This is a very interesting subject and one I suspect large leasing companies are grappling with and have been for a few years.
The more registrations we have the higher the stock volumes will be within the auction houses some 38 – 44 months later. So we have over the last couple of years seen high registrations especially within the LCV market. There seems to be no let-up either at the moment so with records surpassing the numbers registered prior to the downturn you have to question what will happen when all these vehicles come to market?
While we ponder on this, we also need to look at how the market has played out over the last 20 – 30 years. If we look back then we will see a cycle that continually happens and that is we have a shift in market expectations roughly every 8 to 9 years. Therefore you can argue that we will see a shift in the market we know today within the next 24 months.
So, is anyone doing anything about it? Well if you are a company that uses contract hire then you can say, what difference is it to me? And rightly so, you don’t have any risk when the vehicle comes to the end of its life and you simple hand back to your leasing provider and allow them to worry about how they will sell the vehicle. However, the knock on effect for you will be lower RV’s and this will mean higher rentals when you come to renew.
If you continue to outright purchase or use alternative finance and are left holding the residual value risk then I think you need to ensure that the value you have for the asset is a realistic one for the future when you come to sell the vehicle.
If you have a good contract hire company they will have already started this journey of putting in place realistic residual values (RV’s) and should be supporting you and allowing you to understand how they are pricing their RV’s and the effect this is having on your monthly rental. As everyone will have seen it is not all about the rental you should really look at the whole life cost to ensure you are getting the most efficient vehicle.
It will be interesting to see how the market plays out this year and how the leasing companies work with you to provide you all with comfort that they have this in hand and can manage a downturn whilst still service your account.
Let’s watch this space. PVS Ltd are here to support you with any problems or queries, provide expert advice and guidance whilst supporting any cost saving initiatives or interim solutions. Call us if you would like to have a quick chat.
Marcus Puddy - 07801472247