a result bundled
products have struggled. In a similar manner, consumers can now pay
for their servicing through a service plan that provides a flexible
and inflation proof method of meeting this key cost.
• The bundled nature of
personal contract hire can make it appear expensive, although it’s
hard to compare it with other point of sales products (something
which itself makes the product harder to sell).
• The commitment to an annual
mileage is something that continues to be a barrier to residual
value products. PCPs have to an extent overcome this, but the
impact upon pricing is greater for a contract hire arrangement,
simply because the products has more composite parts, which are in
turn impacted by the mileage.
• Finally, there is some
lingering truth to the fact that the British psyche is focussed
upon buying rather than renting; we see this in home ownership and
it continues to appear true in car purchasing as well.
• I have not seen any demand
‘push’ from dealers for this type of product. In principle it does
have some convenience attractions, but these are often outweighed
by higher costs, with VAT a key factor.
Graham Filmer is managing
director of performance consultancy Rocket Associates. In a 30-year
career he has worked in sales and marketing with major brands
in the automotive and financial services sectors
