THE pandemic should have derailed leasing brokers and scuppered consumer demand. To be fair, for many brokers the prospects at the end of Q1 and start Q2 2020 looked extremely unpromising: staff put on furlough, huge drops in demand; WLTP delivery mess to sort out – yet through it all the enormous adaptability of brokers, their entrepreneurial spirit and fast-moving digital capabilities, plus funder support, meant that for some 2020 was a record year; for most, it was far better than could have been hoped given the circumstances.
And the latest BVRLA bi-annual survey of the leasing broker market bears this out.
The broker element of the total BVRLA fleet of 2,505,979 vehicles is now 15% with cars taking 13.4% (270,902 units) and vans taking 24%, representing 100,027 units.
It shows remarkable resilience on the part of brokers, but also a growing influence over the total leasing sector. Will we be on for a repeat performance in 2021?
We asked members of the BVRLA Leasing Broker Committee along with those Broker News funder partners for their opinions on how to interpret the figures.
Broker growth in 2021 – more than 15%?
Opinion was broadly the same, with all those who responded saying they thought that we would be seeing at least the same again in 2021.
Alphabet (GB)’s Richard Chadwick, head of Alphabet Partner, reckons that “Brokers have continually grown faster than the wider market, so I expect this to continue,” a view similar to Martin Brown (Fleet Alliance).
Meanwhile, Leasing Option’s Mike Thompson was more bullish:
“At least the same if not starting with a 2 – I’d hope to be 20% in 2021,” he said. Nevertheless, Wessex Fleet’s Spencer Blake added a slight caveat:
“I think the number will be relatively similar, maybe a slight uptick. We are seeing traditional fleet orders return and no doubt that is being mirrored in the corporate departments of the leasecos, hence my view that the broker percentage will stay relatively stable.”
Can broker sales surpass 2019’s record?
New car contracts were down on 2019’s record year – given the pandemic, that’s little surprise with some three months lost to lockdown, WLTP issues and non-delivery of orders from dealers under lockdown. But in a recovering economy, can broker sales reach or surpass 2019’s 86,000 mark? Brown believes that it’s only going one way; and that’s up.
“I see continued growth in the PCH market in the broker segment, with some of this coming in the form of substitution as brokers eat into dealer PCP/ HP sales. I also see significant opportunities for the fleet focused brokers who will benefit from growth in BCH sales as the low BIK around EVs starts to kick in.”
Nevertheless, there remains concern over supply, with some brokers seeing delivery times pushed out to 2022. Chadwick summed it up best: “The demand is there, but maybe not the metal.”
Of course, one of the reasons behind the brilliant broker performance in 2020 was the broker digital delivery channel. With the closure of dealerships and lockdown, there was only one place for consumers to go for research – and that was the internet, where brokers have been plying their trade successfully for years.
Still, dealers did start to adapt to this with a clicks and bricks strategy. Thompson says that brokers should be wary of dealers aggressively progressing online sales channels. He says that if they start to compete then there will be some broker sales attrition in this channel.
BCH remains in decline
The BVRLA’s report wasn’t a total glory bath for brokers, however. Business contract hire (BCH) continues to be the lame duck, the Cinderella – if you like – to the princess that is PCH. The figures tell a story of BCH sales just half that of PCH, while new contracts are hard to find: in 2013 BCH accounted for 60% of all broker activity; within seven years that has nearly halved to 32%.
Blake suggests that while tax incentives continue within a framework of certainty then there will be a recovery in non-regulated contracts. “I think this, combined with a general economic bounce, will see a reversal in the BCH numbers but not at the expense of PCH which will continue to grow,” he says.
Chadwick believes that BCH is already making a comeback but set against growing PCH numbers its share of the market may well decline.
Brown adds: “BCH will be one to watch in the coming years as low BIK rates for EVs will encourage growth of the company car. It’s also worth remembering that the growth of salary sacrifice will also boost the BCH up-take.”
The view from Leasing Options is that an an arrest to BCH’s decline is certain thanks to the BIK enhancements, however, Thompson adds: “PCH is a juggernaut and will continue to grow, taking away from other products in the personal purchase realm such as HP, PCP and cash.”
Maintenance contracts also in decline
“Many customers are estimating much lower annual mileage than before the pandemic,” he says, “so they see less value in the product. It’s also quite possible that many believe they have overpaid on their previous lease since they were way under the contracted mileage.”
Martin Brown from Fleet Alliance puts it down to the faster growth of PCH which has less demand for this product, while Thompson says pricing has been a factor: “Large fleets always took advantage of the simplicity of the maintained contract. But on personal agreements some of the pricing has been less than attractive. As the average contract mileage lowers it’s not seen as valuable to the end user.”
Rise of the PCH van market
PCH can’t stay out of the analysis, can it? While the van market has traditionally been a BCH or a finance lease product, PCH van leasing has been tracking upwards.
While BCH continues to be the dominant method of financing LCVs – in fact it grew in 2020 according to the report pulled together by Phil Garthside, the BVRLA’s research and insight manager – PCH demand also rose. Why was this we wanted to know?
Richard Chadwick takes a pragmatic view: “It’s often harder for a broker to get a small business accepted than on a PCH agreement. I suspect that often the customer and broker decide that an auto accept on PCH is easier than coming up with paperwork.”
Blake suggests that it’s as much to do with new sole traders coming into the market without the requisite trading history to get accepted for a BCH agreement – something echoed by Thompson who suggested the rise in the gig economy was a significant driver behind the PCH growth.
Broker market prospects for 2021
The mood appears to be highly positive as we progress through Q2, although the issue of chip shortages – affecting supply – was identified as the only effective brake on demand.
Thompson said the market felt buoyant, while Brown said the market felt strong and stable, adding: “The only challenge we are beginning to see is the supply issues from the global semiconductor issues. The next few months will see what impact that actually has.”
Blake suggests it would be the biggest challenge with stock becoming increasingly vital. He goes on to say: “Providing the UK is able to continue to follow the steps out of lockdown then 2021 should be a strong year for brokers. They should be able to benefit from new customers who are confident to purchase online, whilst seeing the traditional fleet business return.”
It suggests that brokers could see a bumper year being frustrated by lack of vehicles. “Demand will exceed supply,” reckons Chadwick. Which suggests that those brokers that can get the right levels of stock will prosper; and customer expectation management will become a crucial element in the broker skill toolset during 2021.
Ralph Morton is the leading journalist in the leasing broker sector and editor of Broker News, the website which provides information and news for BVRLA-registered leasing brokers. He also writes extensively on the fleet and leasing market in both the UK and Europe.