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An uncertain outlook

Date: 16 December 2020   |   Author: Sean Keywood

After a turbulent year, the leasing industry is bracing for yet more challenges to come.

The vehicle leasing industry is facing uncertainty over supply chains, Brexit, residual values and liquidity as 2021 approaches. That's according to the latest Leasing Outlook report published by industry body the BVRLA, which also predicts a continued increase in fleet electrification.

Discussing the uncertainty faced by the industry, it states that while leasing companies are looking forward to a rebound in demand for fleet vehicles as the economy recovers, they are concerned about the potential for extended lead times and the reputational damage that could ensue.

There is a fear is that manufacturers could take time to respond to a potential backlog of orders for traditional petrol and diesel vehicles, while EV production capacity is still being developed.

Of course, the supply chain is just one of the areas that could be affected by Brexit, with the outcome of the UK-EU trade deal negotiations set to also have a major impact on business confidence, the cost of new vehicles, and the ease with which they can be moved around the UK and Europe.

The report warns that a 'no-deal' deadline could spark a flurry of orders as buyers look to beat any tariffs, creating risks if vehicles are ordered early, but still incur tariffs because of production or delivery delays.

On the subject of residual values, the report says the strength of these has been one of the few positives faced by the industry in 2020. However, there is concern about the long-term economic impact of the Covid-19 pandemic, and the used market's capacity to absorb a large influx of EVs.

Contributing to the report, Cap HPI head of forecast UK Andrew Mee said: "On average, used car values are now around 7% higher than they were a year ago and we consider this unsustainable. 

"As we move through Q4, we expect that the strength in the used market may start to slowly ebb away, as pent-up demand is satisfied, and the typical pattern of falling values in the latter months of the year could be re-established. 

"A fall of 10% over the next year looks reasonable. It is broadly similar to 2019 and is nowhere near as bad as we saw in 2008."

Finally, the industry's concern over liquidity is that the financial and administrative burden of providing forbearance to those hit by the pandemic will continue well into 2021, and that there are signs the supply of motor finance is also tightening.

In the report's forecasts for the make-up of the market in the first half of 2021, BVRLA members are expecting battery-electric vehicles to hit 6% of the total lease car fleet by the middle of next year, with plug-in hybrids hitting 9%.

Members predict that the market share for petrol cars will begin to plateau at around 38%, while diesel's market share will slip beneath 50% for the first time at 46%.

Contributing to the report, TMC managing director Paul Hollick said: "Our clients are introducing EVs into their fleets but slowly and with caution. 

"Businesses are at the early stages of deployment but there is a huge appetite for pure-electric vehicles and a need for these businesses to understand where they could be deployed."