Consolidation picks up pace as leasing companies seek to achieve economies of scale, gain market share, enhance capabilities, expand customer and geographic coverage, and broaden their product and service portfolios.
The global vehicle leasing market is set to hit a new milestone in 2023, crossing the $200 billion mark for the first time to reach $202.5 billion, with operational leasing accounting for almost 60% of total revenues. The global corporate leasing segment is set to revive with the release of pent-up demand from large corporates. The global private leasing segment is also expected to bounce back, albeit with annual sales short of the record 6.6 million sales achieved in 2019 because of competition from new mobility solutions, such as car sharing and ride hailing.
Meanwhile, a clutch of exciting new growth opportunities stemming from connected car technologies, electric vehicle (EV) leasing, used car leasing and digitization will transform the global vehicle leasing market in the years to come.
To learn more, please see Global Vehicle Leasing Outlook, 2023, Growth Opportunities in European Corporate Light Vehicle Leasing Market by Fleet Size, and Asia-Pacific Telematics in Vehicle Leasing and Rental Fleet Growth Opportunities or contact sathyanarayanak@frost.com for information on a private briefing.
Connectivity Creates Monetization Opportunities
Fleet leasing companies will continue to explore ways to reduce additional expenses linked to their telematics systems. Usage-based insurance (UBI) telematics will be an area of particular interest since it will promote improved driver behavior and asset safety, thereby allowing fleet companies to obtain favorable insurance deals. Fleet operators will also try to optimize the value extracted from the massive mileage data generated by their fleets.
Connected car technologies will open up new monetization channels ranging from data analytics to fleet consulting, while enabling companies to improve operational efficiencies and respond more effectively to customer demands. In this context, leasing companies will need to forge strategic partnerships with OEMs/TSPs having expertise in data monetization and data-driven applications.
Sustainability, Regulations, and Cost Savings Encourage EV Leasing
The twin drivers of sustainability and cost savings will highlight the appeal of EV leasing fleet adoption. Increasingly stringent emissions mandates, lower fuel and maintenance expenditure, advances in battery technology and charging infrastructure will all incentivize the transition to EV fleets. In turn, this will spur leasing companies to realign their portfolio to include more EVs, while adjusting their business models to accommodate the particular requirements of EV leasing.
We will see EV leasing gaining momentum as companies develop the enabling EV ecosystem, offer additional support services, and improve residual estimation benchmarking. These strategies will enable EVs to achieve a more competitive positioning vis a vis their ICE counterparts and will underpin a projected 27.6% YoY growth over 2022-2023.
Shortages of New Vehicles to Benefit Used Car Leasing
Benefits linked to affordability and flexibility will spur demand for used car leasing. This trend will line up with the consumer focus on cost-effectiveness and shorter ownership cycles. Leasing companies are already responding by offering a wider range of certified pre-leased vehicles for a re-lease, coupled with flexible lease terms and additional services.
Persistent shortages of new vehicles will push higher demand for used car leasing which is slated to top 2.5 million units in 2023. Trends indicate a preference for used cars returned after completion of the first leasing cycle since there is relatively less wear and tear. This will also highlight the need for comprehensive inspection and maintenance processes to ensure the quality and reliability of the used cars being offered on lease.
Digitalization becomes an Imperative
Changes in customer behavior, including the preference for online platforms, will accelerate digitalization and digital sales in the vehicle leasing market. The effects of digitalization will range from streamlining processes and enabling faster lease approvals to improving operational and cost efficiencies. Competition will intensify as leasing companies leverage digital sales channels to reach more customers and expand their market presence.
Today, digital capabilities such as online contract management, online vehicle selection and customization, online payments, and real-time fleet management have become imperative for the leasing market. Companies like ALD Automotive, Volkswagen Financial Services (VWFS), and Alphabet have been at the forefront of the digital transformation. For instance, digital tools and platforms like the My ALD Driver App, My ALD Web Portal, and the Alphabet online service booking portal support enhanced customer experiences, personalized services, and streamlined operations.
Consolidation to Change Competitive Dynamics
The market will continue to be characterized by fragmentation with the top five participants accounting for only a quarter of the market. The presence of several local companies will further dilute market concentration.
However, the competitive landscape is set for disruption as consolidation picks up pace. Over 2021-2022, there were a flurry of consolidation deals, Arval’s acquisition of Athlon (Switzerland), ALD Automotive’s acquisition of LeasePlan, Alphabet’s partnership with Cartrust, and Wheels’ merger with Donlen, among several others. Targeted business segments included fleet management, car subscription, business mobility, car leasing, asset management, full-service leasing, and multi brand platform.
We will see more such consolidation as competition intensifies and companies move to achieve economies of scale, gain market share, enhance capabilities, expand geographic coverage, improved efficiencies, and broaden their product and service portfolios. Market consolidation will allow larger, newly formed companies to exercise increased bargaining power. For the customer such consolidation will prove beneficial since it will allow access to more talent and resources to develop innovative offerings.
With inputs from Amrita Shetty, Senior Manager, Communications & Content – Mobility
