Every fifth or sixth new car in Europe is electric. Are all leasing markets following this trend?
Absolutely, leasing companies everywhere are seeing huge demand for electric vehicles (EVs). That’s good for the planet, but a huge challenge for this area of the asset-backed finance industry. The switch from the combustion engine to the electric motor will totally change the way vehicle leasing companies do business. In the fossil fuel-driven days, they made money from monthly leasing rates and the dependable resale value of the car at the end of the contract. But EVs are in their infancy and technology is advancing quickly, which means used EV prices are difficult to gauge. That upends the traditional profit formula for car leasing, in the UK and Ireland as much as in continental Europe.
Can leasing companies no longer rely on the remarketing of vehicles at the end of contracts?
Not in the way they did in the petrol and diesel era. Lower or just unreliable EV resale values are increasing their refinancing risks and putting their business models under pressure. Rather than selling an EV at the end of its contract, a lessor will only be able to maintain profitability by leasing the car to a second customer – and after that by selling on the EV’s battery unit for use in electricity storage. A leasing asset will in future typically have not one but three life cycles which have to be managed by the leasing company: first, as a company leasing contract for a company car while the battery is new and its range is good; second, as a consumer leasing contract for a runaround for private shorter-distance use as the battery starts to show its age; third to sell or lease the battery only, as part of a battery farm that stores electricity.
zeb is bringing its leasing expertise from German-speaking Europe to the UK and Ireland. Why?
Because both countries are important leasing markets with sophisticated financial centers that are big in asset-backed finance – and because zeb has a very successful leasing consultancy in Germany, Austria, Switzerland and the Nordics. zeb employs over 500 management consultants and 260 IT developers and IT consultants that advise a wide range of financial services players in these regions – banks, insurance companies, asset managers. We started in leasing by advising financial institutions that came to the business via sales finance, and we soon expanded to vehicle manufacturers and their “captive” leasing subsidiaries. We now have a slew of clients in this vibrant niche – financial services providers, leasing brokers, online platforms, leasing companies, both captive and “independent”. Many of them have big operations in the UK and Ireland.
What consulting services will zeb be offering companies in the UK and Irish leasing markets?
As a large financial services consultancy, zeb can advise companies in the leasing business on issues across their entire value chain – strategy, product portfolios, sales optimization, operations and IT, accounting, controlling, and risk, regulation and compliance management. This is essential, because the switch from fossil fuels to electricity is changing every aspect of leasing. Changes to remarketing demand strategic changes that will, for example, confront companies with an entirely new group of customers, the “runaround users” that define the EV’s second life cycle. It’s a domino effect that creates issues in every part of a leasing operation. And zeb can wade in everywhere.
Can you tell us more about how you work? Do different companies have different problems?
Yes, for sure, but it’s more useful to think of their different strengths. Captives benefit from the fact that they get more information more quickly about the vehicles in their portfolio from the manufacturer parent company – about pricing, technical specifications, customer groups. But manufacturer-independent players have an advantage in being able to offer different brands, making them more customer-centric. There will still be room for different types of players in the new EV leasing market. But companies will have their work cut out in the transition. After strategic changes, they will have to adapt operations and IT and the way the finance department manages risks. zeb can help captives and leasing companies tackle these challenges in an integrated way.