With challenges such as low renewals and payment delays, the global vehicle leasing market faced one of its worse years in 2020. However, according to the recent analysis from Frost & Sullivan, the market will grow at 3.1% this year.
The report finds that this phenomenon resulted in working capital management struggles, supply chain issues, a spike in maintenance costs and fluctuating residual value of cars. However, the market is likely to recover from the impact of the pandemic in 2021, driven by the pent-up demand coming from corporates to renew their fleets and new business coming from business to consumer (B2C) customers for leasing, especially in Europe.
Given this demand, the vehicle leasing market will likely register impressive growth, reaching $173.35 billion in revenue in 2021, up from $168.20 billion in 2020, at a 3.1% compound annual growth rate.
Although the COVID-19 pandemic slowed unit sales between 2020 and 2021, with vaccines being distributed globally, the industry is recovering gradually and is forecast to cross pre-pandemic levels by 2022.
From a regional perspective, the European leasing industry is estimated to register 17.5% and 13.5% for business to business (B2B) and B2C leasing, respectively, in 2021. However, electric vehicle (EV) leasing in the region is expected to double in sales volume, with a growth rate of 59.7%, which is significantly higher than any other region.
Similarly, the market in Brazil, Russia, India, China, and South Africa (BRICS), the Middle East, and Asia-Pacific (APAC) will witness double-digit growth across B2B and B2C, the research firm said.
Abishek Narayanan, Mobility Research Manager, Frost & Sullivan, said the current shortcoming in leasing offerings, such as the need for flexibility and premium offerings, will create demand for short-term subscription solutions. Additionally, as per the current market dynamics and customer preferences, existing subscription offerings are expected to drive market growth. Therefore, subscriptions are expected to deliver structured market offerings over the next three years, and new participants will emerge.
'Increasing environmental concerns and rising fuel costs have created a need for emission-free vehicles, pushing EV demand in the leasing space. However, leasing companies have struggled with structuring their business models, so growth has been slow. As the market recovers, new revenue streams, such as charging pods and charging cards, are expected to emerge,' he added.
Trends such as EV leasing, digital retailing and fleet connectivity will unlock new revenue streams for the industry. Therefore, the research firm suggested that the market participants consider several options, including providing alternative mobility solutions for flexibility and affordability; vendors should focus on flexibility in duration, vehicle selection, and swapping.
Increase digital sales channels to kick-start emerging mobility solutions; lease companies should capitalise on digital sales channels to attract millennial and tech-savvy customer segments.
The report also suggested leasing EVs and providing support solutions; leasing providers can expand their portfolio and create new revenue streams by providing support services such as charging stations, payment cards for charging, and EV powertrains.