Published: March 2013
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About this report
In this report we review the UK vehicle leasing market, covering both financial and operational leasing of company cars. We look at the market size and growth and at macro economic and commercial drivers.
We review the competitive landscape, and analyse competitive differentiation of the main operators in the sector.
Based on our analysis of historical drivers, macro economic and other forecasts, and our experience of having worked in the sector, we provide a sector forecast.
While many reports on the industry contain data and description and remain high level, a critical objective for us in writing this report has been to share our insights and conclusions in a concise and quantified manner.
Why did we write this report?
The economic downturn has affected many industry sectors adversely and severely. The car market is a relatively cyclical one. While recovery is still not imminent, the company car market has been more resilient given some sound structural reasons. Residual values have fluctuated, and in recent years, hold periods have been used to offset lower profitability levels with the operators. As some of these changes have slowly worked their way through, the business models has been tested in a difficult economic environment. The market has been characterised by significant consolidation activity as a result.
We believe that, in order for those involved in the market to make the best decisions in this complex and changing environment, they need to have access to the best information in a concise manner. The aim of this report is to provide this.
This report is intended for integrated vehicle leasing operators themselves, users of their services, partners, investors, banks, analysts, consultants and other parties with interests in the sector.
What are the sources and methodology?
This report is based on
– Publicly available data including company annual reports, websites, press releases and government information and statistics
– Interviews with senior decision makers in the industry
– In-depth analysis of macro-economic environment and relevant market drivers
– Our own experience of advising investors involved in the vehicle leasing market
Information from these sources has been synthesised and presented clearly and concisely with extensive use of charts and tables to illuminate views and support conclusions.
The UK Vehicle Leasing market – 5
History and regulation
Market size and growth – 8
Vehicle leasing market size & growth
Market drivers – 12
Explanation of market drivers
Drivers and their impact
Market characteristics – 18
Comparison to other sectors
Competitive landscape – 20
Main UK operators
Forecasts – 26
Macro economic forecasts
Key drivers forecast
Appendix – 30
List of charts
1. Turnover of UK vehicle renting & leasing companies / £m
2. UK car parc, by type / million
3. UK annual new vehicle registrations by type / thousands
4. New vehicle registrations pa, major global markets / millions in 2009 and 2011
5. Ratio of company to private registrations by country / %
6. Sector turnover share of GDP by country, 2010 / %
7. UK GDP in current prices (money GDP), inflation (GDP deflator) and real GDP / % annual changes
8. UK Inflation: Consumer price index and GDP deflator / % annual change
9. UK population and employment growth: historical and forecast / millions
10.UK GDP in current prices (money GDP), inflation (GDP deflator), employment and real GDP per head / % annual changes
11. Company car parc and company registered cars as % of total / million, %
12. New car registration (company cars and all cars) vs GDP growth / millions, %
13. Used fleet & lease car prices, £
14. Vehicle renting & leasing industry cost components
15. Vehicle leasing Industry, gross margin and turnover growth relative to other sectors
16. UK vehicle renting & leasing industry concentration / % of enterprises with revenue > £5m
17. Vehicle renting & leasing industry estimated market market shares / £m
18. UK vehicle renting & leasing industry gross margin trend
19. Profitability of leading operators / 2011 pre-tax profit margin %
20. Revenue per employee trend for main UK operators / £’000
21. UK GDP in current prices (money GDP), inflation (GDP deflator) and real GDP / % annual changes. Historical and OBR Dec 2012 forecast
22. UK Consumer Price Index and GDP deflator / % annual change. Historical and OBR Dec 2012 forecast
23. Historical and forecast trend of GDP, employment, new company car registrations and lease market
24. Forecast UK vehicle renting & leasing company turnover / £m
Market growth and drivers
The UK company car parc is currently 3.1m strong and the combined turnover of leasing and renting operators was just under £10bn in 2012.
The sector is cyclical in the long term, but less so than the private car market given multi-year lease agreements. Demand has reacted less sharply to the economic downturn compared to automotive manufacturing and the private car market.
Key industry issues
Compared to other European markets, the UK is relatively well developed with both a high ratio of company car over private car registrations and where the car leasing market has a significant share of GDP.
Changes to the tax regime over the years have put pressures on market growth, with driver incentives to choose cars with limited environmental impact and of a smaller size. Compared to elsewhere in Europe however, tax levels are still low.
A legal framework introduced in 2007/08 shifted duty-of-care from drivers to companies, providing a boost for the industry as companies were hesitant to allow private cars for business use.
Barriers to entry into the market are relatively low but scale is critical to compete effectively among the larger operators for corporate contracts, which is a price sensitive segment.
The UK market landscape is relatively consolidated at the top, but has a long tail of smaller specialists and niche players. The largest operator is Lex Autolease (a recent merger of two major players), followed by LeasePlan.
A number of recent mergers and take overs in the top tier of the market have changed the market dynamics and significantly increased market shares of the larger operators.
The ownership structure of the main operators varies with some owned by banks, some by automotive manufacturers and some being independent. This allows for different business models and a diversified service offering across the larger operators.
With the sector now being mature, and with companies feeling cyclical pressures over the recent years, the market has become more price sensitive.
Lombard, owned by RBS, is being wound down in the restructuring of the state-owned bank. The business continues to provide contract hire services through competitor ALD.
Historically, vehicle leasing was impacted by recessions, though less than automotive manufacturing and the private car market have.
We believe that the market will show a slow but continued recovery, with more robust residual values (RVs) but one in which operator business models and portfolios will change to reflect demand for flexibility and continued caution.
While private cars recovered faster, new company car registrations recovered during 2010 and 2011. this continued at a slower pace during 2012.
Because employment growth generally lags GDP recovery, the market is likely to recover more slowly than the economy as a whole.