PCP boom leads to maintenance concerns
29 January 2019
Author: Jack Carfrae
The rise in cash allowance and personal leasing is creating a surplus of poorly maintained business cars, with knock-on effects for safety and residual values. Jack Carfrae reports.
The rising number of business drivers choosing personal leasing could lead to an increase in poorly maintained cars, according to e-commerce specialist Epyx. The firm said the shift away from traditional company cars meant fewer vehicles were being issued with maintenance contracts, which could cause problems relating to condition and residual values.
Speaking to Business Car, commercial director Tim Meadows said, "What we have seen is a massive increase in drivers moving out of cars and into personal lease, be that funded by their employers or whether they just go off and do their own thing.
"You only have to go onto LinkedIn and look at the advertisements from various brokers to see that it is all about price point - £199, £249, £299 - none of those will include maintenance, so there is a risk that you are going to take your £199 car without actually factoring in the cost of getting it serviced once every 12 months or so."
Meadows said the trend for personal leasing would likely see fewer vehicles maintained in accordance with their official manufacturer service schedules, as drivers would effectively be charged with personally handling their vehicle's maintenance.
"I think the risk may be that, if it is left to the individual driver, he or she has got to physically book their vehicle in and pay for it at the point of the service," he said. "This creates a whole series of issues. For the leasing company, this means they don't know whether a vehicle is being regularly serviced to manufacturer standards . it makes them uncomfortable.
"Also, for the employer whose employee is using the vehicle on business, it is much less easy to find out whether the car is being maintained to standards in line with their duty of care obligations. Again, this is something that creates a great deal of angst."
The trend has been driven by the change in company car and cash allowance rules, which came into force in April 2017. Announced in the autumn 2016 Budget, the move meant that employees with the choice of a conventional company car or a cash allowance would be taxed not on the option they choose - as was previously the case - but on whichever is the greater value, effectively promoting cash allowance over traditional company cars.
Aside from the obvious issue of drivers failing to correctly maintain vehicles, Meadows claimed that those sold with incomplete service histories could be worth significantly less.
"One of the challenges we think that's going to come in 2019 and 2020 is that probably 80% of those personal lease vehicles are not maintained, so when they're remarketed, there may not be the service history that buyers have been used to," he explains. "If it were the other way around - contract hire - around 80% would have been fully maintained.
"Normally, if a trade buyer is buying an ex-lease vehicle, it will have a full service history, stamped by a franchised dealer. That may not necessarily be the case anymore, so I think there could be an impact on used car values, because buyers are potentially going to pay less for it - or, the leasing companies are going to have to penalise those drivers if they bring the vehicle back and it doesn't have that full service history. So someone, somewhere, is going to have to cover that cost in principal."
He added that some leasing companies were attempting to address the issue by encouraging the use of manufacturer service packs and developing maintenance bundles specifically for the personal leasing sector.
"There are things like the manufacturer service packs that can be included in the original cost, so there is no visible, additional fee that employees are paying," said Meadows. "Some leasing companies have developed what you might call 'just add fuel' packages that include maintenance and are priced to appeal to PCH customers. Also, there are likely to be further developments in service plan-style products, with solutions aimed directly at the PCH sector.
"We have a pay-on-use platform and some of our leasing partners are looking to use that to enable drivers to get their servicing done at preferential rates, and all of that data is captured and can then be used in the service history of the vehicle when it comes back for remarketing."