Cost of finance tops the list of challenges leasing brokers are facing in 2024, but brokers are also worried about OEM pricing strategies and the regulatory burden. Sarah Tooze analyses the broker responses to questions in the BVRLA Industry Outlook report.
Top 10 business challenges in 2024
- Cost of finance
- Low business and consumer confidence
- Vehicle supply
- Rising costs and energy price
- Regulatory burden
- Staff retention and support
- Maintaining cash flow
- Access to affordable insurance
- Other
- Supporting vulnerable customers
* Respondents could choose three challenges
DESPITE the overall outlook for 2024 being positive, there are significant challenges ahead, with the cost of finance the chief concern for 57% of leasing brokers, according to the latest BVRLA Industry Outlook Report.
Low business and consumer confidence, vehicle supply, and rising costs and energy prices were all equally troubling, with 48% of broker respondents choosing them as a big challenge.
Although BVRLA leasing broker members are not concerned about access to finance and they expect the cost of finance to remain the same in 2024, the challenge is how much the Bank of England interest rate has risen. In February 2022, it was just 0.5% and it has now stabilised at 5.25%. That makes a significant difference to a monthly deal for both customers and brokers, particularly when coupled with increases in list prices and reduced discounts from car manufacturers.
Pressure on discounts
More than half of BVRLA survey respondents think the agency model will put discounts under pressure.
The challenges that we face at the moment are, in my opinion, primarily OEM. The manufacturers are trying to generate the maximum amount they can, they're trying to control the relationships, they're trying to limit the discounts. And at some point in 2024 the bubble is going to burst.
Ashley Barnett, head of fleet consultancy at broker funder Lex Autolease, who was part of the Leasing lowdown panel at the BVRLA Industry Outlook Conference, said that over the last couple of years the industry has seen how much “power” OEMS have, with decisions made “at the drop of a hat”.
We saw prices go up and discounts get removed because demand exceeded supply. Now we’re in a position where that role is almost reversed.
There is evidence that manufacturers have stock on the ground. Mercedes-Benz, for one, has been heavily pre-registering cars over the past few months.
The reaction of retail customers who have already made significant outlays for a new premium vehicle, only to now find the same model available pre-registered and considerably cheaper, is a worry for brokers.
Paul suggested that brokers are in a “fragile position”. Although all of the indicators from the BVRLA Industry Outlook report are positive, a lot of those indicators are “fairly volatile”, he said.
Regulatory burden
Brokers are also grappling with the Financial Conduct Authority’s (FCA’s) new Consumer Duty regulations. The rules came into effect July 2023 for new and existing products or services that are open to sale or renewal, and from 31 July 2024 they will apply to closed products and services.
The FCA has indicated that it may look to focus on online activity next year and assess whether the same rigour is applied to online customers.
More than half (56%) of BVRLA members believe the compliance burden on the industry is too great, and the change in contracts, processes and mindset as a result of Consumer Duty is particularly taxing for smaller leasing brokers.
“The regulatory burden for small business is ludicrous,” one director told the BVRLA, while another called for leasing companies to work together to establish standard terms in a uniform format, so brokers only have to fill in one set of forms.
Even larger companies would prefer one set of internal processes, prompting discussions that some might walk away from their smaller retail operations to avoid the inefficiency of one process for unregulated fleet clients and another for regulated retail customers.
Shashi Maharaj, director of legal and membership director at the BVRLA, advised brokers not to see Consumer Duty as a “compliance exercise”. Instead, it should be embedded in “your strategy, your governance, your leadership, and also in your people policies”.
Brokers who are struggling can “take comfort from the fact that the FCA and other regulators have talked about the principle of proportionality”, Shashi said.
“They don’t expect you to do everything at once,” he added.
“The acid test for me is your customers and your customer outcomes. The happier your customers are, the more satisfied your customers are, the less complaints there will be, the better your business will be.”
Industry resilience
Despite the challenges ahead, industry executives feel able to navigate them.
Ashley said that the industry has become accustomed to change on a “daily basis” and quipped that “12 months of no change would surprise us”.
The industry as a whole has dealt with so many challenges over recent years and it’s made us more resilient. Whatever the challenge is, we feel there will be a way around it.
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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.
