Car leasing has been around for decades. While it was generally for business customers only, it wasn’t long before the world was introduced to private leasing.
Popular in the United States, it was brought over here and slowly gained traction.
But, who even invented car leasing? And when did car leasing become popular?
In this article we look at the history of the car leasing industry, and when exactly it became popular.
Who invented car leasing?
Leasing ultimately started as an Asset Finance Facility. This is where you offered security to a bank or lender of the asset you wanted to buy. So, if you didn’t pay your payments, the bank or lender would come along and take the Asset away from you.
And, banks will always be around when people need to borrow money, so the automobile industry is of great interest to them. The goods are expensive and most people can’t just pay for a vehicle outright.
When was car leasing introduced to the UK?
It was in the early 90’s, after the success of the personal contract purchase, that Ford Motor Company tried to introduce the idea of contract hire to the UK.
While it wasn’t successful at first, the principal had been set. And, by 1993 vehicle brokers started appearing. It was their task to take the idea of the contract hire agreement to small-medium sized businesses. The banks were only interested in the big fleets as they had been looking after them for years with Asset finance products.
Back in the 90’s, it was not unusual to sell a car as brand new even though it had been sitting in a compound for six months or more. The breaks would be seized because it hadn’t moved for its entire life, it would need a respray or even mechanical work before it actually got to the customer. No manufacturer would want to admit to a mass of cars sitting around. But, everything will sell at a price.
Clearing these cars would be achieved by either selling them into the Daily Rental market at big discounts or by going to the newly established brokers.
They would give them the big discounts to get a monthly cost, which would then move the problem vehicles. Neither of these routes would mean that the level of discount was ever declared outside the industry.
Of course, nothing stays very secret for long, and the word soon got out.
When did leasing become popular?
Over the years, word got around that you could get yourself a great offer on a lease. This led to more brokers being opened up.
At the time, the industry as a whole had very little regulations. Pretty much anything went, as long as it was legal. Of course, this was pretty much the same with every industry, not just the motor industry. A lot has changed in twenty years!
Anyway, a lot of banks wanted a piece of the action. Vehicles are expensive, and they could lend a lot of money to a lot of people this way. But, many made big mistakes. Contract hire requires the bank to make an educated guess on what a vehicle is worth in 2, 3, 4 or 5 years time. And, with the pressure of having a foothold in this sector, many overvalued what the vehicles would be worth at the end of the agreement. Therefore, many lost millions of pounds.
Some even stepped out of the market place totally. Meanwhile, the customers were winning. They were driving lovely new cars for less than they could buy them for.
When did leasing become more regulated?
In 2008, the whole country was hit by the “Great Recession”. First it was the housing market, then it was the automotive industry. Vehicle prices crashed, stocks and dealerships increased sharply. Banks ran out of money and more customers were handing vehicles back than were being delivered.
Manufacturers had to take control of what was being produced, otherwise there was a genuine danger that dealerships across the country were going to fail. So they did. Manufacturing was now controlled, thousands were made redundant and slowly the vehicles were being cleared from the compound.
Much of this was done by utilising contract hire. Its success was that “cash was King” and every business owner knew to keep cash in the bank. So, those expensive company cars were leased.
By 2010, momentum was picking up in the contract hire market. People and companies wanted to hold onto cash, manufacturers wanted to keep volume going and banks wanted to lend money safe in the knowledge that, if things did go wrong, they could take the car back. It was a win-win situation for all involved.
Late 2011 was the beginning of monthly growth in the broker contract hire market. In 2014, figures were up by 40% and in 2015 there was a further growth of 27% and it shows no sign of slowing down.
Thanks to the recession getting rid of weaker companies, regulations controlling the industry and word of mouth, people and companies are seeing the benefits of contract hire. It’s a hugely successful concept in which all parties win. The industry keeps the factories busy, banks lend money safely, and customers get great cars at low prices.
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