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Is the personal car lease under threat?

BANKS are under pressure to release more funds to small businesses. Little wonder. Most of the major bank funders of car leasing have been pulling away from the personal lease hire market. How will this affect business owners who want to fund their cars through a personal contract hire lease? National Automotive’s Peter Leyden assesses the future of personal leases for small businesses.
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Personal lease: a form of car finance for small businesses that is under threat?

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28 July 2009

Businessman considering a personal lease on a car
Personal lease: a form of car finance for small businesses that is under threat?

BANKS are under pressure to release more funds to small businesses. Little wonder. Most of the major bank funders of car leasing have been pulling away from the personal lease hire market. How will this affect business owners who want to fund their cars through a personal contract hire lease? National Automotive’s Peter Leyden assesses the future of personal leases for small businesses.

THE banking sector continues a period of turmoil.

During the last week in July, Chancellor Alistair Darling was putting further pressure on the banks to reduce their loan interest rates and make the banks lend to small businesses.

But already many banks are looking at all aspects of their business. This trend has become particularly pronounced in the contract hire and leasing market.

As most large leasing companies are bank owned, many have already announced significant changes to their strategies: including the Small and Medium-sized Enterprises (SME) personal lease market.

Bank-owned leasing companies and car brokers

Over the last 10 years many of the larger leasing companies took the decision that dealing directly with SMEs was not cost-effective.

In part, this became a catalyst for the proliferation of independent finance brokers. These entrepreneurial businesses flourished. And have ensured the major leasing companies had a third-party route to this market.

Car leasing brokers have many advantages to both customer and funder alike. The customer can lease a car which, under a traditional hire purchase agreement, would have been prohibitively costly.

But, being mainly small businesses themselves, car leasing brokers find they have a natural empathy with their SME clients. And can also react quickly to changes in market conditions to make the best use of special offers and promotions.

The banks change their perspective on the SME market

From a leasing company’s perspective in a market which was all about growth and fleet size, this was a quick and easy route to secure a cost-effective stake in the SME market. Establishing specialist teams to service the brokers, many leasing companies quickly established significant volumes of traffic.

However, with the credit crunch and the resulting economic downturn, many leasing companies found their SME appetite reduced.

Contract hire companies have become less interested in overall fleet size while seeing SME and private individuals as a greater risk to bad debt. Leasing companies have also had to consider more difficult access to funds. Many leasing companies have therefore opted to use these precious resources to continue funding their major clients at the expense of smaller businesses.

So what’s the future for the broker market?

The key funders in the broker market in the past few years are companies such as Network, Lex, Halifax Bank of Scotland (HBOS), Lombard, Automotive Leasing, Hitachi Capital Vehicle Solutions, Arval and Lloyds. However HBOS merged with Lex; Automotive Leasing was taken over by Network; Hitachi withdrew from the broker market; and recently, with Lex and Lloyds TSB Autolease merging into one company, Lex has withdrawn from the personal contract hire (PCH) arena.

So, going forward the market will be dominated by a few: Network; Lex Autolease; Arval; and Lombard. Only two are offering personal contract hire: Network and Lombard.

How will this impact the availability of PCH?

In the broker market personal contract hire – often used by small businesses to run a car privately as well as on business using tax-free AMAP reimbursement – can account for 30% to 50% of their business. So clearly this reduced choice is worrying.

With the recent growth of PCH (see our Special Report The attraction of personal lease deals), are customers already happy with this method of vehicle acquisition going to revert to more traditional funding options – such as hire purchase (HP) or personal loans?

Nothing is set in stone, but I think it unlikely. I suspect you will see car manufacturer contract hire arms becoming far more aggressive in offering this business to customers who want a personal lease. As many car leasing brokers have traditionally enjoyed close relationships with their preferred dealers I suspect it will be business as usual with them. Brokers will use the manufacturer’s lease offering alongside the remaining bank owned and independent funders’ leases.

So a lot of changes are coming over the next 12 months. But the small business sector looks set to continue to enjoy the benefits of personal leases – despite the market changes.

Further information

Peter Leyden is the operations director of National Automotive, where you can find a selection of quality brokers advertising their best contract hire and personal contract hire rentals at www.NationalAutomotive.co.uk

You can read the editor’s views on personal leases for business use in How a PCP can help your business

You can also read a conversation with Peter Leyden at Special offer website – catching up with Peter Leyden

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Ralph Morton

Ralph Morton

Ralph Morton is an award-winning journalist and the founder of Business Car Manager (now renamed Business Motoring). Ralph writes extensively about the car and van leasing industry as well as wider fleet and company car issues. A former editor of What Car?, Ralph is a vastly experienced writer and editor and has been writing about the automotive sector for over 35 years.

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