Contract Hire and Personal Leasing - What future for the Broker market?

With the ongoing turmoil in the banking sector continuing many banks are continuing to look at all aspects of their businesses,and this trend has become particularly pronounced in the Contract Hire and Leasing Industry. As most of the large Leasing Companies are bank owned and funding being more difficult to obtain these large organisations have been under the spotlight, many already announcing significant changes to their strategies.

One area which has already seen and I suspect will see further significant changes relates to SME (Small Medium Enterprises) and the Personal Lease market. Over the last ten years many of the larger leasing companies took the decision that dealing directly with these channels was not a cost effective route to market, which in part became a catalyst for the proliferation of independent finance brokers. These entrepreneurial businesses flourished and have helped ensure the major Leasing companies still had a route to this market albeit through a third party. Brokers have many advantages to both the customer and the funder alike. The customer in many circumstances find they are able to lease a vehicle which under a traditional hire purchase agreement would have been prohibitive, this is in part due to the brokers being able to acquire the best dealer discounts, finding the funder with the best rates and residual value and in some situations obtaining enhanced support from the manufacturer.

Being mainly small businesses themselves brokers find they have a natural empathy with their SME clients and can also react quickly to changes in market conditions, making the best use of special offers and promotions.

From a Leasing companies perspective in a market which was all about growth and fleet size this was a quick and easy route to secure a cost effective stake in the Consumer and SME market. Establishing specialist teams to service the brokers many of the Leasing companies quickly established significant volumes of traffic which bolstered there overall fleet size.

However with the Credit Crunch and the resulting downturn in the economy many Leasing companies have found that their appetite for this market has reduced, with their share holders (in some cases you and I) demanding a better return on their investment along with the Government wanting their many billion back,many Contract hire companies are less interested in fleet size as one of the prevailing motivations of their business. Combine this with the belief that SME and private individuals offer a greater risk of default and bad debt this has helped to this market place seem less attractive. Leasing companies have also had to consider that with funds being harder to obtain in the amounts previously enjoyed, where these funds should be best deployed. Many Leasing companies have therefore opted to use these precious resources to continue to fund their major clients with whom traditionally they will be a able to foster longer term and more profitable relationships.

What's the future for the Broker market?

The key funders in the broker market in the past few years are companies such as Network, Lex, Bank of Scotland, Lombard, Automotive Leasing, Hitachi Capital Vehicle Solutions, Arval and Lloyds which provided a good spread of products and rentals, however BOS merged with Lex, Automotive Leasing broker was taken over by Network, Hitachi withdrew from the broker market and recently it has been announced that Lex and Lloyds TSB Autolease will also be merging into one company.

So going forward the market will be dominated by a few, Network, Lex Autolease,Arval and Lombard. It is well rumoured that Lombard is also looking at it's future strategy and position in this sector, possible sale? Who would want or indeed afford this Goliath's book will be interesting to see. Out of these key remaining Leasing companies only two will be offering Personal Contract Hire , Network and Lombard.

How will this impact Consumer Business?

In the broker market Personal Contract Hire can account for between 30% to 50% of their business, so clearly this is a worrying trend.

With the recent growth of Personal Contract Hire are customers that are already locked into this method of vehicle acquisition going to want to revert back to more traditional funding options such as Hire Purchase or Personal Loan?

Whilst nothing is set in stone, at the moment I think it will be unlikely that finance will be seen as an attractive solution to their dilemma. I suspect you will see manufacturers contract hire arms becoming far more aggressive in trying to mop up this business, both as a profit centre but more importantly as a means to retaining customers to their brands.

As many brokers have traditionally had close relationships with their preferred dealers I suspect it will be business as usual with them using the manufacturers Contract Hire along with the remaining bank owned and independent funders

So in summary a lot of changes coming over the next twelve months, however the SME and Consumer market remains a huge opportunity and is an attractive prize for both car Leasing brokers and funders, one thing is for sure there will be a lot of businesses looking to make sure they get a slice of the action!

You will find a selection of the best quality brokers advertising a selection of their best Contract Hire and Personal Contract Hire rentals at http://www.nationalautomotive.co.uk/