Leasing: pioneer to the future of car ownership
Far from killing the car retail industry, flexible consumer models for accessing vehicles will expand the industry’s customer base. And leasing has been paving the way
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Reports of car ownership’s death have been greatly exaggerated, according to online retail portal Auto Trader.
With pretty much every upper- and mid-range automaker – from Volvo and BMW to Porsche, Mercedes-Benz and Jaguar Land Rover – jumping on the “car subscription” wagon, the car industry may seem to be headed towards a future where most drivers do not invest capital and commitment into a single car, but move continuously from a vehicle to the other – taking a huge toll on the current dealer-reliant business model.
Auto Trader does not quite things heading towards this retail dystopia – or utopia, depending on the perspective. Rather, its latest twice-yearly analysis on the state of the UK market suggests the shift to what it calls access models “will complement, not cannibalise, retailers’ existing models”.
While cash and HP transaction may be getting rarer, that does not mean consumers are migrating en masse to Uber or car-sharing services like Zipcar, at the expense of having their own car. “We believe people will still want to have exclusive access to a car for many years to come,” Nathan Coe, Auto Trader chief financial and operating officer, said in the report.
Interestingly, while most commentators say the arrival of car subscription could “disrupt” the market – as, say, Netflix did for the TV broadcast industry – Auto Trader sees new, more flexible access-based products as the natural evolution of the bread and butter of the car finance industry: PCH and PCP. “The health of the finance market is a clear reﬂection of how open consumers can be to new ways of accessing cars,” the report said.
That is not just about leasing preparing consumers for mentality shift away from “I need to own my car”. It also has to do with affordability and market reach: “Far from signalling the death knell for the traditional retail model, the huge volume of cars on the road combined with an increasing array of ownership models could help stimulate sales by making car ownership more affordable and the process of changing your car much easier.” Something along the lines of eight in ten vehicles are now accessed through finance, and Auto Trader expects that to be the cars for all new cars within ten years’ time.
“Switching from owning their car in a traditional sense to effectively leasing or paying for exclusive access for two to three years has laid the foundations that have led to the expanding spectrum of access models and will be a key inﬂuence in their adoption,” the report noted, adding that PCH, while currently accounting for just a tenth of the finance market in Britain, is “growing at an impressive rate”.
Where does that leave traditional retailers like franchised dealership? Not lost on the roadside, as it happens. Firstly, somebody will have to supply the vehicles that are used in subscription products, and it may well be manufacturers and their franchise network. Secondly, dealers “can also add value by offering allied services, as well as the more practical, hands-on and physical infrastructure that all these access models require. This includes acting as servicing/maintenance support and hubs for car sharing operations”.
Auto Trader continues: “Retailers could support by prepping, cleaning, repairing, and even upgrading cars on behalf of the manufacturer or service provider. What’s more, showroom parking spaces and overﬂow car parks could also double as distribution centres – car sharers need well-located pick-up and drop-off points.”
Car subscription, apparently, will not be killing the car industry as we know it. Rather, it will augment it. And leasing has been paving the way for that.