SALARY sacrifice schemes were up 68% year-on-year (YOY) in quarter three 2023, according to the latest BVRLA Leasing Outlook report, reaching 61,937 cars.
The industry body is forecasting further rapid growth this year from cash allowance drivers switching to salary sacrifice when their current finance contracts end.
Some OEMs are even reported to be working with leasing companies on how to position their cars attractively within salary sacrifice schemes, according to the BVRLA.
However, the percentage growth this year may not be as significant as previously, Paul Parkinson, chair of Synergy Car Leasing suggested.
His view is based on the fact that salary sacrifice started from a very low base.
Salary sacrifice volumes will probably increase this year but the percentage (growth) has to come down as the absolute number increases.
Even so, he believes there is an opportunity for salary sacrifice schemes to gather pace if accountancy firms recommend the funding method to clients who have limited companies.
There is a question mark over whether salary sacrifice schemes will come under FCA scrutiny, following the introduction of Consumer Duty regulations, which have been a key challenge for brokers.
Some unregulated businesses, such as salary sacrifice providers, are adopting Consumer Duty regulations on a voluntary basis, as both good practice and a precaution that the FCA might extend the remit of the new rules, according to the BVRLA.
BVRLA leasing fleet reaches six-year high
The popularity of salary sacrifice schemes and business contract hire, helped by low benefit-in-kind rates for electric vehicles (EVs) and the easing of vehicle supply issues, saw the BVRLA leasing car fleet increase by 1.8% YOY, while vans increased by 3.3%.
Combined that led to a 2.2% YOY growth, pushing the BVRLA leasing fleet to a six-year high of more than 1.9 million cars and vans.
Stability and certainty breed growth, and the leasing sector is reaping these benefits when it comes to vehicle supply and Benefit in Kind tax.
As ever, a more detailed analysis shows that some motor finance products are doing better than others, while new supply chain challenges continue to appear. The BVRLA will continue to work with policymakers and colleagues from across the automotive industry to try and deliver positive market momentum across all segments.
EVs accounted for 42% of new additions to the leasing fleet in Q3 2023, helping to bring the average emissions per vehicle on fleet to a new low of 83.2 g/km.
However, the BVRLA said there is a “chasm in the CO2 output between new business contract hire cars of just 53.3g/km, and the 116.3g/km of new personal contract hire cars”.
PCH was down 8.6% YOY due to high interest rates and high vehicle costs amid the cost of living crisis, with drivers contending with increases of several hundred pounds per month in rentals for a like-for-like replacement
Despite the financial difficulties, private buyers will choose electric cars if the price is right, the BVRLA said.
This point is underlined by used car data, which indicates that secondhand electric vehicles find buyers once their prices fall close to parity with used petrol and diesel equivalents.
Aside from getting the right price point, the challenge for brokers is that sourcing smaller, cheaper new cars that private drivers want may become more difficult due to the ZEV mandate, with manufacturers potentially pushing the supply of larger, more expensive electric cars.
The ZEV mandate requires 10% of new van sales to be zero emission this year and leasing companies are already facing pressures to include at least one electric LCV in every 10 van orders, according to the BVRLA.
SMR challenges lead to more maintenance deals
The other ongoing challenge is the perfect storm of parts delays and a technician shortage, combining to increase downtime for service, maintenance, and repair (SMR) work.
A shortage of fully trained EV technicians was also adding to the headache as EV take up increased across fleets.
The BVRLA suggests that this may be leading to more customers looking for maintenance-inclusive contracts. That’s certainly the case in the LCV sector where fleet management is booming, up 26% year-on-year.
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Sarah Tooze has been an automotive journalist for more than 15 years, specialising in the fleet and transport sectors. She has held senior positions at industry-leading B2B titles Fleet News and Smart Transport, and led campaigns championing motorists as consumer editor for online used car marketplace Heycar and motoring advice website HonestJohn.co.uk. In 2017 she won the Newspress Automotive Business Journalist award.
