A growing number of corporate cars in western Europe are funded on short term leasing, as companies squeeze fleet expenses, a new study found.
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According to independent market analyst Datamonitor, shorter leasing contracts are also a result of the growing number of temporary employees in countries such as the UK, France, Germany and Belgium.
The report ‘Evolution of Short-term Leasing in western Europe’, said that in the UK, currently around 1% of all operational leasing contracts are equal to or shorter than a year, but this proportion is likely to increase as demand for this service grows.
Describing short-term leasing as both a successful proposition and a ‘grey area’ between car rental and operational leasing, Datamonitor said short-term leasing is a funding method, whereby contracts for financing and maintenance are arranged for periods of less than two years, and starting from as short as three months.
This financial product has emerged and developed in western Europe’s largest operational leasing markets of the UK, France, Germany and the Netherlands, as a flexible alternative to the existing standard operational leasing contracts ranging from two to four years on the one hand, and a cheaper alternative to extended daily rental on the other.
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By GlobalDataDemand for short-term leasing is particularly pronounced amongst construction sector companies in particular but is also used for temporary and project staff at times of increased business activity.
“Companies are opting to increase their car fleet whenever the volumes of their business increase, without having to carry financial commitments into quieter periods. Leasing vehicles for a few months is proving a convenient alternative to the classic three-year contract,” said Datamonitor fleet analyst Jugoslav Stojanov, author of the study.
“In conditions of slowing market growth for long-term contracts, leasing firms are only too happy to give their clients what they want.”
Datamonitor expects the number of short-term lease fleets in the UK will increase by more than 30% by the end of 2006, far above the growth forecast for standard three-year contract hire. Similar trends are expected in France, Belgium, the Netherlands and Belgium, as leasing and fleet management companies re-align product ranges in tune with the demand.
The study also noted that growing demand for short-term leasing will bring most immediate benefit to car rental firms, despite the emerging competition from fleet management companies that are also venturing into the market with short-term lease operations.
This is because most leasing companies continue to outsource their short-term leasing precisely through daily rental firms, acting as their corporate deal brokers. The crucial advantage of daily rental companies is the unique organisational structure to handle handovers and takeovers of cars at short intervals and efficiently re-market them upon the end of their life cycle.
Stojanov added: “Short-term lease is not a substitute for long-term leasing, but a supplement. Because short-term is more expensive than long-term leasing, a large proportion of corporate fleets will remain funded on long-term contracts.
“However, the flexibility and customer focus offered by short-term leasing will continue to sustain this market in future. In conditions of fragile economic growth it is hardly surprising that short-term leasing has emerged as a successful proposition, because it helps corporate fleet users maintain lean fleet sizes at a minimal possible cost.”
