Is leasing the way forward for the automotive industry? By Jessica Foreman

Friday, 4 August 2017
March 2017 was a record-breaking month for the car industry; although inflated somewhat by the government’s rises to road tax which meant that many buyers brought their purchases forward, it was still a bumper month that saw sales reach 8.4% higher than the same month last year.

Then it all fell through the floor. The near-20% drop in April was the sharpest fall since 2010, a reflection of the price rise and cuts to subsidies to green cars. Experts predict that this might be the beginning of the end, perhaps because wages are being squeezed and credit is still harder to obtain.

There might also be other reasons, predicated by the uncertain times we see before us. In a post-Brexit world, who knows how the price of a new car will be affected? Who knows how our general wages and lifestyles will differ, and how much money we’ll have in our pockets? Owning a new car might be secondary to keeping enough money in our account to make sure we can keep our houses if we lose our jobs.

Owning a new car outright no longer possesses the appeal that it once did, simply because ownership brings its own hassles – not least the amount you have to shell out to buy the car in the first place, or indeed the monthly amounts if you decide to buy the car in instalments. Expect interest rates of 5% at a minimum, but probably higher if you take the dealer’s offer.

Throw these ingredients together and you soon realise why leasing is becoming so popular. According to figures from the Finance and Lending Association, 86% of new cars were purchased on lease deals last year, with more than £30 billion of borrowing. This is not just a UK phenomenon; sites in the US and Europe report the same surge in interest in lease deals as the UK, for multiple reasons. Firstly, it allows you to get a brand new car at a price that’s affordable, since you’re only paying for the price of the car’s depreciation and not its whole value.

Leasing also acts as a buffer against changing trends, and a way of ‘future-proofing’ costs – by taking up a lease of several years, motorists will be shielded from motoring cost increases. There’s also a business incentive as well, as businesses that are VAT registered can claim back 100% VAT on their car maintenance costs.

Don’t just assume that you can walk into a dealership and take the keys to an Audi – although it’s definitely possible. You’ll still have to pass certain checks, and these may become even stricter following an investigation from the Financial Conduct Authority. This has arisen because of concerns about irresponsible leasing in the industry and fears that some borrowers are taking out leases that they cannot really afford.

Leasing is just one segment of the overall consumer credit growth rate, which continues to grow at at pace. And it may be due an overhaul, as some lenders foresee a time when UK borrowers might be able to choose from a range of car types depending on the time of the year, a scheme already launched in the US. It’s not for everyone, but leasing looks set to not only stay, but evolve.

Jessica Foreman is a Durham University graduate specialising in business and lifestyle based writing. She has developed her skills on projects surrounding The British Broadcasting Company, and running a print and online based magazine whilst at university. She is currently looking towards starting her Masters in Mobile and Personal Communications as well as broadening her horizons through travelling.