The bones of our business is car leasing so it was interesting to discover how it all began and who invented car leasing. It’s a smart concept and with so many variations there is a lease plan which suits most drivers. But how did these variations originate? What changed to make cars accessible to more than the very wealthy?
- Zollie Frank started long-term leasing of cars in 1914
- It wasn’t until the late 1940s that significant automobile leasing began on both an individual and fleet basis
- Short-term rentals by Avis, Hertz, and National Car Rental grew rapidly in the 1950’s
In this article, we’ll take a look at the cultural changes which triggered the invention of car leasing as well as discover who invented car leasing.
When was car leasing invented?
Records of leasing first started in the USA in the 1700’s and related to transport needs. Typically horses, buggies and wagons were often leased. In the 1870’s barges, rail cars and locomotives were leased under equipment trust certificates. Car-rentals have traceable origins to 1918. Walter Jacobs acquired a 12 Model-T Ford and Rent-A-Car Inc. Five years later Rent-A-Car was sold to John D. Hertz (recognise the Hertz name?)
Who invented the concept of leasing?
The marketing team at iconic Singer sewing machine brand invented the first recorded type of consumer lending. People could lease a Singer Sewing Machine by putting down a $5 deposit and pay $5 per month with the option to purchase. This method of leasing with the option to buy would be known now as Hire Purchase.
Car leasing in the way we recognise it today is credited to Zollie Frank who started long-term leasing of cars in 1914. It wasn’t until the late 1940s that significant automobile leasing began on both an individual and fleet basis. Short-term rentals by Avis, Hertz, and National Car Rental grew rapidly in the 1950’s. Rent-a-car companies at airports changed the entire character of the business.
When did leasing become popular in the UK?
Ford Motor Company introduced private contract hire to the UK market in the early 90’s. It was very expensive and didn’t take off, but they planted the seed. There was obviously a demand for leasing cars and by 1993 vehicle brokers started to appear. These brokers were tasked with taking the idea of contract hire agreements to small and medium sized businesses. At this time banks were only interested in big fleets because they had been providing asset finance services to them for years.
How did the first lease brokers operate?
Back in the 90’s cars would often come from the manufacturer and sit in a compound for more than six months until it was sold. This would mean they would need some work before they went to their new owner. This gathered an additional cost to the manufacturer who wouldn’t want to admit to a mass of cars going unsold.
These cars would be sold to the daily rental market or the newly established brokers at big discounts. The brokers could then make a profit on leasing these cars to consumers. The consumers were happy as new cars became accessible and brokers got an excellent deal meaning they could sustain a legitimate business growth with this business model.
When did leasing cars become popular?
As the news spread that leasing gave you a great deal on driving a new car the demand grew pretty quickly. This led to more brokers opening. At the time there were very few regulations so pretty much anything could be done, as long as it was legal. Banks saw the revenue streams leasing generated and wanted in on the action.
They saw that vehicles were an expensive purchase and they could lend a lot of money to people this way. Many banks made big mistakes along the way. For example, contract hire, even now, requires the lender to predict what the vehicle will be worth at the end of the lease term. At the start, many lenders overvalued what the cars would be worth and lost out on a significant amount of money. These losses were too rich for some and some banks started to pull out of offering vehicle finance altogether.
Customers, on the other hand, were driving brand new cars for a lot less than they could buy them for.
The growing popularity of car leasing
In the USA car leasing continues to grow significantly in popularity. In fact, during the first half of 2016 the leasing market in the USA hit an all time high. Millennials and older consumers were equally responsible for driving this growth pattern. Leasing in the USA has doubled in popularity over the last five years (The Lease Market Report from Edmunds).
The US has traditionally been a few years ahead of the UK when it comes to the popularity of car leasing. However, in July 2016 both personal and business contract hire had increased significantly in the UK too. The FLA (Finance and Leasing Association) reported that Personal Contract Hire (PCH) grew in popularity by 77% between February 2015 to February 2016. This was the fastest growing form of car finance in the UK.
How popular is car leasing in the UK now?
Now, around 80% of new cars are sold on PCP (Personal Contract Purchase) agreements. This figure comes from the Society of Motor Manufacturers and Traders and there is no sign of this figure reducing in the coming years. In fact, if patterns are to be believed the UK will be following suit with the USA and PCP will become the most used method to purchase a new car.
According to the Society of Motor Manufacturers and Traders, about 80 per cent of new cars in the UK are sold on PCP. If trends are to be believed then the popularity of car leasing in the UK is set to continue to increase further. The USA has a very strong vehicle leasing market and the UK have typically been a few years behind their levels of demand. So we can expect to see the number of people taking out leasing agreements as a viable way of car ownership to become ‘the norm’ over the coming 10 years.
How does this affect the new car market?
The new car market has benefited tenfold from the popularity of car leasing. Prior to leasing, the market was different. It was normal for a consumer to purchase a car that they would keep for at least 6 years. The typical lease term lasts 2, 3 or 4 years, meaning the manufacturers are able to entice the customer with a new model quicker.
All of us at OSV can say thank you to Singer Sewing Machines, Ford Motor Company, and Zollie Frank. Thank you for inventing car leasing and shaping the industry we work in today. Without their innovation, OSV might be a very different company today.