Klaus Strenge, partner at zeb, is one of the leasing experts in Germany. In this interview, he explains how leasing is accelerating the transport turnaround.
How is the leasing industry doing after a good year of Corona and a decline in gross national product of around 5 percent in Germany?
Leasing as a whole has come through the pandemic well so far. The first sectors relevant to leasing are back at full capacity. There are no bottlenecks in terms of liquidity, customers or employees. In vehicle production, there are bottlenecks in some areas for chips and steel. The boom in demand was underestimated and insufficient orders were placed.
But it's not all light: shortfalls may still occur because they have been postponed by the suspension of the insolvency obligation. And what we are also noticing: The cost pressure is getting higher. In the good years, the focus was not so much on the cost side. Individual software solutions, for example, are a major obstacle to further developments. And new providers are entering the market and trying to gain market share with new revenue models - for example, through pay-per-use offerings, i.e., payment only according to use. However, many of the startups tend to aim at cooperations or are taken over by established providers.
Leasing objects usually have relatively short terms. How does that fit in with the topic of "sustainability"? Aren't "sustainability and leasing" a contradiction in terms?
On the contrary. Take the e-car, for example: interest costs are currently low, handling costs are well known, and the engine and body wear out comparatively little. The loss of value takes place via the battery. And here the exciting question is: How much do they wear out, what is their residual value after three years, and what new generations of batteries will come onto the market in the next few years? These uncertainties mean that e-cars are more likely to be leased than internal combustion vehicles. E-mobility and leasing in particular are closely related.
The brand-dependent leasing companies, the so-called captives such as Volkswagen Financial Services, have the know-how for such calculations and offer corresponding leasing programs. They are also in a position to fit the cars with new batteries if necessary and to sell them even after the leasing contract has expired. Those who have already mastered this chain can offer attractive conditions on the market and thus accelerate the transition to more e-mobility.
So ultimately, does ESG provide a tailwind for leasing?
Above all, new tasks: How should fleet assets be evaluated from an ESG perspective? Or to put it briefly: How green does the proportion of green have to be? In other words, how should new cars that meet Euro 6 emissions standards be valued, like hybrid vehicles? What does this mean for risk management and how should leasing contracts be structured? These are the issues we are currently dealing with intensively.
In addition, there is the issue of a lack of customer centricity. This sounds trivial, but it is not in an industry that has so far focused very strongly on the product and whose organization is structured accordingly. In addition, the customer in the leasing sector is often a company. In addition, the vehicle is still traditionally purchased through an authorized dealer. As a rule, the manufacturer does not know who actually drives the car. This means that the customer cannot be offered anything else - for example, a used car for a child who is about to get his driver's license, or a rented combustion engine for a vacation trip instead of an e-car as a company car. All "digital" upgrade offers are generally tailored to the vehicle, but traditional providers are still struggling with the alignment to customer-oriented mobility needs.
Currently, over 220 billion euros worth of assets are leased in Germany. In addition to passenger cars and commercial vehicles, the main items leased are machinery, IT equipment, software and other equipment. Vehicle leasing (passenger cars and commercial vehicles) accounts for around 80 percent of new leasing business, up nine percent in 2019. (Figures for 2020 are not yet available).
Soon every second new passenger car registration in Germany will be a leased vehicle. For customers, the leasing and financing products offered by the manufacturer's own financial services providers are often an integral part of the car-buying process. With a market share of over two-thirds, the Group's own automotive banks and leasing companies are the most important sales promoters for car manufacturers.
For car producers, they are not only a significant sales channel, but also important for the profitability of manufacturers and dealers. According to calculations, the value contribution generated by leasing, financing, insurance and other car-related financial services in the automotive value chain is generally over 30 percent. The captive automotive banks and leasing companies have grown into an economically relevant banking group. The largest of the automotive banks is among the top 15 banks in Germany and is directly supervised by the European Central Bank.